Lucernex expert and President Joe Valeri (see Joe’s management summary here) provides details of why IWMS software from some vendors can be so expensive.
Reasons some vendors IWMS Software can get expensive
There are actually several answers to this question depending on the vendor you are looking at. I don’t believe it is appropriate to mention other vendors in a negative light so I will simply characterize them into groups and potential buyers will need to ask the right questions to ascertain where we all fit. Several vendors, particularly the really expensive ones, fit into many of these categories.
This is the most obvious one. Some vendors have grown rather bloated with staff. There are good reasons for this (lots of customer service or new product development) and bad reasons for this, which may provide evidence of potential problems including:
- huge Professional Services staffs – which may indicate a heavy implementation and long term services cost
- large product management and maintenance development staff – usually indicates there are many legacy products to maintain due to the companies move across different platforms as they matured. This is a problem as it typically restrains their development progress on their IWMS as they struggle to maintain many old products
- large development staffs in professional services – might indicate a likelihood of heavy customization needs
Many OEM licenses to pay for
Most vendors have chosen the “easy” way out when needing to add core components like reporting, workflow or dashboards by partnering with another software vendor to include that partner’s product within their solution. In doing so the IWMS vendor promises a specific dollar amount per sale or a percentage of each sale back to the partner vendor. This DOES often give them excellent functionality in that area but it comes with a cost per sale, a cost to maintain over time and adds another layer of complexity to managing the application over time for both the IWMS vendor and the customer. Note, I am not knocking this model. While Lucernex has decided not to use OEM partnerships to this point (with one minor exception) so that we can keep our prices low, this method does provide a short cut to really good functionality for some vendors; however it does add to their cost.
Heavy VC / Private Equity Firm involvement
Venture Capital and Private Equity Firms are in business to make money. They do so by gambling on a group of companies they invest in or purchase with the hope that a few of those companies succeed and repay their investment in all of the companies (including the failures) plus a hefty profit. To get these returns they of course will drive their companies (from their seats on the companies board) to increase profits to increase the companies’ value for an eventual exit (typically a sale to larger firm). Once again, I don’t knock this model, some companies have to do this to stay alive and others want to do it to accelerate their growth. As a result, however, prices have to be higher to meet these loftier profit objectives.
Many mergers to pay for
All software markets consolidate as they grow and the IWMS market is no exception. If you look back through press releases you will see several of the large vendors have been formed through multiple mergers and acquisitions. This is done to strengthen their offering and widen their customer base. Lucernex did this recently with our acquisition of Lease Cost Solutions (LseMod). Acquisitions come with a cost and an expected return on investment, which has to be factored into the products pricing (especially if you are backed by venture capitalists).
Requires extensive implementation services
This is typically the cost that is best hidden by the more expensive vendors. Proposals typically provide very vague pricing for implementation and require a discovery session to come to a real price. This is a valid need as it is impossible to provide a defensible price without knowing what the customer really wants. However, in most cases, the implementation (short and long term) cost far exceeds the software price! Customers can easily get fooled by a price, commit to a vendor and then find out the implementation cost is 2, 3 or even 4 times the cost of the software. This is especially true with vendors who are not Location Centric and have to customize or heavily configure to meet unique customer needs.
For those of you shopping for an IWMS ask these two simple questions to get a real idea of what implementation services will cost:
1. Do you offer any fixed priced implementations? If the vendor does and is willing to give you details, even if it does not fit your exact needs, it will give you a very good idea of what you will get for your money.
2. What is the typical ratio of services to software cost? For example in Lucernex’s case we are typically 1 to 1, meaning our services cost is typically equal to the software cost (and that’s not due to an expensive product cost either!). Having worked for or with several of the pricier vendors I can tell you their real cost of implementation is typically 2 to 4 times software cost.
The more location based a product is and the more user interface driven the environment configuration tools are, the cheaper the implementation should be.
Total cost of ownership (TCO)
Many IWMS buyers, when going for internal approval, concern themselves only with the upfront cost and the annual fee. While those are obviously critical, depending on the product, the long term cost of ownership may be much higher than these obvious fees if the vendor application requires customization or fails to provide easy to use client system administration tools. The more tools provided to the client to make normal changes easy for forms, pages, workflows, terminology, users and even system navigation, the lower the long term cost of ownership will be.
These are a few obvious reasons for the somewhat large price differences between the IWMS vendors. As usual, this is from my perspective as a low cost provider who has largely avoided the above pitfalls. I am sure the high priced IWMS vendors would argue that each of the above issues has actually made them a better product or a better company and they may be right! I am simply trying to provide some insight into why the differences exist.
Over the past few years we have competed for business across the country and have witnessed an interesting tactic that often occurs when we compete against the high priced vendors. They will present their price and then learn that a lower priced vendor like Lucernex is a finalist. They will then dramatically drop their price often to the point where they are breaking even or losing money. They do this to gain market share and try to starve the smaller vendors of revenue. It typically does not work as most customers see through it. However, some customers will go for it thinking they got a “deal”. What they get however is a vendor who will find every possible way to add change orders or to cut back their project, as they know they can’t make money on the deal any other way, and, once live, will not provide good customer service to a customer they are not making any money on.
Lucernex Lx Retail and Lx LseMod applications are very affordable and designed for low up front cost and low TCO. Our implementation projects are not only lower cost than most vendors, they include a complete training program to ensure clients can maintain and change their environment long after implementation ends to keep TCO low.