Why is the cost of software so high? This is a question often contemplated by many executives today. In this article, I address this question and provide my opinion on the answer to it.
What is the True Cost of Software?
While we all tend to get fixated on the tangible dollar price of any good or service, it’s more to it than just the price tag. In reality, the biggest cost of technology is when it doesn’t work. And, the second biggest cost of technology is when it works perfectly, but it doesn’t do the job you need done. Those two truths mentioned, software license costs are due in large part to not development costs (the expense to make the product better) but rather a result of the inefficient manner in which we buy software and how software is sold today. Let me elaborate.
Software Buying is Dysfunctional
In my opinion, the buying process used by most consumers looking for new software is neither efficient nor effective. Therefore, most software developers are forced to apply more of their budget to sales and marketing rather than to software research, development, & updates. In essence, the software developers (if they want to increase market share) apply an inordinate amount of their funds to attracting customers, and this fact drives up the costs of software.
Sales and Marketing Costs
For example, HubSpot spends three to four times on marketing as they do on research and development. Salesforce.com routinely spends four times or more on marketing as they do on research and development. Blackbaud, Inc. spends more than double on marketing than research. This translates back to costs for the consumers. For example, take a look at some of the public trading software vendor’s recent financial statements:
Bad Sales Presentation
It’s unfortunate, but there truly are some good software products out there that few know about in the market. But, doing this for a while, I have found that one aspect which can and does drive up the cost of software isn’t simply the consumer’s fault. In many instances, it’s the vendor’s fault. Yes, it’s as a result of bad sales presentations and poor messaging.
In fact, it’s not uncommon for many products not to get the merits they deserve or for the software vendor to grow, because the company (sales, marketing, staff) doesn’t know how to present the software very well. A quick joke told to me recently by a current nonprofit client:
“What is the difference between a used car salesman and a software sales person”.
The punchline: The used car salesman knows when he or she is not telling the truth. Now, that’s certainly not true of the majority of sales professionals in the software industry. But, there is a kernel of truth in some situations for sure.
Joking aside, the cost is huge for both vendor and client when things are not presented well. Or, when a sales professional doesn’t know what the heck they are talking about. It can hurt the vendor lose a sale which costs the supplier money. And, it can cost the client dearly too if they procure the software and it doesn’t live up to expectations.
Make no mistake; software implementation failure impacts cost on both sides. A solution is not just software or technology. It takes strong support and continually having a provider which is innovative, led by strong talented people, and committed to long-term success of their clients.
Know Before You Go Search
Unfortunately, like many things we do as consumers. We actually contribute to the price we pay for software by the process we take to procure it. Now, this may sound simplistic.
But, it is a capital mistake to go out and buy software before you know what you need the software to do. It’s not uncommon for many nonprofits to randomly spend countless hours on demonstrations with vendors. This time is money on both sides of the equation. No one wins!
It is so critical to determine your requirements first, prioritize those requirements, then look for software that fits your needs. This will save you time and money. And, it will save the software providers valuable dollars too on marketing and sales costs.
Finally, once you have finalized your option (s), open up and explore a solution which truly meets your needs. What does this mean? Well, it means don’t hold anything back. Be forthcoming with what you desire to accomplish, expect to accomplish, and be sure that is congruent with what the software provider can actually do. Vendors can’t solve a problem which we do not know exists.
The True Cost of Sofware; When it doesn’t work
As a representative of a nonprofit, you don’t want to waste a penny; you want to apply as much of your funds and time as possible toward your chosen cause. Not software. If we all take note of what causes software to be priced, then we may find that it continually will go down.
To find the right software for your needs, contact us. We connect nonprofit executives with the best fit. Until next time, keep SmartThoughts in mind.