Customers at the whim of public software company

Thomas Wailgum, writing about Oracle’s 2009 1st quarter results, makes some telling comments.

it becomes clear that Oracle is trapped in the age of foolishness and epoch belief that shareholders are more important than customers, while those customers are in the worst of times and full of incredulity.

Oracle’s profits rose by 4 percent year-over-year to $1.12 billion, but revenue fell by 5 percent to $5.1 billion … New software license sales fell 17 percent … A neat trick, did Oracle pull: Increasing year-over-year profits while revenues fell … Oracle’s enterprise software maintenance- and support-related revenues grew 11 percent to $3.1

In effect, Oracle is telling its customers that they, the source of the company’s revenue, are not as important as the shareholders. The way Oracle has increase revenue is by increasing software maintenance that its customers pay.

The question those customers should be asking is “what value are they getting from increased maintenance.” In other markets, a supplier would lose customers if it treated them in the same way.

Of course, there are alternatives. Privately-held software companies are not accountable to external shareholders and have a long-term perspective, rather than the short-term one that drives public companies who rely on stock markets for approval.

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Software packages and car models

A recent blog by Dennis Howlett on ZDnet mentions that Microsoft is adding a small user finance/ERP package, Dynamics Entrepreneur Edition. This package was one of the apps that were acquired when Navision Damgaard was bought; it is not a new app but never got exposure outside of some northern European countries.

This new licence is described as allowing “the opportunity to trade up customers as they grow because a switch to the full blown product will likely involve little more than a flip on the registration key switch.” My question about this approach is – since people who buy entry-level models of cars (eg, Toyota Tazz) do not necessarily upgrade with the same company (eg, to a Corolla), why should we expect companies to do the same with their ERP software?

When people upgrade their car there are other requirements and attitudes beyond the fact they might get a good deal from their current vehicle supplier. For example, a Toyota Tazz owner who wins the Lotto would be more likely to buy a BMW or Mercedes than a Lexus because their are other issues involved.

When companies come to upgrade their ERP, they look at other things than just the licence cost, which anyone who sells and implements ERP can attest. We have opportunities involving companies using entry-level products who are not considering upgrading from, say, Pastel to AccPac or Sage, which are like different car models from the same company.

The software licence price really isn’t an issue, because: 

  1. a competing vendor can and will adjust their licence pricing to be competitive with an incumbent, if the deal warrants it;
  2. the implementation costs can far exceed the licensing costs, even if its upgrading to a different package in the same line; 
  3. each package has its own way of dealing with functionality, so project activities like requirements analysis or training have to done as if this is a brand new implementation;
  4. an incumbent must treat it as a standard sales process because all the normal sales issues have to be addressed, even though its an existing customer;
  5. quite often companies feel their incumbent ERP has let them down are are looking for something that will work better for them.

Until a customer can upgrade from a lower-level ERP product to a higher-level one in the same way people can upgrade from Windows XP to Vista, having different levels of ERP packages will not be a safe guarantee that customers will stay with the same vendor as their ERP needs grow.

What’s wrong with Microsoft’s Dynamics licensing

News from Convergence is that Microsoft introduced a Dynamics Client for Office and SharePoint, which will be a user-based licence, to encourage Office and portal integration with Dynamics apps.

AMR discusses it here, and say that the new licence can only be purchased if customers are on the Advanved Management (AM) editions of Business Ready licensing. AMR note that 90% of AX customers are on AM, and 50% of  NAV and GP customers. It doesn’t surprise me that AX has 90% on AM because they tend to be complex sites, but that 50% coverage needs more analysis. It means 50% of NAV and GP customers are not able to take advantage of the new Client licence, and the number customers in that group is far greater than the 90% of AX licences.

The reason why half of all NAV and GP customers are still on the (lower) Essentials edition is that they don’t need, and don’t want to pay for, the additional functionality in AM. The Dynamics Business Ready licensing forces companies to decide whether they want basic functionality, or license functionality that they may never use.

There were cases I had in my previous NAV experience where companies needed inventory or CRM functionality in NAV, but to get it they would have to select the AM edition licence, which was at least 50% more than the Essentials licence. Trying to sell that to companies for whom price is the major decision factor was a difficult job.

When Microsoft announced the Business Ready license model they gave all sorts of reasons for it. However, I know many Dynamics partners considered it a bad move, and were concerned it would put them in a worse competitive price situation.

If Microsoft wants the new Client licence to get adopted widely, and that means by the majority of its Dynamics customers, I would recommend they make the Client licence available to all editions of Dynamics.