If you’ve glanced at technology-news headlines lately, chances are you’re not feeling terribly optimistic. As in most market downturns, there is considerable noise: market uncertainty, news about layoffs and down rounds, and — perhaps most critically for B2B tech companies — skepticism that big corporate buyers will continue spending on new technology from smaller, private tech startups. Without that spending, of course, revenue growth at many startups will shrivel.
To break through the noise, we’re excited to unveil the results from our Q1 2023 Cloud Software Spending Survey, much of which will come as good news for startups. This report is a follow-on to our September 2022 report, which queried 100 chief technology officers, chief information officers and other tech buyers across industries ranging from financial services to healthcare to manufacturing. Collectively, the survey respondents represent $30 billion in annual technology spend.
We were eager to hear from survey respondents about their outlook amid today’s ongoing macroeconomic malaise, how they’re overseeing budgets and hiring and more. We explore a few new areas in this survey, including how enterprise tech buyers are approaching generative AI applications (hint: they’re less interested than investors are at the moment) and innovation efforts within their organizations.
One of our key takeaways – which should come as good news to growing startups – is that enterprise-technology budgets remain relatively inelastic: 46 percent of survey respondents expect to increase their total 2023 technology budgets, despite continued macroeconomic headwinds. With that said, we saw a 16 percentage-point increase in the number of respondents who plan to reduce 2023 budgets, compared to our last survey. Among those who plan to reduce budget, most will focus on vendor consolidation and optimizing SaaS licensing.
In order to condense findings and simplify across industry and focus areas, we created the Battery Ventures Enterprise Tech Spend Sentiment Index. The Index codifies the sentiment of enterprise tech buyers to provide a holistic perspective of how Tech Spending is shifting, producing a baseline metric that we can track in coming years. We saw a 5.2-point decrease from September’s Index score of 55.4, a modest drop that can be attributed to cooling technology markets and increased budget oversight.
To be clear, we are indeed seeing conservatism and shifting priorities from tech buyers, but certainly not the doom and gloom that buzzy headlines might suggest. While there is a slowdown—one that will impact certain sectors, trends and companies — we are not seeing a wholesale downturn in enterprise-technology spending.
So, amid all the noise, how are these sought-after tech buyers thinking about their tech stacks today and how receptive are they to experimenting with new startup technology tools?
We’ve embedded the full report below, along with some topline analysis from our team. We plan to post more deep dives into the report in the coming weeks on the Battery blog and on our Condensing the Cloud Substack channel, so stay tuned and subscribe.
Enterprise Technology Market Overview
Enterprise technology continues to experience rapid growth, driven by the ongoing digital transformation across industries and accelerated by the global pandemic, which forced many companies to adopt digital technologies at an expedited rate. Many industry analysts foresee this trend continuing in the coming years, which will likely result in a step-change increase in enterprise-technology spending.
Cloud infrastructure is one of the fastest-growing areas in enterprise tech, as businesses increasingly rely on cloud-based services to store and process their data, a topic we explored in Battery’s 2022 State of the OpenCloud report. The major cloud providers — Amazon Web Services, Microsoft Azure and Google Cloud — continue to invest heavily in expanding their capabilities and smaller players are emerging as well.
Data warehousing, or efficient data storage and management solutions, is another area of enterprise tech that is seeing robust growth as the amount of data generated by businesses grows exponentially. Providers such as Snowflake, Amazon Redshift, Databricks* and Google BigQuery continue to see rapid growth.
Early Signals for Generative AI in the Enterprise
Generative AI is one of the buzziest topics in the tech world, as technologies like ChatGPT hold tremendous, transformative potential. From the perspective of enterprise tech buyers, however, it may be just that – potential.
As demonstrated above, our survey results show that only 32 percent of companies are looking at exploring generative AI applications, primarily for internal productivity, workflows, knowledge transfer and cost reductions – not the glittery, futuristic applications one might have predicted. Of course, we are still early in the evolution of generative AI which will be an exciting trend to follow over the coming decade.
The Path Ahead for Bottoms-Up Adoption
Software startups and SaaS companies have readily embraced product-led growth (PLG) and bottoms-up adoption as part of their go-to-market strategies in recent years. However, as enterprise-tech buyers become more closely focused on their bottom lines, they are tightening restrictions on self-procurement.
Landscape for Enterprise-Tech Headcount and Hiring
We also dove into headcount planning and hiring focuses among our survey respondents. Layoffs have been an unfortunate reality of the industry in recent weeks – but in taking a macro perspective, this reveals a resizing, not a cliff. Many large technology companies that have downsized in recent weeks saw massive employment growth in the past three years, representing a net expansion in staff.
Additionally, there is an influx of highly-skilled technical talent on the market right now. Many enterprises see this as an opportunity to secure quality talent for much-needed roles that have been underserved in recent years, offering potential new hires the attractive stability of an established company.
We’ll be writing some more in-depth content on these findings in the coming weeks on the Battery blog and on the Condensing the Cloud Substack – stay tuned.
* Denotes a past or current Battery company. For a full list of all Battery investments, please click here
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