Software Costs Set to Fall, Says Gartner

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Companies should expect to be able to reduce their software costs significantly over the next 10 years, as new factors loosen the traditional hold of software makers over their customers, according to Gartner.

While computer hardware has become commoditized, companies have had little negotiating power where it comes to software, but that situation is now beginning to change, Gartner said in a research note.

Gartner research vice president William Snyder said in the report that a number of separate factors are coming together to dramatically change the relationship between software companies and buyers.

"Software buyers need to realize that the pendulum is beginning to swing in their favor and that there are an increasing number of alternatives in today's software market," Snyder said in the report.

These alternatives, which customers will increasingly use to squeeze software vendors' profit margins, include business process outsourcing, software-as-a-service, increasingly competitive open source applications and third-party maintenance suppliers.

Snyder predicted that a quarter of all new business software would be delivered by software-as-a-service by 2011.

On an international level, the rise of Chinese software companies and the expansion of the Brazilian, Chinese and Indian markets will help to lower software costs, particularly in servers, operating systems, development tools and database technologies.

"We would advise IT organizations to use BPO and open-source alternatives to improve their negotiating power with software suppliers as well as employing the emergence of third-party vendors as a means to reduce higher maintenance fees on older versions of software," Snyder said.

He added: "Costing out the possibility of using offshore skills to build application functionality as web services will also help negotiations with vendors."

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