Discounting software and services to unreasonable levels to buy market share is a destructive and unsustainable practice which ultimately damages the market as a whole.
This is the observation from Stephen Howe, divisional executive at Comparex Africa Tetra, the largest reseller of Sage enterprise software in the world, outside of the UK, where Sage is headquartered.
"There is an unavoidable cost to doing business," says Howe, "and if you try and force the going rate below this level, you end up with an unsustainable market, one where clients expect to pay bottom dollar for software and services. In such a market, all vendors lose, some have to close shop due to unviable margins, and ultimately clients lose due to lack of choice."
Such a phenomenon is not surprising, Howe notes, given the state of the market as a whole and the enterprise software market in particular.
Post-2000, the market has slowed down as never before, and many formerly healthy companies are now marginal. It is these companies, more often than not, which are resorting to single-digit margins - or even selling software at cost - to ensure they can snare whatever business is available in the market.
"This scenario is similar to what has happened in the PC and Microsoft licensing markets over the last few years," comments Howe. "To ensure they could lock out competitors, companies in these sectors would undercut each other, driving their margins ever closer to zero. We can see what the consequences of this approach has been: there are very few PC manufacturers left, and equally there are not many choices when it comes to Microsoft licensing. I fear that enterprise software clients could be heading down the same route."
The solution to this problem, Howe asserts, is multilateral: for clients to respect vendors` margins; and for vendors to compete fairly and in a spirit which ensures sustainability. This applies equally to software and services, neither of which can be discounted below a certain level.
"The market might have slowed down, but there`s still more than enough to go around for everyone, and at margins which ensure companies can keep their businesses going," says Howe. "We would rather walk away from potential business than compete at bargain basement levels. This approach has kept us going for more than a decade, through many market cycles, and it will continue to sustain us."
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