Monday, April 29, 2013

Software for free ?

In the good old days IT organizations developed software; the development initially began with an army of developers working for the EDP/MIS/IT organizations and they did deliver customized solutions for each business unit or function though not always in the time that business wanted these solutions. But back then we did have the luxury of time. As momentum grew, it gave birth to software development and maintenance companies who will do it better, faster, cheaper.

Disruption arrived in the form of packaged Commercial-Off-The-Shelf (COTS) solutions with three letter acronyms (TLA) that took everyone by storm. ERP, CRM, SCM, BPM, ECM, the TLA multiplied creating frenzy amongst companies. Fed up with delays and the slow pace, most embraced the new wave; the investment was justified for speed and standardization. IT transformed itself to adapt to the new paradigm while consultants laughed all the way to the bank.

All software have list prices and ironically no one buys at that price; everyone depending on their leverage and volume negotiated discounts. These varied from the low 10% to in a few cases high 70-80% for global and large deals; more so in cost sensitive markets which could not digest Dollar or Euro pricing. And then the slowdown at the turn of the century and another one not too long ago coupled with a market that was drying up for new licence deals created interesting scenarios.

I have been hearing some interesting news from my CIO friends; it would appear that many solution providers are demonstrating desperation to sell to meet monthly, quarterly and annual targets. The discounts are getting bigger and especially so when any of the calendar milestones are close. CIOs know this and leverage this to their advantage. A vendor signed up an existing customer for an add-on solution at 98% discount just to ensure that a competing product does not make inroads.

In current times it is evident that every buy decision goes through higher rigor and diligence than it did in the good old days. Evaluation cycles are longer and purchase decisions deferred to align with vendor financial calendars. Even vendors play the game fully knowing that the CIO and/or the buying team will close the deal once they believe that the discount level is apt. I am not sure anymore if prices at current levels are artificial to give the mental satisfaction to the customer of getting a great deal.

A friendly CIO talked in hushed tones of a solution he got free ! No licence fee, no implementation cost, only support charges payable after go-live ! This was not a small solution provider, but a leader in the segment in which they operated. I probed further to find why would someone want to do that ? The only insight that I could gather was about creating new market segments and a case study. The project worked well and the CIO was a hero in his company albeit it created challenges for him for future purchases of any solution.

New delivery and service models coupled with cloud based delivery have created new operating principles for everyone. Pay as you use, scale up or down based on load and number of users, dynamic pricing linked to revenue or business benefit, are some examples. How do these impact purchases ? Does it take away the charade of negotiations ? Does this start leading to standard pricing ? So far, I think not, but the future may be different.

Consumers today are willing to pay whatever the marketplace asks as a price; the same individuals in a corporate setting expect a different reality. Maybe it is to do with micro-payments versus large cash outflows. Maybe it is to do with task specific applications on the mobile to general purpose solutions that require large implementation efforts. I think if enterprise application vendors started breaking down their apps in a way similar to consumer apps, the sum of parts would be larger than the whole.

But then we will not need large monolithic applications to run our business and that is something worth thinking about, and most applications would have free versions !


  1. I have been seeing this in the market for the past 12 months and this is a common place strategy. But here's my take. Discounts don't help anyone least of all the CIO. Why? because when there needs to be the next up-grade there will almost certainly be a cost. Also, if the CIO is reporting to the CFO (which is highly likely in most cases), the CFO will expect the CIO to strike a similar deal - and am guessing blue-moons don't happen that often..

  2. Love this sentence. "Consumers today are willing to pay whatever the marketplace asks as a price; the same individuals in a corporate setting expect a different reality." And the follow up insight.... "if enterprise application vendors started breaking down their apps in a way similar to consumer apps, the sum of parts would be larger than the whole..."

    Enterprise apps are getting "broken down". If not by the same vendor, then by new competition. Even the front-runner of SaaS world, is being challenged. OnePageCRM, HighRise as contenders are looking interesting at least to the SMB segment.

    There is another wave rising up at foundational level. GitHub, NodeJS, HTML5, Chrome Dev Tools, open plugins/themes ecosystem for changing the long held fundamentals of long-lifecycle large projects by one silo'd organisation team. Having been on both buyer and seller side of IT - I know that large IT vendors have a lot of catching up to do.

    There is a reason Google and Twitter invest so heavily in open sourcing core technologies. For one, they create a whole generation of crowd-sourced innovation "hackers" which grows exponentially when "managed and invested" with a long term business view.

    I am writing about some of these shifts in my open book project. Would love to invite your thoughts, having read your blog.