Vendors licensed to deliver in cash-strapped times

Vendors licensed to deliver in cash-strapped times

The recession could change traditional approaches to software and hardware delivery, with increasing demand for flexibility, according to IDC’s New Zealand country manager Ullrich Loeffler.

“One of the key concerns and challenges for companies, specifically the SME market at the moment, is cashflow, as well as credit or financing for investment. Traditionally, you have the upfront licensing cost and then the ongoing maintenance. There will be a more flexible option that will defer the payments over the usage period of the software, and the same would apply to hardware.”

Loeffler believes larger players have already been offering a diverse range of options.

Microsoft is one of the big vendors in New Zealand that already offers a range of volume licensing programmes for companies with fewer than 250 desktops, and directs such customers to its value added resellers for help in choosing which is best.

These programmes are Open Value, where companies pay an annual cost for perpetual licences; Open Value Subscription, for temporary licences that can be reduced or increased each year with a low upfront cost; and Open Business, for ad hoc purchases, minimal organisational commitment, or perpetual licences.

Because of the already diverse range of options, Microsoft New Zealand hasn’t made licensing changes as a result of the economic conditions, and doesn’t have any planned in the near future, says national technology officer Brett Roberts. “We work with our partners to ensure customers are presented with the information they require, to help them determine the best way to buy.”

IBM software group manager Phill Patton says the recession hasn’t had a direct influence on his firm’s delivery methods, either. “I don’t believe that we’ve gone through significant change. It’s really about organisations and IBM focusing on customers’ needs and requirements. We’re moving through changing economic conditions, but that hasn’t changed our approach. Budgets have always been tight and people have always been looking for how they can best spend their money.”

Patton also says the channel comes to the fore in customer discussions around licensing and delivery. “What’s most important is getting customers the return on investment they require, in the time they require, from their investment in IBM technology. It can be flexible payment terms, it can be IBM Global Financing. IBM can bring that to the table with options for software, services, renewals and annual maintenance. That’s a real strength that IBM can bring.”

While it may not rank among the giants, business software specialists Greentree say it is business as usual when it comes to licensing and delivery methods. “We’re possibly not seeing as much pressure as some of the vendors, because Greentree is cost-effective and partner services are also cost-effective,” says chief executive Peter Dickinson. “A lot of our customers or new prospects aren’t looking at a two-year payback, they look at six months. They tend not to get stressed about spreading payment, but think ‘let’s get in and do it’.”

Greentree also supports some partners that offer its software as a fully hosted service.

Different financing options could be accompanied by a shift in demand towards software as a service (SaaS) and subscription models, says IDC’s Loeffler. “Obviously SaaS is also a whole different delivery model; you aren’t going to install it any more but, even for on-premise software deployment, there will be a move towards deferred payment over three, four or five years to actually change the capital costs into operational costs.”

Xero, which provides its business software as a service, says the company’s subscription model is well suited to the current economic conditions. “We’re mindful of the environment, but we haven’t made any changes,” says chief operating officer Alistair Grigg. “Being a subscription service, it’s already well geared to these times where cash flow is a challenge.

“Rather than a significant upfront cost, you’re just paying a monthly cost. The feedback we get is customers like the simplicity and the alignment with their cash flow — to pay for it as they go and not have a contractual commitment.”

At Greentree, Dickinson believes the SaaS model requires partners to have expertise in the industry they serve, rather than just in the software they offer.

When it comes to services delivery, Loeffler cites a trend towards an ‘all you can eat’ arrangement, whereby firms pay a little more on top of a basic monthly fee, but this fee will include services for which companies were previously charged extra. He believes this model could be favoured over current delivery methods, which sometimes make it difficult for companies to forecast their spending levels.

“A lot of the service engagements where there is a standard fee per month to get the support also mean firms get extra charges for callouts, or any additional projects or failures that require work or support. This makes it very tough for small companies to actually predict the cost of IT.”

Vendor financing schemes may be in heavier demand in the current difficult climate, with Loeffler saying even companies whose long-term business outlook is healthy may have cashflow constraints in the short-term.

“For them, to get the option to still invest in that business and to get on with technology to increase productivity, there will be more support from vendors, and also from third party finance companies, offering financing terms for specific technology investments.” Some vendors offer to buy old IT equipment and offer financing on newer kit, in what Loeffler says is a similar process to trading in a used car.

Microsoft’s Roberts says its financing scheme can help eliminate upfront IT costs and spread payments in predictable instalments over the life of the IT investment, freeing cash for other projects.

IBM, meanwhile, will buy back end-of-lease IT equipment for refurbishment and resale, or recycling, under its Global Asset Recovery System programme.

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