Software vendors hoping to attract new clients and retain old ones are looking to pricing models for inspiration.
Computer Associates (CA) International recently announced a new pricing model, offering its customers a subscription-based payment option for all of its products.
CA customers still have the option of term contracts, but they can now pay on a month-to-month basis as well.
Richard Stephens, executive vice-president of sales administration for Islandia, N.Y.-based CA, said the company spent a lot of time evaluating business and pricing models.
“It became apparent that companies were making smaller purchases and that the tech industry had not always delivered on its promises,” Stephens said. Too often, organizations fail to realize the level of value that is promised to them by vendors, he added.
Stephens said the response to CA’s subscription based payments, or what he called “putting your money where your mouth is,” has been positive.
Warren Shiau, a software analyst with Toronto-based IDC Canada, said he wasn’t surprised that CA has found a positive response. He said subscriptions might make it easier to justify software purchases, as it spreads out the customer’s payments.
“I think it gives more flexibility to the buyer,” Shiau said.
Subscriptions also give vendors more predictable revenues from quarter to quarter, he added. “I think that’s one of the reasons for CA to go with this model.”
Toronto-based ERP tool supplier GuestLogix is experimenting with a subscription-based payment plan. Clients using their Services Engine work with GuestLogix to decide what their cost savings will be, and when they will be realized. When the cost-savings come into effect, the client starts to pay GuestLogix.
“From what we’ve seen companies start seeing savings after one month. And in that case they would start paying us in the second month,” said GuestLogix president Tom Douramakos.
Claire Farrand, information services director at Indianapolis-based ATA, a subsidiary of AmTran Inc., said the GuestLogix services engine she is now implementing is similar to a tool her team had unsuccessfully tried to create.
When it was approached, ATA was eager to try this tool, she said. “We were in initial talks from July to September, but then Sept. 11 happened. I thought there was no chance I could pursue the project for at least a year.”
Farrand said GuestLogix’ unique payment plan was the key to making the deal work. ATA is still implementing it, but she said she is expecting to see benefits quickly.
Shiau said this type of payment plan will probably grow in popularity, depending on how long software spending stays low.
“If things were going gangbusters, I don’t think any of the vendors would be coming up with anything,” he said.
He added one really positive side effect of these pricing models is that they spread some of the risk onto the vendor. “I think that’s the trend.”
Stephens said vendor risk is an obligation the IT industry needs to take on. “We have got to deliver the value we are pushing.”