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March 24, 2004

Subscription model is growing

IDC on growing trends toward subscription services -

Some 43 percent of the 100 software vendors IDC polled believe that subscription licenses will represent the majority of sales in six years, with 26 percent of the 100 end users surveyed in agreement

software makers are most concerned with making it easier to predict revenues, an effort made tricky by the long-term nature of perpetual licenses, but that they are also attempting to appease to customers who ask for increased IT budget flexibility.

there is clearly some disconnect with customers in determining the price of licensing software versus the value it delivers

customer complexity is another important client-side issue that's driving the shift to subscription licensing

The research firm said mid size and large software customers manage an average of 40 software contracts or more. It concluded that 70 percent of these end users expect the complexity of managing these contracts to increase. By eliminating some of the software license compliance issues that are related to perpetual deals, subscriptions could potentially free up dollars and employee hours currently spent managing those agreements

Two things standout from this report - why it took so many years to realize that there is a disconnect between price of the licensed software and the value it offers. Unwritten rule of the industry was that if you are selling an enterprise application solving some business problem then you have to start with at least a million dollar tag. Though the pricing has come down in recent times but the science of software pricing hasn't advanced that much. That explains the constant references to Salesforce.

Another interesting part of the research is that ONLY 26% of the end users were in agreement. What this tells you about the whole research?

March 24, 2004 in Enterprise software | Permalink

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