color me underwhelmed by subscription pricing models. Whether or not you take a large upfront license fee and a 20% maintenance agreement, or combine the license and the maintenance and spread it ratably over 3 years... it's all the same thing. For a lot of this stuff the switching costs are still prohibitively high, and for others you would have to question the relative value being created. It's definitely a trend, and a good one because it aligns the software vendor and the customer in a shared risk model and certainly makes customers feel better about the budgets they are allocating to IT. The tech media likes to zero in on the subscription pricing as simply a monthly bill for your software service, but that misses the point. The tech media also confuses on-demand with subscription models, they are not one in the same.
Link: Sadagopan's weblog on Emerging Technologies,Thoughts, Ideas,Trends and Cyberworld.
Jeff,
I beg to differ. A monthly subscription fee can be paid out of OPEX and "a large upfront license fee" must be paid out of CAPEX. This can make a large difference to the buyer. Furthermore, the cost of software is more than the license cost. The hardware, the connectivity, the data center, the staff etc., all need to be taken into account.
I work for an on-demand service provider that charges monthly subscription fees and we rarely lose to licensed software providers because of this.
I am convinced that mission critical, non-core business processes will be implemented by technology assisted business services (outsourced). The perfect example of this is payroll. Very few companies do their own payroll. Payroll is mission critical, in that if you don't pay your employees on time, they won't show up to work. However, being the best in payroll doesn't make your stock price go up. The second (and a very self-serving example) is indirect procurement. On-demand procurement vendors are going to get significant penetration because of this. If you haven't figured it out by now, I work for one.
On the other hand, a manufacturing company will never let it's factory floor scheduling system be outsourced. It's both mission critical and core. They will always buy software install it and look for innovations.
The media is confused about all this stuff because there is confusion in the marketplace. Both on-demand service providers and licensed software vendors are creating lots of FUD and noise.
Posted by: ppk | Mar 02, 2005 at 12:53 PM
P,
now you are getting into a lot of arcane accounting issues that really aren't black and white, e.g. the size of the license and nature of the software dictate CAPEX treatment. Additionally, lot's of large license deals go through 3rd party financing which pushes them into OPEX.
You also threw outsourcing into the mix, which itself is part-and-parcel separate from license/subscription licensing. All those data centers that were outsourced to the likes of EDS still ran on licensed software.
Your payroll example is also off point, payroll is operationally critical but it is separate and distinct from HR systems which hit the strategic mark: ensuring that your people resources are fully utilized and productive. For all the ADP customers out there, a lot of PSFT and SAP HR systems manage benefits, time, and people development.
And to round out the comment, I also disagree with the notion that manufacturing will never let scheduling out of their grips. What do you think happens in a full lean environment where demand drives the mfg process? The mfg will install software, but they are in effect handing the keys to the distribution channel and saying 'whatever you guys flow is what we will make, and all the procurement and upstream processes will flow out of our demand." It's not as clear cut as having a third party run the software and control all the data, but I think you get the point.
Posted by: Jeff | Mar 02, 2005 at 01:05 PM