Computer Associates International's CEO Sanjay Kumar predicted today that every major enterprise software vendor is going to have to adopt a month-to-month license subscription model during the next five to seven years.
Kumar, speaking at Gartner's ITXPO conference in San Diego, argued that subscription models are better for customers because they allow customers to replace any given vendor without having made a huge financial commitment up front.
CA has made available a subscription pricing model to customers that Kumar said forced CA to adopt a new controversial revenue recognition model that has brought its financial model under scrutiny by Wall Street analysts and investors.
But Kumar counters that CA has merely adopted a revenue recognition model that reflects emerging subscription software models.
"Every software company in this industry is going to be forced to adopt the same business model that we have in the next five to seven years," Kumar said.
Industry analysts said subscription software models may prove a tricky sell by large software vendors such as Microsoft, Oracle, and CA to enterprise customers possessing little patience for vendors pushing new pricing and licensing models without substantial value-add services as part of the package.
"If customers feel that this is just another way of increasing [vendor] revenue and increasing users' cost for software, there will be resistance to it," said Audrey Rasmussen, vice president of Boulder, Colo.-based Enterprise Management Associates. "But if it is presented as providing additional value, such as automatic updates, simplified update downloads, and distribution throughout a company, that will resonate better. It could go either way."
Rasmussen said subscription-based licensing carries with it a host of benefits, including flexibility, minimal up-front cost, and freedom to migrate from a vendor's software products without a great degree of difficulty. But inevitably some drawbacks cannot be ignored.
"The downside of a subscription model is like a lease -- you never stop paying for it," she remarked.
Although subscription-based software should prove appealing to an "exploratory" group of customers eager to inspect its merit before making a commitment, Rasmussen said the onus is on software vendors to convince some of their own customers who have been wedded to long-term licensing deals in the past.
"Granted, Web services is going to be enabling the transition of software [delivery], but it will take people time to change their mindset on the subscription model and change in processes. Vendors will have to be flexible that way," she added.