Taking a cue from the steady rise of SaaS (software as a service), Sage is giving customers who run its ERP (enterprise resource planning) software on-premises the option of subscription pricing.
The subscription model is ubiquitous in the SaaS world, where customers typically pay a monthly fee per user. It's not necessarily any cheaper than traditional perpetual licensing and maintenance fees over the long haul, but subscription customers do avoid having to shell out large amounts of money up front for licenses.
"Subscription pricing is just getting more pervasive," said Joe Langner, executive vice president of midmarket ERP and CRM solutions, Sage North America. "[And] cash flow is still king with our customers."
Initially, the subscription pricing is for Sage's 100, 300 and 500 ERP products, which were formerly known as Mas 90 and 200, AccPac and Mas 500. Other products in the Sage portfolio will get the option over time.
Pricing begins at US$65 per user per month for financials, US$99 per user per month for financials along with distribution, and $150 per user per month for financials plus distribution and manufacturing modules. Add-ons such as BI (business intelligence) are also available.
Customers can also get hosted ERP subscriptions at an additional cost. All subscription users will get Sage's highest-level Gold support.
Traditional licenses will still be available, Langner said.
SaaS vendors typically require customers to sign up for at least a year. Sage isn't asking for that, but will make customers give a 120-day notice "so we can unwind the technology" from their sites, Langner said.
Sage conducts the vast majority of its business through partners, and that will remain the case with the subscription model, according to Langner. While other vendors have required partners to buy licenses up front and then resell them in subscription form to customers, Sage is not taking that approach. Instead, partners will get a commission on subscription sales.
One advantage to perpetual licenses is the fact that customers rarely pay list price, and vendors are typically willing to give steep discounts, albeit while knowing that the real money is going to be made through annual maintenance payments.
As a stand-in for that traditional haggling process, Sage has "built in" discounts on the subscription pricing based on the size of the deal, according to Langner.
While Sage believes that subscriptions will be "most attractive to new customers," they are available to all, he said. "If they want to cancel maintenance and convert, they absolutely can."
Based on Sage's published pricing, the subscription offer isn't overly generous, said analyst Frank Scavo, managing partner of the IT advisory firm Strativa.
"In as little as two or three years, a company would be paying more on a subscription basis than it would if it just bought the license up front and paid annual maintenance," he said. "It looks to me as if a subscription only makes sense for companies that are not certain they will want to continue with the software after two or three years."
Those planning to use the software longer would be advised to go with traditional licensing, according to Scavo.
That said, "Sage will most likely negotiate subscription deals just like all vendors negotiate license fees," Scavo added. "If you can get better subscription pricing than what Sage has published, the deal may make better sense. I would advise buyers to negotiate both a license deal and a subscription deal and do their own five-, seven-, or 10-year total costs and see which is best for your particular situation."
Chris Kanaracus covers enterprise software and general technology breaking news for The IDG News Service. Chris's e-mail address is Chris_Kanaracus@idg.com
Join the CIO Australia group on LinkedIn. The group is open to CIOs, IT Directors, COOs, CTOs and senior IT managers.