Dave Michels
Dave Michels is a Principal Analyst at TalkingPointz. His unique perspective on unified communications comes from a career involving telecommunications...
Read Full Bio >>

Dave Michels | November 12, 2012 |


The Case for Free Enterprise Software

The Case for Free Enterprise Software In the struggle against hosted services, the premises vendors need to change the conversation to stay relevant. They should give their software away, and charge for mandatory maintenance.

In the struggle against hosted services, the premises vendors need to change the conversation to stay relevant. They should give their software away, and charge for mandatory maintenance.

The price of enterprise software is only a portion of its total cost to the end customer. In the early debates between hosted and premises, I used to argue that a chief benefit of purchasing solutions was that eventually one owns it, whereas in hosted, the monthly cost never ends. We have all run into extremely old platforms that just chug away--with zero or low recurring costs. But those days are disappearing because the premises-based solutions increasingly require ongoing maintenance charges.

In conjunction with Google, MIT research scientist Andrew McAfee conducted a study to understand the comparative costs of a business moving its computing resources to the cloud versus owning traditional on-premise systems. In this comparative cost model, McAfee found that the typical small- to medium-business (SMB) will significantly reduce its IT costs by doing away with its on-premise technology and moving to the cloud.

There are two primary incentives luring organizations to the cloud: financial drivers and general outsourcing.

Financially, the cloud looks great. Premises-based systems have multiple cost components that need to be compared against the single monthly fee that Unified Communications-as-a-Service (UCaaS) providers offer. Premise-based solutions include the following costs:

1. Upfront Licenses
2. Circuits and Usage
3. Operations Staff
4. Software Maintenance
5. Facilities--space, power, HVAC

Not only is the cloud financially simpler to comprehend, but it also often gets preferential treatment from the enterprise CFO, because hosted services get paid with expense dollars instead of capital dollars. Some arbitrary accounting practices, defined a long time ago, are a big part of that sucking sound to the cloud.

The other big draw has to do with the general trend toward outsourcing. But outsourcing comes in degrees. Managed services is a step toward outsourcing. There are various forms of managed services including on-prem or in the (private) cloud.

The point here is that the premises vs. cloud debate actually has little to do with where the software lives. Sure, the notion of reducing HVAC and other premise costs do come up, but rarely as the primary driver.

The premises vendors need to change the conversation to stay relevant, and here's how: Give the software away, and charge for mandatory maintenance.

Historically, communications software didn't have maintenance; instead it resided on proprietary hardware. New updates meant new hardware. Once the warranty ended, optional plans could be purchased (usually referred to as maintenance contracts). There was no requirement to upgrade, and many customers didn't.

We now live in a software defined world--software that increasingly runs on industry standard or virtualized hardware. In the software paradigm, maintenance is common and often mandatory. Modern software doesn't have bug fixes any more--just new releases, available to any and all customers that have maintenance.

Free enterprise communications software makes perfect sense when combined with mandatory maintenance. Maintenance reduces the risk of becoming legacy software because of continuous updates (at least in theory). By decreasing the initial barrier to adoption and implementation, the expanded penetration and subsequent increases in maintenance revenue could prove to be lucrative for the vendor. Maintenance dollars are considered expense, thus effectively neutralizing the financial attraction of hosted services for the customer.

However, it is a bitter pill to swallow, as many vendor organizations rely on current product revenues. The operative word is "many," as not all products are enjoying vibrant recurring sales revenue. New products, or products with relatively low sales, could be good candidates for free software.

This is exactly what Microsoft did with Lync. As a standalone solution, it had less market penetration. When Microsoft made it free with required maintenance, it became compelling for many organizations. Microsoft included rights to usage of Lync with its enterprise software maintenance programs. Many CIOs felt a fiduciary obligation to evaluate the licenses before spending on alternative upgrades and purchases.

Free enterprise software with mandatory maintenance aligns with several key forces the industry is experiencing. Consider:

1. Products are becoming services
2. High tech is moving from hardware to software
3. Software maintenance is now common

Hosted services aren't for everyone. For a variety of reasons, some customers will want to keep control over their implementations. These organizations are generally pushed to capital expenditures and expensive initial cash outlays. It also separates the key issues of outsourced and offsite hosting, which should be separate decisions.

Free enterprise software also changes the broader relationship and expectations by forcing the following:

1. Shorter release periods
2. Stronger focus on customer retention as sunk-cost incentive is reduced
3. Changes solution from product to recurring service
4. Blurs the boundaries between private cloud, managed services, and public cloud
5. Simplifies and encourages try before-you-buy and/or pilots
6. Significant channel changes

Something has to give. UC product revenue is decreasing. By eliminating a huge portion of the upfront cost of implementation and adoption, market expansion could be improved.

There are a lot of great companies that won't make it out of this decade, and the fallout will start in earnest by the end of next year. Re-invent, merge, or acquire--but don't stand still.

Dave Michels is Contributing Editor and Independent Analyst at TalkingPointz.


March 7, 2018

Video collaboration is experiencing significant change and innovation-how can your enterprise take advantage? In this webinar, leading industry analyst Ira Weinstein will present detailed analysis

February 21, 2018

Business agility has become the strongest driver for enterprises to begin migrating their communications to the cloud-and its a benefit that enterprises are already realizing. To gain this benefit

February 7, 2018

Enterprises are starting to grasp the critical importance of security and compliance in their team collaboration deployments. And once the risks are mitigated, your enterprise can integrate these n

March 12, 2018
An effective E-911 implementation doesn't just happen; it takes a solid strategy. Tune in for tips from IT expert Irwin Lazar, of Nemertes Research.
March 9, 2018
IT consultant Steve Leaden lays out the whys and how-tos of getting the green light for your convergence strategy.
March 7, 2018
In advance of his speech tech tutorial at EC18, communications analyst Jon Arnold explores what voice means in a post-PBX world.
February 28, 2018
Voice engagement isn't about a simple phone call any longer, but rather a conversational experience that crosses from one channel to the next, as Daniel Hong, a VP and research director with Forrester....
February 16, 2018
What trends and technologies should you be up on for your contact center? Sheila McGee-Smith, Contact Center & Customer Experience track chair for Enterprise Connect 2018, gives us the lowdown.
February 9, 2018
Melanie Turek, VP of connected work research at Frost & Sullivan, walks us through key components -- and sticking points -- of customer-oriented digital transformation projects.
February 2, 2018
UC consultant Marty Parker has crunched lots of numbers evaluating UC options; tune in for what he's learned and tips for your own analysis.
January 26, 2018
Don't miss out on the fun! Organizer Alan Quayle shares details of his pre-Enterprise Connect hackathon, TADHack-mini '18, showcasing programmable communications.
December 20, 2017
Kevin Kieller, partner with enableUC, provides advice on how to move forward with your Skype for Business and Teams deployments.
December 20, 2017
Zeus Kerravala, principal analyst with ZK Research, shares his perspective on artificial intelligence and the future of team collaboration.
December 20, 2017
Delanda Coleman, Microsoft senior marketing manager, explains the Teams vision and shares use case examples.
November 30, 2017
With a ruling on the FCC's proposed order to dismantle the Open Internet Order expected this month, communications technology attorney Martha Buyer walks us through what's at stake.
October 23, 2017
Wondering which Office 365 collaboration tool to use when? Get quick pointers from CBT Nuggets instructor Simona Millham.
September 22, 2017
In this podcast, we explore the future of work with Robert Brown, AVP of the Cognizant Center for the Future of Work, who helps us answer the question, "What do we do when machines do everything?"
September 8, 2017
Greg Collins, a technology analyst and strategist with Exact Ventures, delivers a status report on 5G implementation plans and tells enterprises why they shouldn't wait to move ahead on potential use ....
August 25, 2017
Find out what business considerations are driving the SIP trunking market today, and learn a bit about how satisfied enterprises are with their providers. We talk with John Malone, president of The Ea....
August 16, 2017
World Vision U.S. is finding lots of goodness in RingCentral's cloud communications service, but as Randy Boyd, infrastructure architect at the global humanitarian nonprofit, tells us, he and his team....
August 11, 2017
Alicia Gee, director of unified communications at Sutter Physician Services, oversees the technical team supporting a 1,000-agent contact center running on Genesys PureConnect. She catches us up on th....
August 4, 2017
Andrew Prokop, communications evangelist with Arrow Systems Integration, has lately been working on integrating enterprise communications into Internet of Things ecosystems. He shares examples and off....
July 27, 2017
Industry watcher Elka Popova, a Frost & Sullivan program director, shares her perspective on this acquisition, discussing Mitel's market positioning, why the move makes sense, and more.
July 14, 2017
Lantre Barr, founder and CEO of Blacc Spot Media, urges any enterprise that's been on the fence about integrating real-time communications into business workflows to jump off and get started. Tune and....
June 28, 2017
Communications expert Tsahi Levent-Levi, author of the popular blog, keeps a running tally and comprehensive overview of communications platform-as-a-service offerings in his "Choosing a W....
June 9, 2017
If you think telecom expense management applies to nothing more than business phone lines, think again. Hyoun Park, founder and principal investigator with technology advisory Amalgam Insights, tells ....
June 2, 2017
Enterprises strategizing on mobility today, including for internal collaboration, don't have the luxury of learning as they go. Tony Rizzo, enterprise mobility specialist with Blue Hill Research, expl....
May 24, 2017
Mark Winther, head of IDC's global telecom consulting practice, gives us his take on how CPaaS providers evolve beyond the basic building blocks and address maturing enterprise needs.
May 18, 2017
Diane Myers, senior research director at IHS Markit, walks us through her 2017 UC-as-a-service report... and shares what might be to come in 2018.
April 28, 2017
Change isn't easy, but it is necessary. Tune in for advice and perspective from Zeus Kerravala, co-author of a "Digital Transformation for Dummies" special edition.
April 20, 2017
Robin Gareiss, president of Nemertes Research, shares insight gleaned from the firm's 12th annual UCC Total Cost of Operations study.
March 23, 2017
Tim Banting, of Current Analysis, gives us a peek into what the next three years will bring in advance of his Enterprise Connect session exploring the question: Will there be a new model for enterpris....
March 15, 2017
Andrew Prokop, communications evangelist with Arrow Systems Integration, discusses the evolving role of the all-important session border controller.
March 9, 2017
Organizer Alan Quayle gives us the lowdown on programmable communications and all you need to know about participating in this pre-Enterprise Connect hackathon.
March 3, 2017
From protecting against new vulnerabilities to keeping security assessments up to date, security consultant Mark Collier shares tips on how best to protect your UC systems.
February 24, 2017
UC analyst Blair Pleasant sorts through the myriad cloud architectural models underlying UCaaS and CCaaS offerings, and explains why knowing the differences matter.
February 17, 2017
From the most basics of basics to the hidden gotchas, UC consultant Melissa Swartz helps demystify the complex world of SIP trunking.
February 7, 2017
UC&C consultant Kevin Kieller, a partner at enableUC, shares pointers for making the right architectural choices for your Skype for Business deployment.
February 1, 2017
Elka Popova, a Frost & Sullivan program director, shares a status report on the UCaaS market today and offers her perspective on what large enterprises need before committing to UC in the cloud.
January 26, 2017
Andrew Davis, co-founder of Wainhouse Research and chair of the Video track at Enterprise Connect 2017, sorts through the myriad cloud video service options and shares how to tell if your choice is en....
January 23, 2017
Sheila McGee-Smith, Contact Center/Customer Experience track chair for Enterprise Connect 2017, tells us what we need to know about the role cloud software is playing in contact centers today.