Thank SaaS For Flexible Financing

Competition from software-as-a-service (SaaS) vendors has hit software
vendors hard.

Spending growth on new enterprise software licenses has slowed to just seven percent in 2006, versus 10 percent in 2005, according to a new report from Forrester Research.

This trend is making software vendors get creative, and is leading to new
financing options for customers.

According to Forrester analyst Ray Wang, this is happening because many
enterprises have other spending priorities on the horizon.

Many are planning for service-oriented architecture (SOA)
 or middleware integration projects, while others have
expensive ERP  upgrades looming.

SaaS is one way for companies to lighten the load on their balance sheets
because it lets them defer capital outlays and infrastructure costs, said
Wang.

“Oracle has been doing this for ages,” Wang told .

“But other vendors are offering this now to combat SaaS.”

Not only are more vendors offering financing deals, but their terms and
conditions are becoming more generous as well.

Some software makers are now offering customers financing for their entire technology
platform, including databases, middleware and hardware.

For instance, explained Wang, Microsoft will finance the cost of a complete
corporate licensing agreement, a Dynamics CRM platform, as well as the cost
of a BizTalk server, a SharePoint server and even a SQL server.

Previously, vendor financing, when available at all, was applied to just the
cost of software.

Vendors are also offering financing for installation, education and for
temporary staff additions needed to compensate for IT staff that are
assigned to implementation teams.

They are also extending financing programs to their channel partners.

According to the report, Microsoft , Exact, Comergent,
Oracle , Sage and SAP offer partners
similar programs which they in turn can offer their customers.

“Channel partners get paid immediately by the vendor, and the vendor bank
finances the deal,” said Wang.

Typical financing terms range from 24 to 60 months.

Interest rates are usually tied to published LIBOR (London Interbank Offered
Rate, which is typically used as a floor for corporate lending rates) or
treasury rates.

The urgency is such that, according to the report, business intelligence
software vendor Business Objects is even offering deals at zero percent
interest under some conditions.