Did you know that up to 60% of the Unified Communications implementation bill can be services? I learned this last year when completing a UC RFP proposal review. The services as well as software charges can make year one of the Total Cost of Ownership (TCO) prohibitive.During the Locknote at the VoiceCon conference in Orlando this year, I brought up the subject of the financing issues. Several people including consultants expressed their concern with how the UC projects could be financed. Without financing, the UC implementations could be postponed. I also moderated a panel at VoiceCon, "Assessing Your Financing Options: Buy vs. Lease"" a new subject. The panel members were positive about the value of leasing vs. buying IT and communications technologies.
Typical IT implementations have a mix of approximately 30% for hardware, 30% for software and 30% for services. The hardware is the shrinking element in the IT procurements. The non-traditional areas of software and services need attention. Financing decisions should now focus on software and services. The move to evenly distribute the cost of the software and services over years will then make it more likely that Unified Communications projects will be approved.
The Forrester Report of October 2008, "Service Providers Start to See the Implications of the Credit Crunch" suggests that IT services companies will have to modify their focus to include financing options for their customers. Forrester stated:
Use financing options for projects as a key differentiator. If a provider offers its services under a financing scheme, client CFOs can further enhance their levels of cost management and control. Medium-size companies with limited cash flow can particularly benefit from such flexible payment measures.
When an enterprise looks at the total bill for migration to UC, the impact of the first year's costs can discourage any IT organization. Without proper financing, the UC project will be scheduled over years to reduce the cash flow requirements. With proper financing, UC projects can be accelerated since the typical first year expenses can be spread over years. Spreading the expenses over the financing period provides a more predictable TCO. The payments can better match the business benefits with the software and services expenses incurred.
What the providers and enterprises are doing sets the trends such as:
* Hardware companies are offering software and services financing.
* Banks are acquiring IT financiers.
* IT companies see financing options as a way to remain competitive.
* IT companies and enterprises are changing their policies to allow software and services financing.
* Three to five year software subscriptions financed as multiple year payments rather than all the subscription cost paid in the first year of the project.
* Enterprises want to preserve cash for non-IT investments.
Several of these points were part of the IDC report, "IT Leasing and Financing End-User Survey: Customer Needs and Wants," published in July 2007.
The first year one time expenses, or expenses for multiple phase projects, are the focus of software and services financing. Expenses such as maintenance or outsourcing are not commonly included in the financing arrangements. The common term for the software and services financing is three years. In some cases this can be extended to 5 years. A down payment and other requirements may be necessary depending on the enterprise's credit rating. In some cases, the financing can cover expenses as low as $1,000, so do not assume that only big projects are candidates for financing.
So where do you go for the financing?
* Your hardware/system vendor can provide the financing. Look for a non-captive arrangement that allows the enterprise to mix vendors. A captive arrangement limits the financing to the single vendor's products of the hardware and/or software.
* Some larger VARs have financing arms that offer non-captive arrangements. The VAR may not require that the enterprise buy the products from that VAR.
* Commercial banks that have experience in IT financing. If the bank directs you to a general financing division, investigate their IT experience first before making a commitment.
* There are commercial financing firms that should be treated like the banks. IT financing experience is important.
* Some multi-line diversified financial services companies are also candidates to consider for financing IT projects.
Check with your CFO about financing arrangements that the enterprise has in existence. This will make the IT financing proposal more likely to succeed.
