I had a good conversation with a CIO friend of mine last week regarding his recent mobile framework purchasing decision. In purchasing a mobile framework, the CIO and his team decided, given the immaturity of mobile frameworks, to only buy a 3 year subscription. Their thinking was that after three years and more maturity within the mobile frameworks marketplace, they would determine if the current mobile framework was still the right choice (market leader, trending upwards) and might require them to make a change. This subject got us talking about the Documentum Purchase versus Alfresco Subscription model.
Does anyone really “buy” software or is it all rented?
One thing I have always discussed with other IT professionals is are we really “buying” software as much as renting it. Sure there is a purchase order, things get capitalized and they do download a “product” (where they used to ship CDs), but, given the needs for support and the dynamic nature of software, one could make the argument that software is really “rented” due to:
- Bug fixes and the need for updates/upgrades
- Maintenance releases
- Licensing Changes (see related post)
- Implied future capabilities that will be added to the software
At 20% and up for maintenance (See related post on Documentum Maintenance Rising), most clients don’t realize they are re-buying most commercial software every five years. Add in all the other costs for software (internal support, hardware, training), and the incremental costs year-in and year-out can often outweigh the purchase price in an even quicker timeframe.
In my discussion with the CIO, we both agreed that attempting to predict the future in regards to what the best platform would be 3 years from now in mobile was at best a guess. We thought it was better to build a strategy around picking a vendor that could deliver value now, sign a three year subscription and re-evaluate in three years than to risk lock-in with an expensive purchase and maintenance agreement for something that might not be the right choice or add business value in the future.
Determining the “Value” of Software – a slippery slope
Pricing for software is difficult. Unlike manufactured goods that have raw materials, the incremental cost for the vendor for one more copies of the software is pretty much nothing (just a download). Software vendors (and customers) have to determine the value of the software for their business. Value is determined by a number of factors, including market, competitors, as well as client’s ability to pay. As we discussed before, part of the value is in what happens with the software in the future, something difficult to attach a to current purchase decision.
The discussion of value makes it difficult for customers to recognize the true value of software and when they are getting a deal and when they might be paying too much. Another factor in regards to software value is the discussion of sunk costs. Once an amount is paid, it is “sunk” and should have no effect on future business decisions. I have routinely heard clients justify the value of software by the amount they paid for it years ago, not the business value it brings now or the ongoing costs.
Documentum Value – user based pricing and add-on selling
One aggressive selling tactic we often saw with Documentum that took advantage of customer’s perception of value was the “add on sale ” where additional software is sold with “discount” pricing. For example, say client had a system for 100 users. After negotiating (Documentum never sells for list, particularly at the end of a quarter or year), the price per user would be X. We would traditionally see another 100 or 200 users added onto the sale for one-half of X or something lower. The amounts would really be skewed when Documentum would sell an enterprise license for some amount that would really bring down the cost per user.
We would routinely talk with Documentum clients that were excited by the great deal (typically end of quarter) that “saved them” X% of the typical purchase price, given the software’s value as set by Documentum. Some difficult math related issues customers realized in the following years included:
- Shelfware – If the client is only deploying 100 seats, Documentum had effectively doubled the cost of the software without really adding any business value. A realistic analogy would be a vacation time share that never gets used – is it worth the money?
- Time Value of Money – Even if the additional seats were deployed in the future, the client would have sacrificed the purchase price before they needed the seats (routing money from other needs) and still paid for maintenance on seats that were waiting to be deployed.
- Maintenance (see related post) – Given maintenance is often charged at list price, they are paying more than double for their annual maintenance costs.
Documentum customers typically struggle with justifying the ongoing value in regards to paying maintenance on obsolete versions and non-deployed seats. Most customers tend to fall-back to the sunk cost of the purchase price and how great of a deal they got with the purchase. Saving money on a product that isn’t used and can’t be resold is not really saving anything.
Alfresco Value and the Subscription Model
Alfresco, as we pointed out in a previous post (Documentum Alfresco pricing differences), only supports a subscription model with CPU pricing (no user pricing) and no purchase price. The key differences regarding software value:
- There is no purchase price, so the add-on user license discussions never happen.
- Subscription needs to be renewed every year. As pointed out earlier, in predicting the future, this approach lets clients determine every year if they would like to renew the subscription.
- Subscription costs are typically lower than Documentum maintenance costs.
The point I took away from my CIO friend was that they were planning on reviewing their decision in three years. This is something I have rarely seen in the ECM community that tends to lock-in to a decision and buy rather than revisit the decision later on. As two specific points related to we pointed out in our initial post on “Document to Alfresco Migration – Why Now?
- Pricing Model – Often times the subscription cost of Alfresco is less than the maintenance cost of Documentum. Customers should make sure that the purchase price is treated as a sunk cost and not factor it into the ongoing costs. See pricing related pricing post.
- Migration and Training – Often times we hear that sticking with Documentum would result in less costs for migration of documents and training on a new interface. Look for upcoming posts but, with Webtop fading, any future direction with Documentum (D2 or xCP) will require migration and retraining.
Documentum customers, facing increased maintenance costs as well as the need to upgrade/migrate to new products from Documentum (and repurchase in the case of D2), should evaluate Alfresco and related solutions with a fresh perspective rather than be trapped by past decisions.
Let us know your thoughts below: