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Software players crank up the heat on price wars

Software players crank up the heat on price wars

SAP has hit back against national press reports that it has discounted its software and maintenance pricing for SME players, while leaving enterprise partners out in the cold.

“This couldn’t be further from the truth,” SAP’s director of SMB, Tim Cavill, said. “It’s been the same since day one.”

The company’s pricing strategy had remained consistent since the launch, of SAP Business One into the Australian market in November, he said.

The cost of one seat remained $2500 and hadn’t been tweaked since.

The resentment comes in response to overseas offices setting prices in favour of the SME space. Some claim the Australian sales offices have little control over local pricing. SAP was accused of converting US set prices dollar-for-dollar.

SAP marketing manager, Jennifer Roach, said the company didn’t simply adjust for exchange rates from US prices. “As SAP Business One is a new product, separate from traditional products [and targeted to quite a different size of company] we priced it taking into consideration what we felt was appropriate for the local market,” she said.

Case-by-case

“We looked at local market conditions, competitive products and customer sets and their propensity to buy our products. In essence we haven’t changed anything or discounted anything ... There’s no stretching or gilding of the lily.”

But joint managing director, Professional Advantage, Derek Rippingale, said while the SAP street price might not have changed, the price dips were happening on a case-by-case basis — and had ruffled feathers among larger players.

“They may not have changed the list price, but competing on a deal-by-deal basis is another story,” Rippingale said. “They are very aggressive in cutting prices that way. Because they are under pressure to take on a new market — one that they aren’t established in — they are trying to induce the age-old practice of heavy or deep discounting.”

And as the mid-market heats up, SAP was undertaking extremely aggressive pricing in a bid to buy market share, he said.

“The competitive nature of this market is seeing a number of partners jumping in,” Rippingale said. “We’re in the investing stage and this is creating movement and putting pressure on price.”

IDC Australia’s senior analyst for enterprise applications, Bharati Poorabia, said the pricing shifts playing out in the mid-market business applications space were necessary.

She said vendors needed to respond to competitive pricing pressures in order to gain an edge.

“Success will depend on how well they adopt the right pricing and channel strategies keeping the offering highly competitive,” Poorabia said.

According to Cavill, SAP has already attracted 20 Australian small business channel partners.

Dimension Data’s national business manager for platforms, Brian Walshe, said the resentment over pricing could stem from a simple case of catch-up.

He said the major software players (including Microsoft and SAP) weren’t playing favourites in the pricing game — they were simply now focusing on the SME space and divvying out appropriate prices.

“It’s fair to say traditionally the enterprise space has had aggressive pricing, and now the smaller players are reaping the rewards,” he said.

And SME players weren’t getting a better deal.

“If large enterprises are buying thousands of licenses, they are getting attractive prices — well below the normal street price,” Walshe said.

The other factor weighing into the pricing mix was the fluctuations in exchange rates.

Veritas recently reduced pricing by 12 per cent across all product lines, after reviewing the Australian dollar and US greenback, managing director, Bruce Lakin, said.

Lakin said it was the first substantial reduction in 12 months and stressed the shift was not a competitive positioning move, but rather a concessional play.

He said the savings were passed onto customers across the board.

“Our price adjustment was across all product lines — not just the SME space,” Lakin said.

Given the fluctuating exchange rates — and rise in the Australian dollar — the company had decided to revisit its pricing policy every quarter, he said.

The company will take a more active role in order to keep in step with market conditions and software behaviour.

“In announcing the reductions, we’ve advised channel partners we will review on a quarterly basis,” Lakin said. “This doesn’t mean there will be a definitive move, but we will look at the issue and consider it.”

SAP’s Roach said the company reviewed and adjusted its prices on a yearly basis.

“We don’t chop and change just because of exchange rates,” she said.

Walshe agreed businesses don’t want too many adjustments.

“It’s hard to budget if prices are all over the place,” he said.

Alstom IT’s national sales manager, Sun channel development provider, Danny Harwood, said Sun had also reduced prices across the board — for both SME and enterprise customers — by about 12 to 15 per cent.

The company monitors exchange rates at the start of each financial year.

And while pricing was set overseas, he said local offices had a certain level of control.

Hatching promotions throughout the year was one way to keep an eye on pricing. The company’s plan of attack (in its continual battle against Microsoft) also involved reducing pricing and shifting to a subscription-based software licensing model, he said, which cost $180 per seat.

“Microsoft Australia regularly reviews prices in line with market conditions. In the past 12 months there have been four price decreases in line with market conditions that we have passed directly onto customers and partners,” a Microsoft spokesperson said.

Currency fluctuations

And while there was ongoing debate about whether software giants were slashing prices for SME players and shutting the door on larger businesses, analyst Bruce McCabe of S2 Intelligence said it might only appear that way since there was a different pricing dynamic at play between the two markets.

“I don’t think the market is more cut-throat in the SME space, but the pricing is more exposed and transparent,” he said. “With the bigger deals, negotiations are more prolonged and pricing judgements are made per customer.

“Currency fluctuations are rarely observable for bigger software deals because there’s less transparency,” McCabe said.

He suggested vendors could not convert US set prices dollar-for-dollar since the scale and size of the Australian SME space, in particular, was different than that of its US counterpart, he said. Vendors needed to adjust prices locally.

“Very often the US-based pricing is not geared well for the Australian market and it must be customised,” McCabe said. “The SME pricing in the US is not applicable. The local companies must have control in order to be successful.

“It amuses me that the world is getting more global — no more so than in software. So if there’s big pricing discrepancies, it’s obvious to customers.”

Resellers also had a part to play, he said, in helping customers simplify the pricing and licensing story, and providing them with a side-by-side cost comparative of bids.

“Some of the biggest software companies in town aren’t good at this,” McCabe said.


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