What Customers Want from ERP Vendors on Software Pricing

Every enterprise software vendor is hearing the same thing these days from their customers: “I need to cut my software licensing and pricing costs. What can you do to help me out?”

“Cost reduction” is, according to a Forrester Research survey of nearly 2,300 IT executives, the single most important goal for 2009.

[[ For more on ERP challenges, see “5 Misunderstood Facts About ERP,” “Why CFOs and CEOs Hate IT: ERP,” and “10 Famous ERP Disasters, Dustups and Disappointments.” ]]

But beyond that, what are technology decision-makers looking to get from their ERP, CRM, BI and supply chain application vendors?

A June Forrester report by VP and principal analyst Ray Wang, titled “Enterprise Software Licensing And Pricing Update, Q2 2009,” shows that customers are keenly interested in choice, value and predictability when it comes to enterprise software pricing and ownership strategies. (The Forrester data is based on conversations with more than 700 IT applications professionals during the past six months.)

Choice. “Rapid vendor consolidation over the past five years has left apps pros with fewer vendor choices,” writes Wang. “Customers seek alternatives that integrate well with existing solutions.”

Some of the options CIOs and IT professionals are looking for include: industry-specific solutions, partner add-ons and third-party maintenance services, states the report. Customers want these options to give them more flexibility that incorporate alternative deployment models, such as SaaS, application service providers (ASP) and hosting, and business process outsourcing options.

Value. Everyone’s looking for more “value” for their money. Maintenance and support fees, for instance, is one area that customers have almost unilaterally targeted as “Where’s the value for me?” Wang notes that maintenance fees have come “under greater scrutiny as clients question the level of reinvestment, innovation and support that vendors provide.”

Customers also want value in decreasing software implementation and operating costs while improving flexibility. New SaaS offerings, for one, “have shaped current expectations because these solutions provide pay-as-you-go, ‘flex-up and flex-down’ deployment,” Wang adds.

Overall, he writes, users now expect (and many are demanding) that their enterprise vendors allow them to buy software licenses when needed, reduce licenses during downturns, and unload shelfware maintenance fees that often result from aggressive sales tactics.

Predictability. Enterprise customers have to come to expect predictability in maintenance fee pricing and reasonable price list changes. They also count on a more constant stream of innovation, Wang writes, “but current on-premise options limit user access to new functionality over long periods of time.” (Read why Oracle’s unpredictability is hurting its customers.)

Of course, customer “access” to that new functionality typically necessitates expensive upgrades. Again, the SaaS vendors have put pressure on traditional on-premise vendors, “since they can deliver constant innovation with quarterly and even monthly product updates,” Wang adds.

In addition, the report analyzes how 12 well-known enterprise vendors have responded to customers’ new needs—examining the vendors’ completed, work-in-progress or ongoing pricing and licensing initiatives for the fourth quarter of 2008 and first quarter of 2009.

Naturally, vendors aren’t oblivious to their customers’ recessionary realities, and Wang notes that many vendors have focused on “proving value and simplifying licensing and pricing.”

But on-premise vendors have entrenched business models—and aren’t nonprofits, either. “Not all vendors,” he adds, “can deliver on choice, value and predictability.”

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