Ailing Economy Affecting ISV Sales Practices
Written by John Ghrist
With money scarce and credit crunched, ISVs are looking for new ways to help
companies that want to buy their wares but can't easily afford them.
Although the current dreary economic climate is well-known, what's not as apparent are
reactive changes taking place in the sales practices of some independent software
vendors (ISVs) and software-service providers. The need for computer-related solutions
hasn't diminished, but cash-flow problems and limited credit availability are keeping
many potential-customer companies from making needed technology purchases. Some
vendors are responding to this situation as an opportunity rather than a problem by
changing their sales practices. Other consequences are changes to the outlook and
business models for such industry stalwarts as Software as a Service (SaaS) providers.
Play It Again, Sam
One ISV response is to turn to time-tested tactics such as providing discounts for volume
and cash purchases, offering new software and service bundling combinations, and
helping customers with financing their purchases. For example, BCD Software is making
available 40 percent discounts for customers purchasing its entire suite of bundled
modernization tools, a free copy of its E-Z Pickin's data extractor with a buy of its Catapult
spooled-file control product, and discounts on the PHP version of its WebSmart Web
application generator to those owning the ILE version of the product, among other offers.
BCD is also providing a 10 percent increase in the number of consulting hours it includes
with the purchase of either WebSmart solution, according to Eric Figura, BCD's director of
sales and marketing.
Centerfield Technology, for a limited time, is shifting sales of its HomeRun suite of
system performance tools from availability on a single-partition basis to a whole-server
basis at the same price.
On the hardware front, as long ago as last September, IBM Global Financing unveiled
new financing options to help potential customers invest in storage systems.
One can only speculate on how many ISVs may be offering potential customers other
payment and financing options that haven't been publicly announced.
A Cue from Magazines
Although the publishing industry is struggling as much as anyone these days, another
approach is to follow a longstanding practice of periodicals and to begin offering software
on a subscription basis rather than as an up-front purchase. This idea minimizes
cash-flow effects for customers by letting them obtain software today while avoiding the
high cost of buying a standard software license and maintenance all at once. Australian
high-availability (HA) tool vendor Maximum Availability, for instance, recently launched its
*noMAX Subscription Edition. Under this program, customers can choose to pay a
quarterly or annual subscription fee for the *noMAX HA product.
Patrick Townsend Security Solutions is providing the option of a monthly subscription fee
for all of its data-security and key-management solutions, as well as adding
implementation services to its roster for customers who "find themselves without the
human resources to complete their projects."
Quatred LLC is combining its mobile computing/bar coding solution into a bundle (which
includes hardware, software, onsite services, maintenance, travel, freight, and Sungard
Public Sector applications) with a 36-month lease package for which customers can pay
on a 30-day basis.
IBM is also getting into the software action, though a bit off the beaten path for some
System i users, in its recent agreement with Amazon Web Services to provide DB2,
WebSphere Portal, Lotus Web Content Management, WebSphere sMash, and Novell's
SUSE Linux OS in Amazon's Elastic Compute Cloud environment under a
"pay-as-you-go" fee model.
Sweeter Than SaaSparilla
Of course, the subscription model for software isn't new; it's been the basis for SaaS
since that idea's inception. ISVs are simply borrowing the concept but, ironically, just as
the economy is casting some distorted shadows over the SaaS business model.
Downsiders can point to the February 6 resignation of John Cakebread, president of
Salesforce, a major SaaS player, along with two other major execs, despite the fact that
Salesforce.com announced it passed the $1 billion mark in gross revenue in its last
quarter. Upsiders are quick to quote a January IDC research report that predicts 42
percent growth for the SaaS market over 2008 and claims that by the end of 2009, 76
percent of U.S. organizations will use at least one SaaS-delivered application in their
businesses.
On February 19, Gartner published a new study checking the five most common SaaS
assumptions. The results seem to explode several myths about the SaaS model.
Gartner's research led it to conclude that, while total cost of ownership may be lower for
SaaS than outright software purchase in the first two years, benefits decline in
subsequent years from an accounting perspective because companies can start to
depreciate the capital assets used for on-premises software deployment. Another
challenge is that while SaaS vendors can point to some implementation times of less
than 30 days, most of those examples are simple-requirement sites. More complicated
implementations, Gartner points out, can take seven months or longer. In addition,
Gartner found that the common claim of SaaS providers that they are best thought of as
utilities similar to electric companies is often false because customers have to "commit
to a predetermined contract independent of actual use."
On the plus side, Gartner says fears that SaaS applications are difficult to integrate with
on-premises apps and data sources are usually unfounded. The study also found that
SaaS can work for more than just simple-requirement situations, as long as one is
mindful that complex workflows or business-process management implementations can
take time.
A B2B Subscription Model for SMBs
But one stumbling block the Gartner study doesn't tackle is that the cost of SaaS puts it
out of reach of most SMBs. "SaaS is best for companies with distributed applications and
hundreds of users," points out Steve Rosen , managing director of Focus Development
Group LLC, a marketing company. "Also, the customer must do the integration work [with
in-house systems] and despite high monthly costs, [once they're committed] SaaS
customers can't walk away from their investment in integration, training, and so forth."
So ISVs thinking about following a SaaS-like path of offering subscriptions for software to
an SMB-laden market like that of the System i need to find a middle ground. And perhaps
there is one in an idea growing out of the conflation of ISV sales strategies and SaaS at
DB Global Services, a new venture that's developing a model for delivering B2B software
and services (such as EDI) to SMBs and wants to include System i users in its clientele.
DB is looking to offer the software and services on a subscription basis that SMBs can
realistically afford.
"Hosted, managed B2B services" is how DBGS President Dennis Bonagura refers to this
concept. The idea is to offer a compete B2B infrastructure as a service, for a monthly
subscription fee that's lower than the customer's cost of maintaining such a system
in-house, with a mandatory subscription term of two years or less. "A major issue with
B2B systems is the costs for integrating with back-end systems, and often there have to
be custom programs for each business partner or even each transaction," Bonagura
notes. DBGS offers an integration component and runtime model that works with a
customer's back-end systems and can run either on premises or on D&B's servers. The
company hopes to launch its services within the next few weeks.
A Shift in the Business Model
What seems definite is that the troubled economy is forcing ISVs and other companies to
start considering new ways of doing business. And whether it be discounts, bundling,
software by subscription, financing, or some new services model, these and other new
methods that haven't yet been rolled out are likely to affect how software sales are carried
out long after the current recession is over.
MC PRESS
Written by John Ghrist
With money scarce and credit crunched, ISVs are looking for new ways to help
companies that want to buy their wares but can't easily afford them.
Although the current dreary economic climate is well-known, what's not as apparent are
reactive changes taking place in the sales practices of some independent software
vendors (ISVs) and software-service providers. The need for computer-related solutions
hasn't diminished, but cash-flow problems and limited credit availability are keeping
many potential-customer companies from making needed technology purchases. Some
vendors are responding to this situation as an opportunity rather than a problem by
changing their sales practices. Other consequences are changes to the outlook and
business models for such industry stalwarts as Software as a Service (SaaS) providers.
Play It Again, Sam
One ISV response is to turn to time-tested tactics such as providing discounts for volume
and cash purchases, offering new software and service bundling combinations, and
helping customers with financing their purchases. For example, BCD Software is making
available 40 percent discounts for customers purchasing its entire suite of bundled
modernization tools, a free copy of its E-Z Pickin's data extractor with a buy of its Catapult
spooled-file control product, and discounts on the PHP version of its WebSmart Web
application generator to those owning the ILE version of the product, among other offers.
BCD is also providing a 10 percent increase in the number of consulting hours it includes
with the purchase of either WebSmart solution, according to Eric Figura, BCD's director of
sales and marketing.
Centerfield Technology, for a limited time, is shifting sales of its HomeRun suite of
system performance tools from availability on a single-partition basis to a whole-server
basis at the same price.
On the hardware front, as long ago as last September, IBM Global Financing unveiled
new financing options to help potential customers invest in storage systems.
One can only speculate on how many ISVs may be offering potential customers other
payment and financing options that haven't been publicly announced.
A Cue from Magazines
Although the publishing industry is struggling as much as anyone these days, another
approach is to follow a longstanding practice of periodicals and to begin offering software
on a subscription basis rather than as an up-front purchase. This idea minimizes
cash-flow effects for customers by letting them obtain software today while avoiding the
high cost of buying a standard software license and maintenance all at once. Australian
high-availability (HA) tool vendor Maximum Availability, for instance, recently launched its
*noMAX Subscription Edition. Under this program, customers can choose to pay a
quarterly or annual subscription fee for the *noMAX HA product.
Patrick Townsend Security Solutions is providing the option of a monthly subscription fee
for all of its data-security and key-management solutions, as well as adding
implementation services to its roster for customers who "find themselves without the
human resources to complete their projects."
Quatred LLC is combining its mobile computing/bar coding solution into a bundle (which
includes hardware, software, onsite services, maintenance, travel, freight, and Sungard
Public Sector applications) with a 36-month lease package for which customers can pay
on a 30-day basis.
IBM is also getting into the software action, though a bit off the beaten path for some
System i users, in its recent agreement with Amazon Web Services to provide DB2,
WebSphere Portal, Lotus Web Content Management, WebSphere sMash, and Novell's
SUSE Linux OS in Amazon's Elastic Compute Cloud environment under a
"pay-as-you-go" fee model.
Sweeter Than SaaSparilla
Of course, the subscription model for software isn't new; it's been the basis for SaaS
since that idea's inception. ISVs are simply borrowing the concept but, ironically, just as
the economy is casting some distorted shadows over the SaaS business model.
Downsiders can point to the February 6 resignation of John Cakebread, president of
Salesforce, a major SaaS player, along with two other major execs, despite the fact that
Salesforce.com announced it passed the $1 billion mark in gross revenue in its last
quarter. Upsiders are quick to quote a January IDC research report that predicts 42
percent growth for the SaaS market over 2008 and claims that by the end of 2009, 76
percent of U.S. organizations will use at least one SaaS-delivered application in their
businesses.
On February 19, Gartner published a new study checking the five most common SaaS
assumptions. The results seem to explode several myths about the SaaS model.
Gartner's research led it to conclude that, while total cost of ownership may be lower for
SaaS than outright software purchase in the first two years, benefits decline in
subsequent years from an accounting perspective because companies can start to
depreciate the capital assets used for on-premises software deployment. Another
challenge is that while SaaS vendors can point to some implementation times of less
than 30 days, most of those examples are simple-requirement sites. More complicated
implementations, Gartner points out, can take seven months or longer. In addition,
Gartner found that the common claim of SaaS providers that they are best thought of as
utilities similar to electric companies is often false because customers have to "commit
to a predetermined contract independent of actual use."
On the plus side, Gartner says fears that SaaS applications are difficult to integrate with
on-premises apps and data sources are usually unfounded. The study also found that
SaaS can work for more than just simple-requirement situations, as long as one is
mindful that complex workflows or business-process management implementations can
take time.
A B2B Subscription Model for SMBs
But one stumbling block the Gartner study doesn't tackle is that the cost of SaaS puts it
out of reach of most SMBs. "SaaS is best for companies with distributed applications and
hundreds of users," points out Steve Rosen , managing director of Focus Development
Group LLC, a marketing company. "Also, the customer must do the integration work [with
in-house systems] and despite high monthly costs, [once they're committed] SaaS
customers can't walk away from their investment in integration, training, and so forth."
So ISVs thinking about following a SaaS-like path of offering subscriptions for software to
an SMB-laden market like that of the System i need to find a middle ground. And perhaps
there is one in an idea growing out of the conflation of ISV sales strategies and SaaS at
DB Global Services, a new venture that's developing a model for delivering B2B software
and services (such as EDI) to SMBs and wants to include System i users in its clientele.
DB is looking to offer the software and services on a subscription basis that SMBs can
realistically afford.
"Hosted, managed B2B services" is how DBGS President Dennis Bonagura refers to this
concept. The idea is to offer a compete B2B infrastructure as a service, for a monthly
subscription fee that's lower than the customer's cost of maintaining such a system
in-house, with a mandatory subscription term of two years or less. "A major issue with
B2B systems is the costs for integrating with back-end systems, and often there have to
be custom programs for each business partner or even each transaction," Bonagura
notes. DBGS offers an integration component and runtime model that works with a
customer's back-end systems and can run either on premises or on D&B's servers. The
company hopes to launch its services within the next few weeks.
A Shift in the Business Model
What seems definite is that the troubled economy is forcing ISVs and other companies to
start considering new ways of doing business. And whether it be discounts, bundling,
software by subscription, financing, or some new services model, these and other new
methods that haven't yet been rolled out are likely to affect how software sales are carried
out long after the current recession is over.
MC PRESS
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Outsourcing, 1SYNC, D&B,
Global, Services, sowftware,
EXTOL, Inovis, Sterling,
Commerce, Nubridges,
GXS, Townsend, 1edisource
D&B Global Services
expertise in EDI and B2B
hosted managed services
and software. B2Bi solutions
extend to EDI, AS2, XML,
Excel and VAN with
complete data integration
for business collaboration.
EDI B2B Hosted Managed
Services XML Excel Data
Integration B2Bi AS2
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