UK users of enterprise software have already been subjected to various price rises including VMWare and Microsoft, who applied a ‘generous’ hike of up to 22%. This was on top of last years’ hardware increases, which were in the region of 9%. All are blamed on the exchange rate reduction caused by the shock result of the Brexit referendum.
Now Adobe has just announced price increases to kick in from 6th March this year. There is no published scale to match price rises to individual products, but it is understood the range is between 10 and 60% (which might be described in somewhat less favourable terms than ‘generous’). Clearly, whilst 10% is pretty much in the same ballpark as everyone else, 60% is nowhere near and is unjustifiable simply on the back of the exchange rate movement.
Adobe products have a reputation for being solid but expensive, benefiting from a relatively benign competitive position in the market, which, when coupled with subscription pricing, provides the ideal scenario for such a rise – a dominant market position, coupled with spreading the cost to lessen the perceived impact.
Obviously, this situation exists because the suppliers in question are either US companies or trading heavily in US dollars through manufacturing to sales. There are UK-based IT companies, but unfortunately the vast bulk of technology is US-centric and it is unlikely any business user will be able to substitute a significant proportion of their software or hardware estate with UK alternatives.
If one supplier raises prices, the impact is generally fairly low for users, but when everyone is following suit and the rises are at this level, a significant financial impact is likely to be felt by UK organisations with reasonable annual IT expenditure; especially where they have finalised their budgets for 2017 before some of the price rises hit.
Further, it is unlikely that prices will fall significantly, even if exchange rates were to return to pre-referendum levels (which they won’t). This is because software companies will prefer to keep the profit and report better results to Wall Street, using the higher revenues to drive their stock up, pointing to their own performance as a positive. In general, this is not a profit issue, as software companies are already highly profitable in many cases, although cash flow has been eroded by the move to software subscription over the previous industry standard perpetual licensing model.
Whilst there is no silver bullet, at Expense Reduction Analysts, we have developed several cost reduction measures to benefit the beleaguered IT and Finance Director, including an assessment of the situation on a per client basis and recommendations to mitigate the impact. Requests for our assistance are growing and we would urge you to have an obligation-free discussion with us today, whilst we still have availability.
Article by: Simon Atkinson