Large companies in the US and UK are feeling the squeeze from software vendors who push mandatory upgrades and licensing changes. A new survey from Origina, a software support firm, reveals that these "must-do" moves now eat up 28% of the average software budget—money that many IT leaders say they would rather spend elsewhere.
What the survey found
Origina polled more than 2,000 companies and found that nearly a third of their software spending goes toward upgrades and licensing shifts they didn't choose. These are changes dictated by vendors, often as part of support agreements or to maintain security compliance. For many firms, this leaves less room for new projects, innovation, or simply keeping other systems running.
The findings highlight a growing frustration among businesses that feel locked into vendors' roadmaps. When a software maker decides to end support for an older version or forces a move to a subscription model, customers often have little choice but to follow—or risk security vulnerabilities and lost functionality.
Why this matters for investors
For everyday investors, this trend is a double-edged sword. On one hand, it's good news for software companies: predictable, recurring revenue from forced upgrades and licensing changes can boost their earnings and stock prices. That's a key reason why many tech firms have shifted to subscription models in recent years.
On the other hand, it's a cost pressure for the companies that buy software. If a business is spending more on IT than planned, that can eat into profit margins and reduce the cash available for dividends or share buybacks. For investors in sectors like manufacturing, retail, or finance, higher software costs could weigh on earnings.
This dynamic is especially relevant given the broader push toward AI and digital transformation. As companies race to adopt new technologies, they may find themselves paying more for basic software upkeep—money that could have gone toward AI initiatives or other growth areas. In fact, some firms are already seeing AI-related costs rise, as seen in BayCurrent's AI-driven growth targets.
Regulatory and market backdrop
Regulators are starting to take notice. In the UK, for example, the competition watchdog has moved to rein in Microsoft's dominance in business software, a sign that vendor lock-in is becoming a policy issue. UK regulators are scrutinizing Microsoft's practices, which could eventually lead to more flexibility for customers.
Meanwhile, the broader tech market remains volatile. While some companies thrive on AI-driven demand, others struggle with rising costs. The recent oil surge offsetting an AI-driven tech slump shows how mixed the picture is. For software vendors, the ability to push through price increases and licensing changes is a key driver of their financial performance.
What to watch next
Investors should keep an eye on how companies respond to this squeeze. Some may push back, negotiating better terms or seeking alternative vendors. Others may pass the costs on to their own customers, which could fuel inflation in the broader economy.
Also watch for any regulatory actions that could change the balance of power between vendors and their clients. If regulators force more transparency or flexibility, it could hurt software companies' margins—but it could also free up cash for businesses that buy software, potentially boosting their profitability.
For now, the message from the Origina survey is clear: software is becoming a bigger line item for many firms, and not by choice. That's a trend worth monitoring, whether you own tech stocks or shares in companies that rely heavily on software.
