Enterprise System Spectator blog: ERP and enterprise system vendor evaluation, selection, and implementation.

The Enterprise System Spectator

Tuesday, January 04, 2005

Software package pricing to fall

Companies investing in new systems have grown accustomed to the fact that hardware prices keep dropping from year to year, while the prices for packaged software, at best, stay the same. As a result, software has been growing as a percent of corporate IT spending.

But maybe that's about to change. Meta Group is now predicting that, over the next 3-5 years, packaged software pricing will decrease for the first time in over a decade. The reasons? Meta points to the ability of companies to more easily develop (or contract to develop) their own software on top of infrastructure services from IBM, Microsoft, SAP, and Oracle; the alternative of open source software; the growth of third-party application service providers (ASPs), and the trend to cheaper offshore labor. (Each of these reasons is a subject onto itself, which I won't develop further for now.)

If Meta is correct, the trend toward vendor consolidation will continue as it simply becomes more difficult for vendors of packaged software to make money in this market. In fact, Meta predicts that the number of traditional software vendors will drop 35% by 2008, and another 15% by 2010.

"This shift has so many implications that it would be hard to overstate. We are not only seeing consolidation trends, but more importantly, we are beginning to see a burgeoning new software industry being germinated by IBM, SAP, and Microsoft that is cutting a swath through every layer of traditional IT. These events are redefining the economics of the technology market in some fundamental ways," said META Group Research Director, Dale Kutnick. "We are already seeing the major technology vendors positioning themselves and investing more aggressively in infrastructure and Web services, where they believe their products can support this more stable model, versus battling it out in the old packaged application software market. Many vendors are terrified and questioning what to do and where to go next."
All of this is good news for software buyers, who are finally in a stronger position at the negotiating table. Kutnick continues:

Traditionally, customers were beholden to their software vendors for the long term simply because alternatives were costly; ongoing maintenance and service support nearly guaranteed ongoing commitment to legacy vendor partners. This vendor "gravy train" is now in jeopardy due to emerging alternatives. As software becomes more interoperable and structured in a more flexible nature, customers can realistically threaten to bring their business elsewhere or explore to low-cost offshore alternatives if they are unhappy with their current vendor.
Meta's predictions match what I am seeing in deals lately. Vendors of packaged applications seem more reasonable in their pricing expectations, and more flexible in how they structure deals. Although there are fewer vendors than there were five years ago, there are still enough vendors to make every deal competitive, especially in the mid-market, and vendors are hungry. Furthermore, even though there is an overall trend to vendor consolidation, new vendors keep appearing, often with specific niche solutions in certain vertical industries that keep challenging the attempts of established vendor to hold the line on pricing.

Related posts
2005 looks good for IT spending
Software buyers turn cheap
IT budgets: spending less but getting more

by Frank Scavo, 1/04/2005 09:28:00 AM | permalink | e-mail this!

 Reader Comments:

Post a Comment

Links to this post:


Powered by Blogger

(c) 2002-2018, Frank Scavo.

Independent analysis of issues and trends in enterprise applications software and the strengths, weaknesses, advantages, and disadvantages of the vendors that provide them.

About the Enterprise System Spectator.

Frank Scavo Send tips, rumors, gossip, and feedback to Frank Scavo, at .

I'm interested in hearing about best practices, lessons learned, horror stories, and case studies of success or failure.

Selecting a new enterprise system can be a difficult decision. My consulting firm, Strativa, offers assistance that is independent and unbiased. For information on how we can help your organization make and carry out these decisions, write to me.

My IT research firm, Computer Economics provides metrics for IT management, such as IT spending and staffing benchmarks, technology adoption and investment trends, IT management best practices, IT salaries, outsourcing statistics, and more.

Go to latest postings

Search the Spectator!
Join over 1,700 subscribers on the Spectator email list!
Max. 1-2 times/month.
Easy one-click to unsubscribe anytime.

Follow me on Twitter
My RSS feed RSS News Feed

Computer Economics
Outsourcing Statistics
IT Spending and Staffing Benchmarks
IT Staffing Ratios
IT Management Best Practices
Worldwide Technology Trends
IT Salary Report


2014 Best Independent ERP Blog - Winner 2013 Best ERP Writer - Winner Constant Contact 2010 All Star Technobabble Top 100 Analyst Blogs

Key References
Strativa: Business strategy consulting, strategic planning
Strativa: IT strategy consulting
Strativa: Business process improvement, process mapping, consultants
Strativa: IT due diligence
Strativa: ERP software selection consulting and vendor evaluation
Strativa: CRM software selection consulting and vendor evaluation
Strativa: Project management consulting, change management
StreetWolf: Digital creative studio specializing in web, mobile and social applications
Enterprise IT News: diginomica

Spectator Archives
May 2002
June 2002
July 2002
August 2002
September 2002
October 2002
November 2002
December 2002
January 2003
February 2003
March 2003
April 2003
May 2003
June 2003
July 2003
August 2003
September 2003
October 2003
November 2003
December 2003
January 2004
February 2004
March 2004
April 2004
May 2004
June 2004
July 2004
August 2004
September 2004
October 2004
November 2004
December 2004
January 2005
February 2005
March 2005
April 2005
May 2005
June 2005
July 2005
August 2005
September 2005
October 2005
November 2005
December 2005
January 2006
February 2006
March 2006
April 2006
May 2006
June 2006
July 2006
August 2006
September 2006
October 2006
November 2006
December 2006
January 2007
February 2007
March 2007
April 2007
May 2007
June 2007
July 2007
August 2007
September 2007
October 2007
November 2007
December 2007
January 2008
February 2008
March 2008
April 2008
May 2008
June 2008
July 2008
August 2008
September 2008
October 2008
November 2008
December 2008
January 2009
February 2009
March 2009
April 2009
May 2009
June 2009
July 2009
August 2009
September 2009
October 2009
November 2009
December 2009
January 2010
February 2010
March 2010
April 2010
June 2010
July 2010
August 2010
September 2010
October 2010
November 2010
December 2010
January 2011
February 2011
March 2011
April 2011
May 2011
July 2011
August 2011
September 2011
October 2011
November 2011
December 2011
January 2012
February 2012
March 2012
April 2012
May 2012
June 2012
July 2012
September 2012
October 2012
December 2012
January 2013
February 2013
March 2013
May 2013
June 2013
July 2013
September 2013
October 2013
December 2013
January 2014
February 2014
March 2014
April 2014
May 2014
June 2014
July 2014
August 2014
September 2014
October 2014
November 2014
December 2014
February 2015
March 2015
April 2015
May 2015
June 2015
July 2015
September 2015
October 2015
November 2015
February 2016
May 2016
June 2016
July 2016
August 2016
September 2016
October 2016
January 2017
February 2017
May 2017
June 2017
October 2017
January 2018
April 2018
May 2018
Latest postings