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Three ways you’re subsidizing your non-cloud vendor

(Image credit: Image source: Shutterstock/bluebay)

Enterprise pricing software tools have historically been dominated by expensive, heavy weight systems, requiring on-premise installs and hoards of services teams to set-up and operate. With the rapid evolution of cloud computing and SaaS tools, this expense and hassle is quickly becoming unnecessary.

You may not be familiar with or experienced in the cloud SaaS revolution taking place in pricing but that’s OK. With how fast it is moving, now is the time to take a good look at your options and strategize what is best for your business and where it will line up with the future of pricing.

By 2020, it’s estimated that 83 per cent of enterprise workloads will be in the cloud. On-premise technology will take up just over one-quarter (27 per cent) in the same year. Cloud systems are the future of pricing due to speed and flexibility. As indicated on one provider’s quarterly earnings call, many legacy providers are working hard to 'migrate existing customers to cloud products.’ Those customers are increasingly finding that their current providers can't match their on-premise functionality and met with only partially migrated cloud services. This "normal" state of affairs in legacy providers includes multi-year implementation timelines and burdensome services contracts.

Joanne Smith, author of The Price and Profit Playbook, who has more than two decades of B2B marketing and pricing experience, said “With the complexity of today’s pricing world, companies need to get faster and smarter about their decisions. They need flexibility and agility in their pricing systems to grow with their changing needs – the kind of capabilities that only come with cloud-based systems. Pricefx has an impressive track record in successfully pioneering cloud-based solutions. Legacy pricing solutions providers recognise this massive opportunity of cloud pricing technology and are rapidly investing in developing their own cloud-based solutions.”

But to what extent is this expense?

Playing catch-up is costing enterprises big money, forcing them to pull chunks out of budgets across the organisation that could be used elsewhere, from hiring, to digital transformation efforts, or implementing new processes, buying equipment, and more. From discussions with enterprises across many industries, we’ve seen them bleed between $350M to $1M for yearly maintenance contracts, even as high up as $2M if you consider downtime and lost resources in the process.

Moving to the cloud seems like a perfectly logical move but the repercussions can be a flurry of problematic outcomes.

First, switching means software may not be agile and riddled with limited capabilities. Second, the path to migration is usually a long process, with problems of moving from an ERB business model to the new cloud solution. There will be hiccups in integration moves from a rigid architecture to the cloud. These implementations are extremely lengthy and expensive and will take a considerable amount of time and investment because of a heavy engagement with the implementation team. Then, there’s the cost. Customers foot the bill of migration, in addition to the subsequent fees involved with the cloud subscription.

Under the hood

You will find that budget you could have used to hire more people is being spent on overextending the resources you currently have, leading them to focus on tasks that could be avoided. System upgrades and patches, which are inevitable to any solution, are racking up additional costs for your in-house team. Teams should also expect to deal with performance challenges with long timelines. Those human hours will also need to budget for workarounds and complex landscapes. Customer solutions often include dependent upgrades, like App Server, DB Server, Web Server, to support the on-premise solution, leading to more downtime.

To understand the nuts and bolts of what we’re dealing with, let’s dig into the mechanics of typical on-premise solutions. As we live in an environment that’s rapidly changing, the on-premise solution will show its true colours.

 

Enterprises need to adapt to changing tides

Cloud-native solutions are able to move with the environment, which is always changing, always innovating – from evolving omni-channel plans, to customer-centric strategies, and more. Do you wonder where your money is going? Here it is broken down, with three ways you’re subsidising your on-premise solution:

1) Hardware

Expect hardware costs to be in the low- to mid-six figures, plus maintenance (15-25 per cent of the initial implementation costs). On the other hand, cloud SaaS is, by default, centralised, which means patches and updates are applied continuously and in real time across the whole system with no effort on the customer. Plus, SaaS comes with Uptime SLAs to ensure hardware is a non-issue. With cloud, you should never have to think about the latest version or fastest hardware, it comes with cloud native solutions that have their own servers so the implementation costs are more reasonable.

2) Database Licenses

Database licenses usually cost more than $100K. If your database license (Oracle, SAP HANA, etc.) has compatibility issues, you will be forced to extend your license or invest more technical resources to make it compatible. Find a solution that is a plug and play system, ideally one that easily integrates with customer relationship management (CRM) solutions like Salesforce, Microsoft Dynamics 365 and SAP Cloud for Customer.

3) Upgrades

Upgrades here can cost also cost upwards of $100K, especially as each upgrade is often treated as a new project. In a cloud-native solution, you can expect upgrades to be included and used immediately, such as new templates, dashboards, and packages that suit your specific business into consideration.

The enterprise is rapidly changing so understand where your money, time and resources are going when you choose your solution.

Gabriel Smith, Chief Evangelist and Vice President of Innovation, Pricefx