SAP Sets Pace on ‘Flexible’ Software Pricing
Not long after the end of the period, which closed in September, SAP began pitching "flexible licensing agreements," to 500 customers that spend at least 1.5 million [$2.2 million) annually with SAP, the world's biggest supplier of business applications. The arrangements let customers pay quarterly or monthly fees to use SAP products, instead of buying the software outright and paying for it at the outset.
SAP for years has been giving big customers some leeway in how they pay for software, but the recent slump convinced the company that the flexibility needed to be extended more broadly. These subscription licenses are appealing to companies that may not have the budgets to spend hundreds of thousands, or millions, of dollars in one sitting for the rights to own business software in perpetuity.
Instead, more customers want to rent the software and spread out payments. "The customers that are choosing this didn't have capital dollars in the first place" to spend as a result of the recession, says SAP President and executive board member Bill McDermott. "We adapted to the trend."
Disrupted Recovery
Yet the increasing popularity of subscription deals could throttle near-term growth for business software companies as the economy recovers, since they curtail vendors' ability to collect large software licensing fees at the beginning of contracts. Companies including Microsoft, Oracle, and Adobe Systems are adding more flexible payment arrangements for customers. "It's going to disrupt the entire software industry," says Brent Thill, managing director for software research at UBS.
Growth in new software license sales -- a commonly used measure on Wall Street of software vendors'...