A Cautionary Tale About Software
Over the past several years, software has become a significant source of revenue in the AV industry. The approach to providing software can vary widely amongst different vendors. Some “give” their software away since it only works with their equipment. Of course, we all know we are paying for that software when we buy the equipment, we just don’t see a separate invoice for it. Others have software that is their entire product. Digital signage companies are probably the most obvious example. Many of them don’t even sell hardware anymore, they let you put their software on a variety of hardware devices purchased from other vendors. But others also have revenue streams from software, including software that is used for design purposes, or project management purposes. Some vendors have created software that manages entire facility systems or provides remote support options. There is no doubt that software is a lucrative business right now for manufacturers. They can develop revenue with it, without having to worry about shipping problems and stock levels.
In the higher ed vertical, software has quickly become a topic that is reaching the highest levels of the organization due to massive increases in costs. From an institutional perspective, I would suggest it is close to being at a crisis point. For years, we have expected to see a 2-3 percent annual increase in software, and even that was not sustainable. Often, we have been able to mitigate these increases with extended contracts. If we sign for 3-4 years, for example, companies have often been willing to limit the increase to 6 or 7 percent over the life of the contract.
What has become rampant in software vendors during the past eighteen months, however, are what we view as enormous increases. We have had discussions with several vendors who are telling us that we are getting, or in the next year should expect to get, increases of anywhere from 10-15% in a single year. We have not heard this directly from any of our software for AV needs, but I expect that it will be coming. I am writing today to tell you that this is simply not tenable for higher education. This year many institutions had budget freezes or slight budget cuts. You can not sustain both a 5% budget cut and a 10% increase in software costs. Something has to go, and I am here to assure you that it will be your software that gets cut.
As I go into negotiations with companies, they have a multitude of reasons that the price will be going up. The most popular one, of course, is, “Look at all the great features we have added to this product!” The features are, of course, nice. Everyone likes new features of their favorite tools. However, they are not necessary and if we were given a choice to stay at our current costs without those features, that would be the option we choose. The other reasons for increased prices are that they are making it available to all students on their personal machines, or otherwise expanding licensing. Again, that is a nice bonus, but not one that colleges are going to be able to pay 15% increases to get. The word of caution to vendors in the AV space is don’t make this mistake. Giving us features we did not ask for and do not need is not a good reason to then significantly raise the price of a product.
To drive the point home even more I will give you a real example. I was recently in a conversation with colleagues at other institutions. The discussion turned to digital signage and the cost of the management systems that run them. Out of five of us, two people indicated that their school had decided to take down their signage. They looked at the price increases they had dealt with over the past several years and compared that with the value they gained from the software. They determined that the product was not delivering the value of what it cost. They canceled the software and spent that money on removing the displays and patching the walls.
The anecdote has more to do with just the cost of the software. Both of these people indicated they did not feel the signs were well used, and managing content was something no one wanted to own. However, it also illustrates that higher ed has reached a point where we can not continue to increase our budgets to keep up with software increases. It also shows that schools are not afraid to say, no more. There are some software functions and titles that are “must haves,” like an ERP and a learning management system, and we will never be able to walk away from those. The fact that those are must-haves, and their prices increase, is even more bad news for the titles that are not “must-haves.” It means that when we start looking for places to cut, it is going to be the “extras” that get cut. If you are a software provider and considering significant increases, I urge you to think twice. If you feel you must increase prices in order to sustain your business, I highly recommend you provide value that your customer absolutely needs and has made clear to you they want.