In his CM: the Next Generation series, Joe Farah gives us a glimpse into the trends that CM experts will need to tackle and master based upon industry trends and future technology challenges.
These are typically big IT solutions which knit together a number of tools into a somewhat coherent
ALM solution. The verdict is still out on the open source ALM solutions, but the market will not support the big ticket prices of the big IT solutions much longer. Cost is too much of a risk, especially with other alternatives emerging. It's easy enough to do some homework and find equivalent or even better solutions at a lower price. The real question is whether or not the big ticket prices are needed for some vendors to maintain adequate margin. And open source is not necessarily a solution to high costs in the middle tier, because
of the demand that the tools do more. As a result, consulting, customization, training and operations costs are usually much more significant than licensing costs.
The high end solution space is still emerging. This is the third generation CM/ALM solution space. It will continue to emerge slowly with only a couple of exceptions. One
question here is how will new technology capture market share when dealing with a backbone technology. And one component of the answer is new pricing strategies.
The high end solution space is 3rd generation (3G) technology. This means that the cost of ownership of such solutions will be significantly lower than that of the older counterparts. This in turn will lead to pricing flexibility.
Think about it for a minute. 3G is easier to use, so less support is required - both for sales and technical support - so higher support margins for the vendors/consultants. 3G is integrated technology, so an ALM suite produced by a single vendor on a single middleware engine increases vendor margins while still reducing customer costs for the suite. 3G solutions require little administration, so customers will realize greater return on their investment. 3G technology is more easily customized and covers a wider solution space, so it will be used over a longer period without churn.
Some new pricing options we'll begin to see might include:
- Paying a percentage of customer savings (as compared to
the current solution)
- Using it for a year or more before significant financial
commitment has to be made
- Combining the licensing and maintenance costs into
- Lower product pricing, especially until the benefits are
proven in the market place
If a vendor believes it has a solution with a compelling "long-term" advantage, it can give the customer a wider variety of payment options. These are attractive to the customer, but also can be attractive to the vendor. For example, if payment is based on savings and the vendor can really deliver, the margins can be dramatic. Or if up-front licensing is replaced with monthly leasing, total revenues over the years can be substantially higher. The key is clearly demonstrating the gains of 3G technology and ensuring that the capabilities offered will continue to be competitive over the life of the contract. As well, consulting and
training revenues will decrease, while consultant margins (for fixed price solutions) increase. This increase will be a result of being able to deliver higher value with less effort, as compared to 2G solutions.
And the cycle will be repeated when 4G technology emerges down the road.
Ease-of-Use means Broader Use
Two key factors have kept CM/ALM solutions in the hands of the CM managers and developers and their managers. The first is the target functionality of the solutions - aimed at these roles. The second is the ease of use, or more specifically, the lack thereof.
This is going to change rapidly over the next couple of years, and, in fact, the change has already begun. CM/ALM tools will be targeted more to the entire management team, as well as to other players in the product camp. This includes technical support staff (some