Should you buy Unified Communications (UC) or subscribe to UC? This is a valid and viable question for IT today. Is it better to invest in or to expense UC services? Your cash flow and budget will dictate the answer.
Here's one perspective, from the article, "The New Software Pricing Model: Can the Older Giants Compete?" published November 09, 2011 in [email protected]
"Cloud computing is not only changing how users access software applications, it's also upending the pricing model for software products. Fading fast are the days when software packages were sold in boxes with a one-time, perpetual software license fee. Instead, consumers and businesses are increasingly turning to subscription models and are buying only those applications they need for particular tasks rather than broad, general-purpose suites."
The software vendors have traditionally offered their products as a box to install, or as a download. They have priced their software accordingly. All sorts of applications are going to or have already been offered as a cloud service; so have traditional PBX features and functions. I found 210 cloud service companies offering UC and other communications services in the U.S when I completed my survey this past spring. For a full report on this market, I recommend you download the "2011 Ultimate Guide to VoIP and UC Services".
For this blog, I am examining the software pricing for communications, but we can learn a lot from other application costs for IT functions. The Wharton article quotes Forrester Research findings that 31% of companies are getting some software delivered as a service. Gartner expects the cloud services market to grow annually at a rate of 18.9%.
This change to the cloud is disruptive and will influence UC subscriptions services as well. The new pricing model allows the enterprise to select those UC components that satisfy the business. Most enterprises are not ready to embrace all of UC, nor are all enterprise departments going to benefit from UC equally. One of the frustrations with the box approach is the packaging of features and functions in such a way as to prevent the enterprise from delivering some of the UC features a la carte on a user-by-user basis. This means you overpay for features and cannot tailor the features and their cost by user.
In one case, I had a customer that wanted to use Microsoft Lync with a Cisco platform. We found duplicate functionality. Unfortunately the pricing structure required that the enterprise pay for both software packages and to disable features in one of the products. You pay twice and use once.
The software industry continues to change. Application companies have or will be acquiring cloud service companies or will be providing their own cloud services. For example, most of the industry does not even know that Avaya already has a communications cloud services offering.
Since the publication of my survey, I have discovered that many of the cloud/hosted communications are expanding their services to encompass more of the UC functions and features. There have also been several acquisitions and mergers among the cloud communications companies, creating larger and more financially viable companies.
An example of the cost differences from the applications world is Microsoft's Exchange e-mail. A 5,000-person company would cost $28.22 per month per user. Google's equivalent service including e-mail, calendar and productivity applications, combined with technical support, will cost $8.59 per user per month. From a cost viewpoint, the decision is a no brainer.
The Wharton article also stated:
"While the dominance of large software companies may eventually wane, overall revenues are likely to grow. Why? Instead of buying suites, consumers will buy software in small doses from multiple parties, based on their unique needs.
"Unlike media industries such as music and newspapers, the shift away from the old models in software doesn't mean the overall pie is getting smaller," notes Kevin Werbach [a legal studies and business ethics professor at Wharton]. "In fact, it's likely to grow, as recurring revenues and micro transactions replace big up-front payments. Look at the Apple App Store.... That represents billions of dollars in revenues for mobile software, which simply didn't exist before.
"Unlike media industries such as music and newspapers, the shift away from the old models in software doesn't mean the overall pie is getting smaller," notes Kevin Werbach [a legal studies and business ethics professor at Wharton]. "In fact, it's likely to grow, as recurring revenues and micro transactions replace big up-front payments. Look at the Apple App Store.... That represents billions of dollars in revenues for mobile software, which simply didn't exist before.
The new pricing model breaks down software into smaller units. The units are less expensive than the whole for the enterprise. This is attractive to IT and will stimulate demand.
The software vendor will probably develop a hybrid approach, offering both pricing models. This will allow enterprises to shift from the subscription approach to the box purchase if the financial equations dictate such a move.
