Inflation rates are finally trending downwards — at least for U.S. consumer prices. The worst of software inflation, though, may be yet to come.

2023 has been the year of software price hikes. Microsoft, Google, Salesforce, and Zendesk, have all implemented price increases so far this year.

Shrinking workforces, higher inflation-driven costs, investments into AI, a strong US dollar, and a more challenging fundraising landscape have combined to make software price hikes the new norm. It’s a trend that started with the software companies at the top.

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A perfect software pricing storm

The software at the top of the budget pecking order has, over the past few years, captured a decreasing share of wallet. The top 10 software vendors in 2021 accounted for 29% of software spend. In 2022, they captured only 27%. While top software companies can’t control the economy, they can control their prices. This led to our prediction earlier this year that top companies would raise their prices to make up for a decreasing share of wallet, and 2023 would be the year of the price hike.

That hunch came true. Half of the software vendors with the top share of wallet raised their prices in 2023, despite positive signals in the broader economy.

Google started the trend by hiking Google Workspace’s price by 20% in February. It also added an annual plan “to lock in the lowest prices” and deter churn — priced, for now, at the pre-price-hike rate to dampen the blow. Google Cloud storage prices also went up an average of 44% in April.

Microsoft, after a late-2021 Office 365 price increase, added global currency-based price adjustments this year. That addition translates into a 9% price hike in the United Kingdom and an 11% hike in the EU. That, along with a new $30/month Copilot AI add-on for Office 365, rather than AI being bundled with existing plans, could represent a large increase in average spend.

Salesforce is raising core prices by 9% in August. Zendesk pricing went up 12 to 20% in July and Enterprise plans now require a sales call. Snowflake switched to US Dollar-only billing in November 2022, resulting in a net price increase for most global companies amid a strong US Dollar environment.

Other public SaaS vendors, including Zoom, Shopify, Atlassian, and Monday.com also raised prices. Where Gartner predicted software budgets would increase 11.3% in 2023, and TechCrunch recently reported that IT spend has continued to grow at a steady 4%, the price hikes mean that any budget increase will go to pay for already-deployed software.

Costs are driving price hikes

Software price hikes are driven in part by inflatio