When large enterprises buy expensive packaged software, traditional wisdom states that the sales engagement will be lengthy, the prices will be high and the support contracts will be endless. But with at least five years of the software-as-a-service revolution behind us, will the future hold a different way of doing business for software companies and their enterprise customers?
John Rymer, vice president and principal analyst at Forrester Research, doesn’t think that enterprises find the services model as appealing as the traditional licensing models.
“I’ve been talking with clients about platform-as-a-service (generally) and Salesforce’s Force.com (specifically) now for more than a year. I’ve found a great deal of concern among clients about Salesforce’s pricing model,” said Rymer.
“The concern: Prices and costs will only move in one direction—up. Why? The client is a renter and has almost no control over the computing environment. Clients who own their environments can take various steps to reduce costs, including adopting new technologies (virtualization, caching, 64-bit systems), substituting cheaper equivalents for the products they run on (open source, primarily), and outsourcing.”
For development tools, that’s another nail in the coffin of the platform-as-a-service model. Developers have been trained for years to avoid vendor lock-in, and using a subscription-based remotely hosted platform for development is about as proprietary a form of lock-in as there can be.
But Rymer does see opportunities for software sales to break out of traditionally troubling routines. Specifically, he said that enterprises are growing weary of never-ending support contracts.
“The beef I usually hear from clients about Oracle, IBM, etc. is that enterprise pricing is about high renewal and maintenance costs,” he said.
Rymer went on to say that enterprise developers can feel trapped by a vendor’s support contracts. Even when their platforms and tools are working without any problems, enterprises still need to renew their support contracts every year. That wouldn’t be so bad if vendors kept the same price for supporting older software.
The more mature a software release becomes, the more stable it will typically be. But often, said Rymer, “The vendor raises support/maintenance fees anyway, and/or the vendor forces the customer to upgrade to a newer product version, entailing new costs. Force? Yes, by declaring ‘end of life’ for older versions.”
That means there’s an opportunity for vendors to satisfy an unmet demand for more reasonably priced legacy support fees, particularly when the legacy software being supported has years of experience and stability racked up on both sides of the sales contract.
Things are quite different when it comes to selling software to the U.S. government, said Carl Houghton, vice president of strategic initiatives at Intelligent Software Solutions. ISS sells software packages to the Army, Air Force and numerous government agencies. He said that, when it comes to selling software to the military or government, per-seat licensing is not an option.
And while the government has strict security and compliance requirements when purchasing software, Houghton said that the SaaS model is already picking up steam there.
“There are thousands of government agencies,” he said. “If I can manage that in a central location, the total cost of ownership is going to be driven down. The Army is really invested in cloud as a way of distributing applications rapidly without having servers all over the world.”
Al Hilwa, program director for application development software at IDC, said that simply selling software may not be the way developers do business in the future.
“You could look at software in general as something rather transient,” he said. “In terms of monetization, selling software is about 30 years old, but if you compare it to the two other ways technology is monetized (services and device sales), both of those predate software by hundreds of years. Selling services is an old business, and so is making things.
“In the long run, the monetization may go to hardware and services. Software may have a good run for the next couple of decades, but everyone sees the writing on the walls. Everybody sees that, maybe when we look back a couple hundred years from now, we will say, ‘Technology had to move fast, and the easiest way to sell it was to sell it in intellectual property form.’ ”
