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Forrester: Businesses must act on profound software licence changes

Analyst firm highlights four vital steps

Organisations need to act on "profound" changes likely to take place around the way software is licensed, according to Forrester.

Many of the vendors will update longstanding licensing policies, the analyst house said, as a result of "increasing tension between vendors' insatiable demands for revenue and buyers' pressing need to cut non-value-adding maintenance expense".

The growth of cloud and mobile systems would also play a part, it said. In its report, 'Software pricing and licensing trends', Forrester advised businesses to create strategies that fit the changes in licensing.

Following extensive interviews with vendors and buyers over the last year, Forrester said it expects to see software providers increasingly allowing software maintenance flexibility, shifting focus from revenue recognition alone to customer satisfaction, and redefining module-user pricing. Additionally, vendors should offer alternatives to "obsolete hardware-based metrics", it said.

Forrester predicted that Microsoft would begin to formally offer pricing on Office by role-based user within three years, similar to some agreements it already has with specific firms.

IBM and Oracle would likely be "remaining slow to change", Forrester predicted, because of their "entrenched position" and the cost of introducing more flexibility. SAP, however, would embrace the trends in order to combat SaaS providers, because it has the "most to lose" if it does not, and the most to gain from adopting a more "customer friendly approach" than competitors.

Companies buying software could make four useful steps in response to the changes in the marketplace, it said.

The first is to build "models" to evaluate long term cost around different vendor offerings. "Consider the application's full life for instance SaaS might appear cheaper than on-premises in the short term but work out more expensive over six years, or 10 years, especially if the provider increases prices when customers are locked in," wrote Forrester principal analyst Duncan Jones, author of the report.

Forrester advised firms to include the impact of changes in project scope and business size to evaluate the importance of commercial flexibility. Estimates of processing growth needed to be realistic, in order to provider fair comparisons in hardware requirements.

Secondly, businesses needed to include commercial factors in project governance and sourcing decisions, the report stated. This could include refusing to use a certain vendor unless there is no real alternative.

Third, businesses would be wise to consider multiyear agreements with suppliers, in order "to secure favourable terms with single-source vendors", it said. "But take care not to give up too much commercial flexibility in return for a flashy headline discount percentage," Jones wrote.

Lastly, Forrester advised firms that what was important was "rejecting obsolete metrics and rewarding pricing and licensing innovation".

Jones wrote: "No pricing metric is perfect, and there are no easy answers to the challenges of assessing customer value across diverse usage profiles with cloud-based deployment." He added that organisations "should give a software provider credit for offering new ideas, even if you end up picking the familiar option".


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