Pricing Power and Size in Software: Dealing with Strategic Suppliers in P2P and Beyond

A topic we rarely touch on at Spend Matters is software pricing and negotiation. It’s an area with a lot of specialized expertise that we don’t have in-house (though NPI and Forrester have been great contributors to this topic. See related posts for more details). Some of the most recent commentary we’ve seen on the subject comes from Forrester’s Duncan Jones, who has managed to tie the subjects of procurement and P2P evaluation and selection together in a recent post: Sourcing Professional Need a New Approach for Dealing with the Software Giants.

In it, Duncan suggests that the “the software giants' huge power isn't necessarily a bad thing. Their scale enables them to spend far more money on development than their smaller rivals, and this usually results in excellent innovative products. Yes, they can also be inflexible, siloed, frustrating, bureaucratic –  but when it comes to software development, size matters. So there really isn't much point in questioning whether the world would be a better place if these companies were much smaller than they currently are. Instead, we should accept reality and learn how to survive and thrive under their rule.”

With full respect to Duncan – I will even forgive his male chauvinism in how he makes jokes at the expense of his wife when giving his excellent keynotes – I do disagree with the point that software development necessarily favors the same scale that it used to. In the procurement space, it’s downright shocking, for example, what Coupa has cranked out with significantly fewer development resources in recent years compared with Ariba and other rivals. Basware is an example on the other side of the equation, a large provider that has struggled to release its next generation platform Alusta with the speed originally intentioned, despite a large development team leading the efforts.

Duncan also notes in his posts that “the ePurchasing category offers a good illustration.” Duncan observes that he was just at “Ariba’s EMEA customer conference in Berlin, and before that spoke with some of Emptoris’s product development leaders (now within IBM’s software division). Both companies have so far retained their focus on and passion for ePurchasing technology while benefitting from greater investment, additional talent, better foundation technology and expanded sales channels.”

But have they in comparison with smaller upstarts? That’s a question I’ll address in the next installment of this post.

First Voice

  1. chabannes:

    “but when it comes to software development, size matters.”
    Unfortunatley software devlpt is not a question of number of people. Software devlpt is a question of innovation and innovation happens in companies where people can create.
    Coupa ? A cash burning company, brrr….Ready to be sold to whom?
    Ariba ? Did not write a line of code in the last 24 months unless the Network application.
    Purchasing a Software is the very same move as invest cash in a company

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