Companies find ways to save on software purchases

By Jon Swartz and Byron Acohido
USA Today

Companies routinely buy software applications bundled together, but some have been saving significant money by negotiating with resellers and buying only the programs they need.

Their frugal ways, however, have contributed to plummeting profits for software companies.

Tim Belec recently shaved $1.1 million in software costs for his company without sacrificing productivity.

Faced with an expensive Microsoft Office upgrade for 3,500 personal computers, Belec, vice president of information technology at hospital chain Wheaton Franciscan Services, used a new monitoring tool from Houston-based Scalable Software to monitor employees' software use. Belec found that only half the chain's PC users used Microsoft Word or Excel, and just two dozen created PowerPoint slides.

Companies routinely buy those applications bundled. But Belec negotiated with a software reseller to break up the Office suite and buy programs piecemeal. "We were able to mix and match our software to meet our needs," he says.

Coping with a grim economy, tight-fisted companies are squeezing software budgets as never before, creating the first retrenchment in the software industry's 40-year history. By taking stock of how they use software, many tech buyers, such as Belec, have found they can do more with less. They're making do with what they have, cutting waste and finding cheaper, more streamlined alternatives.

That has pummeled the $74.9 billion market for worldwide corporate sales of software licenses, which has been flat since 2001. Companies that grew at double-digit rates in the late 1990s, including Siebel Systems, Computer Associates and PeopleSoft, have seen revenue dive. A slew of niche software companies that mushroomed during the tech boom were wiped out. Research firm Gartner Dataquest predicts thousands of other companies will be acquired or shuttered.

For companies buying software, though, times are good.

Technology "buyers have more power and leverage now than they have had any time in the past 10 years," says Yankee Group tech analyst Laura DiDio.

Decision makers are squeezing software makers by:

• Not buying. Companies are making the most of their software stash.
• Identifying waste. Factory operators long have fixated on performance metrics to boost efficiency. Now, software managers are doing the same.
• Refusing to pay for bells and whistles. Wheaton Franciscan balked at upgrading to Office XP for $479 a copy. Instead, it bought Word, at $130 a copy, and Excel, at $150, for half its 3,500 PCs. The other half use non-Microsoft applications. It got away with buying just 30 copies of PowerPoint, at $200 a copy, and a handful of Access databases, for $300 a pop.
• Dumping big software packages for online subscription services. Companies are buying more software delivered via the Internet for basic tasks, such as expense report management and healthcare benefit management.

One of the biggest benefactors has been SalesForce.com. It charges $65 to $125 for Web-based programs that help sales reps track leads and respond to customers.

The issue isn't just money: More than 60 percent of U.S. tech initiatives that depend heavily on software fail to meet objectives because they're not properly used by employees, says market researcher Standish Group International.

What's more, gun-shy companies are also still digesting the software they gorged on during the tech boom. In the late 1990s, they spent heavily on software and tech products to prepare for the feared Y2K bug and to make businesses Internet savvy.

The squishy market for pricey, feature-rich applications has forced big changes among large, established software makers.

Microsoft, Oracle, SAP America and others are more aggressively courting smaller companies, which they previously almost ignored.

Consolidation among smaller players is likely. In the short term, those who survive are likely to limp along. Software companies will be among the most likely to file for bankruptcy protection this year, PricewaterhouseCoopers warns.

For those with the right products, there are some encouraging signs. Sales of software to big businesses this year are expected to grow 4 percent after being flat last year. And companies can only cut so much without hampering their competitiveness.