A day rarely passes that I don’t see another pricing adjustment in the saas world. Earlier today I received an email that said:
WorkXpress today launched its customer relationship management (CRM) application for free use by all customers. This powerful new CRM provides businesses an easy to use tool for a 360 degree view of customer interactions while offering the opportunity for full customization of the application and its reports.
Earlier in the week, Pearl produced a revised price list that includes a free option. Tomorrow, a well known CRM vendor will announce price cuts. What’s going on?
Competition for one thing. The global economy may be in the toilet but that isn’t preventing small teams inventing new services, almost exclusively delivered in the internet cloud. Hardware prices continue to fall and Amazon EC2 is setting the pace for on demand compute pricing. One company told me they can fully provision around 2,500 to 3,000 users for less than $80,000 a year. That’s around $2.22 to 2.66 per user per month.I’m sure as time goes on that figure will continue to fall. In part, Google is super profitable because it uses commodity computers that it has optimized for its own data centre use.
All of which means that vendors can afford to be more inventive about how they price, where they offer ‘free’ and so on in the knowledge that paying customers will be able to support ongoing development while returning a decent profit. The question as always is about positioning.
Last week at the OpenBravoWorld conference, speaker after speaker said that open source is becoming more popular. Matt Asay’s presentation was peppered with stats showing uptake and the changes in attitude occurring in the business world towards open source. That is hardly surprising given the cost pressures that IT departments face. Open source plus the internet cloud offer tantalizing possibilities on the cost front. You might for instance be able to provision an accounting, CRM or full ERP system in little to no time at a fraction of the list price that an on-premise vendor can offer.
The difficulty for buyers comes in understanding the risks. Few realize though that the skeleton around which the Internet is being built relies on open source, the so-called LAMP stack (Linux, Apache, MySQL and Python – PHP.) In this presentation, Richard Daley argues that open source plus the cloud represents a low risk. I kind of agree. Some open source communities do better than others. The rise of commerical open source will help reduce the perceived risk as companies take responsibility for the services they offer. However, in the minds of many analysts,open source will be restricted to the SMB market because the OSS companies are tiny and therefore have difficulty commanding the attention of CIOs. I’m not so sure. There are plenty of stats suggesting otherwise. For instance industry analysts Gartner believe that by 2010, open source investments will account for 25% of business applications. (see image above)
The communities being built around open source projects are truly huge. Sugar CRM for example has 400,000 users on 50,000 systems for its open source solution. They’ve achieved that in around 5 years. It has taken SAP 35+ years to achieve 82,000 customers though it has millions of users. Last November, the Firefox browser achieved 22% global market share.
Open source may have a long way to go but it is with us to stay. Watch though as pricing models evolve. End users have a lot to gain.
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