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Software Publishers Raising Prices

Posted by Gary Feldman on Apr 3, 2019 1:56:54 PM
Gary Feldman
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Major business management software developers Sage, SAP and Microsoft have all raised prices in recent months with more price increases going into effect in April and May.  The motivations for the price increases, other than an attempt to increase profitability, may vary, but the effect on the customer is the always the same.

SAP recently announced an increase of approximately 15% on its subscription pricing for SAP Business One Cloud.  Price increases were higher for "indirect access" licenses than for mobile applications and other forms of access.   This reflects a trend where publishers are trying to match the cost of systems to the information they house.  Both SAP in it's enterprise S/4 offering and Accumatica recently went to pricing based upon transaction volume.  More an more publishers are finding that their business management systems are being used as data warehouses with external systems accessing the data.  Whether these are mobile applications, portals, warehouse scanners or integrated eCommerce sites, these external applications create value to the customer (or the end-customer) from the data housed in the core ERP.  Publishers are increasingly trying to monetize the value their systems provide, even though the user interface may be created by a third party.

Sage seems to be using price increases more as a method of incenting customers to move to their subscription pricing model.  For example, Sage recently announced 15% increases for perpetual licensing for Sage 100 and Sage 300, but only 8% increases of Sage 100Cloud and Sage 300Cloud subscription licenses.   For Sage it appears to be more about moving the business model to the recurring revenue of subscription from the more volatile perpetual pricing.  We find customers are happy to level out their cash flow as well, and this option has become increasingly more favorable to customers as the break even analysis for perpetual to subscription has been growing longer.  A perpetual license model has a higher up front cost, while over time subscription tends to have a higher total cost.  However, we do find that customers on aa subscription model tend to move into the cloud more often where they typically upgrade their software (even in single tennant environments) much more frequently than on-premise.

Earlier this year Microsoft increased prices on its database and operating system licenses and is moving all office licenses to their Office 365 subscription model.   Other than the move to subscription, teamed up with a more "Apple like" model of continuous upgrades, Microsoft's infrastructure price increase was a little baffling.   With the ever increasing popularity of Linux, SAP moving to HANA and other 3rd party databases like MongoDB making inroads into the market, this appears to be more of a money grab.

The bottom line is that prices always tend to go up.  Understanding how they go up and why they are going up will help you make better decisions on your technology investments.

Topics: Business Management Systems, consulting

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