Thursday, June 21, 2012

Some Customers Are Willing To Buy Double Licenses for OnPremise and OnDemand

Some OnPremise customers I speak with about cloud software started asking me if there is an option to use both OnPremise and OnDemand version of the same software because they liked certain aspects of each and would like to keep both for a while. I found this very unusual. So I asked them why they would want to pay double the license fee for essentially the same functionality with significant overlap.

They explained to me that it is a bit like keeping your land line phone while switching to a cell phone. You may not use the land line much but you want to keep it for emergencies. May be you don't trust you cell phone for emergency calls. May be you home security system does not work with your cell phone and so on.

They also explained to me that software licence is not the largest portion of a software implementation budget. A significant portion (more than 80%) of their budget is spent on consulting, maintaining the software and hardware. Customers have calculated, without the help of any outside vendors to influence their thinking, that they can actually save money even if they pay software licence fee for both OnPremise and OnDemand versions of the same software because they save a significant portion of their consulting, maintenance and hardware costs by moving to the cloud. For some customers this could be tens of millions of dollars a year.

I find this mildly perplexing. But I am not complaining.

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