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Customers and Software Vendors

January 5th, 2004 · No Comments

WSJ writes about how the power in software has now shifted to the buyers:

After a long slump in corporate technology spending, software buyers have more power than ever before — and they’re using it to force software makers to change the way they do business. Some customers are refusing to upgrade and are demanding their suppliers continue to support old software. Others are dumping their suppliers and shopping for more-accommodating vendors. Still others are training their own employees to handle tech support.

The widespread retreat signals that software companies may no longer be able to count on boosting the revenue streams that helped them through the technology downturn. With markets saturated, software companies have tried to dig deeper into the wallets of existing customers, using a variation on the “planned obsolescence” U.S. car makers invented in Detroit’s tail-fin era. Car makers designed vehicles that wore out quickly, to ensure replacement purchases.

Since software doesn’t wear out, software makers set timetables for phasing out programs. Just when big clients work out the kinks in complex software systems, the software companies tell them they need to install new versions. This gives software companies a chance to impose fresh licensing fees and a big chance to sell existing customers on new features, usually unavailable for older versions.

Sometimes software companies provide upgrades free, generating additional revenue by selling users on new add-ons or increasing maintenance fees.

When times were good and technology was advancing rapidly, customers accepted the forced upgrades as a fact of corporate life. Now customers aren’t swallowing it.

Some companies are shifting to Linux and other open-source software, in which bug fixes and upgrades can be downloaded free…Other customers try supporting the software on their own.

Some software companies are responding to the revolt by trying to make their applications faster and cheaper. Siebel has launched an “on demand” service, similar to Salesforce.com’s, in which customers tap into applications run by Siebel at centralized data centers and pay a monthly fee for just the software they use, rather than spend millions of dollars on risky installations.

Tags: Software

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