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Licensing Profit Margins to Implode?

Gartner analyst William Snyder addressed software licensing at the Gartner Emerging Technologies Conference a little over a week ago, highlighting that software profit margins will erode, pricing will increase, all due to the fact that only a few big players exist in the market creating a oligopoly. Software budgets are continually under pressure from CEOs hoping to use a large portion to invest in new technology, when in reality they end up blowing their whole budgets on maintenance and licensing fees.

Snyder points out that evolutions like BPO or Business Process Outsourcing and open source will be what puts a dent in the software market. Negotiation with software vendors will change when there are more options. Oracle and SAP will be competing with outsourced solutions that will allow companies to utilize advanced applications without the headaches of maintenance. 

We’ll keep an eye out to see if Snyder predictions have any legs – he predicts software licensing margins to decrease as markets move toward open source and SaaS.  Our guess is that it’s doubtful that licensing – such as Oracle licensing – will go away.  ERP systems like Oracle, SAP and Microsoft are part of the life’s blood that keeps companies functioning.  To remove it would be as painful as removing and replacing a body’s blood vessels.

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