R E L A T E D C O N T E N T

Gartner predicts rough road ahead for software vendors

Analysts Gartner says managers will wrestle with vendors over software licensing costs

Rosalie Marshall, IT Week 19 Nov 2007

Changing dynamics in the software licensing market will give IT buyers more power when negotiating software license costs with software vendors, predicts analyst Gartner in a report.

The report warned power will shift in the market from vendors to IT managers, leading software vendors to establish more realistic margins.

Increased use of software as a service (SaaS) models for delivering business software will reduce an organisation’s lock-in and customisation costs, according to the analyst firm. Customisation is usually limited to configuration in SaaS environments, while other costs such as implementation and upgrading costs may be covered by the SaaS vendor’s monthly fee, the report explained.

Simon Heywood, business manager at software reseller PC-Ware, agrees with Gartner’s predictions that the SaaS model is likely to affect licensing costs and announced plans that PC-Ware will work with its partners to develop its own SaaS model.

Gartner also expects the expansion of markets in China, India and Brazil will drive a demand for lower software and licensing costs. These large populations are not held back from legacy software investments but are free to start from a “Greenfield” environment using low cost software and SaaS architecture, said the report.

Also noted by the firm was the impact of open-source software (OSS), which will allow businesses to obtain upgrades, services and support from third parties at half the price charged by the software vendor. The OSS movement will bring more competition to the services market, particularly in areas such as server, operating systems, development tools and database maturities, Gartner said. "There will be less maturity in technologies such as ERP and CRM", the report added.

William Snyder, research vice-president at Gartner, added, “software buyers need to realise that the pendulum is beginning to swing in their favour and there are an increasing number of alternatives in today’s software market.”

“We would advise IT organisations to use BPO and open-source alternatives to improve their negotiating power with software suppliers as well as employing the emergence of third-party vendors as a means to reduce higher maintenance fees on older versions of software.”

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