Why More Companies Are Rethinking Technology Investments

As businesses face mounting pressure to innovate while controlling costs, the traditional approach of owning technology outright is increasingly giving way to a "usage" mindset. Instead of purchasing and owning technology assets like servers, software, and hardware, more companies – large and small – are opting for models where they pay based on usage. In fact, recent research indicates that four in 10 companies have a technology hardware pay-per-use agreement of some sort in 2024. This is up from one in 10 just four years ago.

As this shift reshapes the landscape of technology investments, a conversation with a technology financing specialist can help companies determine the right balance between usage and ownership.

The Rise of Usage-Based Models

The trend toward usage-based models, often seen in the rise of software-as-a-service (SaaS), infrastructure-as-a-service (IaaS), and other as-a-service models, is growing rapidly. According to a report from Gartner, by 2026 more than 75% of organizations will use cloud-based technologies to support IT and digital transformation. These models allow companies to pay only for what they need, when they need it, offering flexibility in both capacity and cost.

In a world where the pace of technology innovation continues to accelerate with no signs of slowing down, locking into ownership of tech assets can create risks. Equipment and software can quickly become outdated, and managing upgrades, maintenance, and obsolescence can drain resources. The "usage" approach allows companies to adapt more fluidly to change, scale operations based on demand, and preserve cash flow.

Why the Shift Is Happening
 

1. Cost control and flexibility: For many businesses, the upfront cost of purchasing technology outright can be prohibitive. The usage-based model, on the other hand, turns these hefty capital expenditures into manageable operating expenses. Instead of investing large sums in technology that may become obsolete, businesses can pay for technology on an as-needed basis, allowing for flexibility in both cost and capacity.
2. Scalability: Businesses can benefit immensely from pay-for-usage models. For instance, a company that experiences seasonal fluctuations in demand may only need high server capacity for a few months of the year. Rather than purchasing servers that will sit idle most of the time, the company can scale up or down depending on real-time needs, paying only for usage during peak times.
3. Innovation and adaptability: Technology changes fast, and businesses that invest heavily in owning assets may find themselves tied to outdated systems. The usage-based model allows them to pivot more easily to new technologies, ensuring they are always operating with the most current solutions. This is especially valuable for industries undergoing rapid digital transformation, like retail, finance, and healthcare.
4. Focus on core competencies: By outsourcing technology needs through pay-to-use models, companies can focus on what they do best. Instead of dedicating time and resources to maintaining complex IT infrastructure, they can leverage external providers to manage their technology, leaving them to focus on their core business activities.

The Role of a Technology Financing Specialist

While the usage-based model offers many advantages, there are still cases where ownership may be the better approach, especially for critical or highly customized technology that forms the backbone of a company’s operations.

This is where a technology financing specialist can provide invaluable insight. These specialists understand the complexities of modern technology investments and can help companies strike the right balance between usage and ownership. By engaging in a conversation with a specialty finance company, businesses can:

• Better evaluate their technology needs: A finance provider specializing in technology can work with companies to assess which technology assets should be owned and which would be better suited for a usage model. For example, a company might benefit from owning custom-built equipment but rely on usage-based software for non-core functions.
• Custom-build financing solutions: Specialty finance companies can provide flexible financing solutions that align with a company’s specific needs, whether that’s financing for ownership of critical assets or more tailored financing agreements for usage-based investments.
• Minimize financial risks: Owning technology assets can come with financial risks, such as depreciation or obsolescence. Specialists can help mitigate these risks by structuring financing that allows businesses to upgrade or replace assets more easily over time.

The Future of Technology Investments

As companies continue to navigate an increasingly complex and fast-paced business environment, the trend toward a usage mindset for technology investments will likely continue. According to a 2023 survey by IDC, more than 60% of enterprises are now actively looking for ways to shift from capital expenditures to operating expenditures in their technology budgets. This trend underscores the importance of flexibility and scalability in today’s competitive landscape.

But the shift to a usage-based model isn’t one-size-fits-all. A strategic approach that blends ownership with usage can offer the best of both worlds, ensuring companies maintain control over critical assets while taking advantage of the flexibility and cost-efficiency that usage models provide.

Take the Next Step

If your company is rethinking its approach to technology investments, the technology finance specialists at LEAF can help you assess where ownership makes sense and where usage models can offer the flexibility you need.