Bad Times, Good Prices? Not So Fast

By John Taschek  |  Posted 2001-10-22 Print this article Print

Does a sour economy lead vendors to lower costs? In the enterprise space, there's a good chance it does, although there's little proof until it's time to sign a contract.

Does a sour economy lead vendors to lower costs? In the enterprise space, theres a good chance it does, although theres little proof until its time to sign a contract.

Take CRM, for instance. Every CRM vendor is hurting badly. Back in April, Tom Siebel called the economic situation a complete "global economic recession," and that was when his company posted pretty good sales numbers. It went downhill from there. The competition went on to post warnings and announce layoffs.

Were supposed to assume, I think, these bad earnings announcements and profit warnings are the result of a massive scaling back on demand. If everything works out correctly, this lack of demand, in turn, should result in lower costs.

Im not entirely convinced that the law of supply and demand applies when it comes to enterprise software, since big applications arent something that fits into the ordinary definition of a supply. Whats the supply? The little installation disk? The vendors capacity to supply? There still must be something happening to CRM prices—they must be falling.

But theyre not—at least, not publicly. It turns out that if these vendors cut costs publicly, theyd find it really hard to ramp back up when the economic climate becomes more favorable.

Nick Siragher, director of Hewson Consulting, said that instead of cutting the price of software (egads!), the vendors will "slash payroll, close facilities and reduce costs. ... Theyve too much to lose by a price war, and, given that many of them were top heavy on costs as we came into this period, there is some chopping to do."

In other words, we wont see the price of CRM or any other enterprise application plummet because the vendors did not anticipate anything but a full-on growth market, and they dont want to get hurt again if that growth market ever returns.

However, Mei Lin Fun, CRM analyst at Wainscott Venture Advisors, thinks prices will float in relation to the economy. In a bad economy, the prices should drop, but price cuts will depend ultimately on the value companies see in CRM. That value is not being realized by many companies, which would lead to overall price cuts.

So where are they? Theyre hidden, of course. Kickbacks, extended services and bargaining are all part of the game now, making the actual price of the software as amorphous as the value of the products.

As the director of eWEEK Labs, John manages a staff that tests and analyzes a wide range of corporate technology products. He has been instrumental in expanding eWEEK Labs' analyses into actual user environments, and has continually engineered the Labs for accurate portrayal of true enterprise infrastructures. John also writes eWEEK's 'Wide Angle' column, which challenges readers interested in enterprise products and strategies to reconsider old assumptions and think about existing IT problems in new ways. Prior to his tenure at eWEEK, which started in 1994, Taschek headed up the performance testing lab at PC/Computing magazine (now called Smart Business). Taschek got his start in IT in Washington D.C., holding various technical positions at the National Alliance of Business and the Department of Housing and Urban Development. There, he and his colleagues assisted the government office with integrating the Windows desktop operating system with HUD's legacy mainframe and mid-range servers.

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