Pricing threat to software channel

Pricing threat to software channel

Global reference pricing is one of the greatest bug-bears clouding the future of Australian software resellers, according to the Meta Group.

While international vendors are responding to end-user needs by producing a range of new licensing models, reseller calls for an end to global reference pricing remain unanswered, senior Meta Group analyst, Brian Prentice, said.

"Under the practice, a price is established in one currency - usually the US dollar - and the exchange rate mechanism is used to determine what the local price point in a given region or country should be," he said.

The problem, Prentice said, was that the exchange rate mechanism did not accurately reflect purchasing power parity.

"If you have a weak currency, which has been a concern in Australia, then a product becomes far more expensive in that country than in the country where the reference price exists," he said.

As a result, affordability for local buyers was reduced, Prentice said.

"We are going to see global reference pricing become a bigger issue as the list price is artificially inflated for the SMB customer," he said. "They don't have the negotiation ability, due to their size and go to market model."

Partner group director, Kerstin Baxter, said Microsoft employed global reference pricing because it was the best available model.

"We have global customers so we want to make sure customers and partners have predictable license prices," she said.

"We will always try and do regular reviews to make sure currency isn't over-inflating our prices and partners have 30 days notice of any changes."

Sun's business software manager, Laurie Wong, said change would go against the global economy.

"Global reference pricing goes into the complex economic make up of each country and the stage of its development," he said.

With professional services generally the largest cost component for SMB software deployments, according to Meta's Prentice, vendors were also working against the channel by reducing the service component through initiatives such as fixed pricing and re-engineered products.

"The number one revenue generator for resellers in Australia is professional services, so what is going to happen if the SMB market is predicated on a reduction in demand for services?" he said.

"The other concern for resellers is that the growth in offshoring is also putting margin pressure on services."

Wong disagreed, adding Sun had not reduced the service component of its applications. Instead, it used a mix of subsidies and channel leverage to keep costs low.

"As partners have low cost structures they can charge a low price but deliver equivalent or better skills to an SMB," he said.

Prentice maintained services margins would fall, forcing resellers to focus on intellectual property.

"It's not that vendors want to steal their business. I think we already have shifts in the marketplace where customers prefer to have services sourced from the company making the product in the first place," he said.

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