Selling business software in a downturn
Facing the same abysmal economy as everyone else, enterprise application vendors are employing a number of strategies to retain existing customers and acquire new ones. As a result, their customers and potential customers enjoy more options and greater bargaining power. The usual caveats still apply, but the business pressures that drive software investment haven’t disappeared as the economy has worsened; if anything they are more severe than ever. Companies should still “do the math” on potential investments and, if it adds up, move forward aggressively. There has rarely been a better time to drive a hard bargain.
Vendors are employing a range of tools and strategies
All of the major enterprise applications vendors, including SAP, Oracle and Microsoft, have mounted new initiatives to maintain sales in the face of severe and widespread economic distress. The simplest of these initiatives are offers of free financing for purchases that meet certain size criteria; if a given project was “on the bubble,” 0% financing alone may be enough to push it into the “approve” category.
Vendors also are emphasizing modular purchase and deployment options so that customers can consume software in smaller, more focused and less-expensive increments rather than take on expensive, time-consuming, full-suite implementations. Some vendors are touting fast-start programs that may include online cost-estimating tools and pre-packaged, industry-specific tailoring to reduce the time and cost of implementation. Another tool gaining new attention is assessment services, in which a vendor analyzes the customer’s implementation and recommends how to derive more business value from what is already in place, or what additional capabilities would provide significant new capabilities at relatively low cost. (Economic conditions also give new ammunition to proponents of subscription-based software-as-a-service solutions, but this is a topic that must be addressed separately.)
Most of these initiatives aren’t new. Vendors have been developing them during the past several years in response to increased competition, the need to address new markets, and the recognition that they could increase penetration by addressing long-standing issues of cost, complexity and usability. For example, vendors have long provided at least some of their products on a modular basis. However, in better times, for obvious reasons, they preferred to sell solutions in larger chunks. They have also offered value-optimization services, but again, in better times these services received relatively less emphasis because they yielded smaller margins than new software sales. For customers, this means that the vendor probably isn’t rushing to market with something that may not be fully tested; the initiatives reflect a change in emphasis but are underpinned by long-term investment and roadmap planning.
Companies have greater leverage – and should use it
Notwithstanding the dire state of the economy, the pressures that drive software investment are still evident. Businesses still face fierce competition, growing complexity and longer supply chains. They need better visibility into their operations to improve planning and drive out inefficiency. They may need to standardize key processes to integrate more easily with partners and customers. In addition, the standard caveats still apply: the common-sense rules about basing technology investment decisions on business value, not technology; clearly defining both the problem and clear success metrics; and avoiding vendor lock-in to preserve existing investments and future options.
One important implication of the downturn is that customers must focus even more closely on rapid return – for example, on projects that promote leaner manufacturing and supply-chain management. Also, vendors’ financial viability is far less certain today than it was six months ago. The same applies to their implementation partners, which are often smaller than the vendor itself but may be just as critical to the project’s success. However, the vendors themselves are under considerable pressure, as evidenced by their newly solicitous attitudes. Customers can exploit this pressure by describing their business needs, asking vendors to identify the most cost-effective options and insisting on clear answers that specify costs, business value and time to benefit. Customers and prospects can afford to be aggressive because today, to an unusual extent, vendors will bend over backward to please them.