Price-Hike Surprise

Here's an example of how complicated the game can get: Microsoft says customers can use its new Exchange Server 2003 to consolidate servers. Exchange Server 2003 costs the same as its predecessor--no increase. To consolidate, though, customers probably need to upgrade from the $1,000 standard edition of Exchange to the $4,000 enterprise edition. Price increase? No. Higher price per server? Yes. Lower total cost of ownership? Maybe.

Many vendors have reported quarter after quarter of declining software license sales, so price hikes shouldn't come as too great a surprise. "Anytime there has been an economic downturn, providers--and not just software providers--try to figure out ways to get new revenue," says Ditka Reiner, president of Reiner Associates Inc., a consulting firm that helps businesses negotiate software contracts. "It's not that vendors are evil, it's just that vendors are trying to stay alive," she says.

Some observers question whether there's anything really new going on. Complaints about software pricing have been around as long as, well, software, they say. "Nobody's ever happy about pricing. You could charge $1.98, and people would still complain," says Aberdeen Group analyst Denis Pombriant. Any vendor trying to boost prices could face a nasty backlash. "A sure way to put yourself out of business is to raise prices when demand is slack," Pombriant says.

Others say price maneuvering is business as usual. "I haven't noticed any changes," says Dennis Hernreich, executive VP, chief operating officer, and CFO of Casual Male Retail Group, a men's specialty retailer with more than 580 stores, as well as E-commerce and catalog operations. "They're always trying to get you."

	Photo of Daniel McNicholl by Bridget Barret

True, but they've been trying harder recently, says Daniel McNicholl, chief strategy officer for Information Systems and Services at General Motors Corp. McNicholl says software vendors had eased off price hikes as the downturn in IT spending worsened, but he's seen renewed efforts in the past six months. Attempts to boost prices "get shot down pretty quickly," he says.

At the InformationWeek Fall Conference last month, Hyundai's Hoffman asked for a show of hands to indicate how many in the audience of several hundred attendees faced software price hikes. About half raised their hands.

Not every business is able to fight higher prices. Patrick Wise, VP of advanced technology at trucking and logistics company Landstar System Inc., faced increases in software maintenance when planning the budget for next year. The company's antivirus software vendor had increased maintenance fees 60% this year; Landstar decided to pay rather than rip out and replace the application.

2 of 3