CA Bullish on Its New ASP Business Model

Just over three weeks into its new plan, executives at Computer Associates International Inc. said they are confident that a subscription based model for selling software is the right way for the company to go.

CA executives held a conference call Monday with press and analysts to give the first public update to the new business model, which was announced last month. CA hopes to give clients a way to pay for software month by month, and add some choices as to the length of licensing contracts as well as more flexible payment options. The new model should also spread out revenue figures across the entire length of a quarter, removing some of the concern CA had about pulling in the majority of its revenue just before quarter end.

Under the new model, CA will let clients set the length of their software license, and also allow them to change or update software throughout the course of the license to accommodate changes in their business needs. Clients will be able to make changes to their software plan as long as the alteration fits within the time frame of the contract and the dollar value set.

"This is not a rental model," insisted Sanjay Kumar, president and chief executive officer at CA, in a conference call. "We are not in the business of renting software. I am a firm believer that this business model is a major competitive advantage. It is with month to month licensing where the technology has to speak for itself."

Kumar said the change will take some time to implement fully, estimating that more than 50 percent of software sales will be based on the new model by the end of the company's third fiscal quarter, which ends Dec. 31. That figure will move to close to 80 percent by the end of CA's fourth quarter, which ends March 31, Kumar said.

CA has dedicated a number of sales staff to push the new effort, and has sent executives around the globe to answer customer questions. Kumar said clients seemed pleased with the change thus far.

"We will have to say no to some business in the short term, but I think analysts understand the advantage of this in the long term," he said.

Monday's conference call was intended primarily to explain how the new business model will affect CA's financial reports, and to assure investors that while CA's financials may appear lower than before, the change could bring in more revenue in the long term.

"We will see revenue decline over the near term just from a reporting standpoint," said Ira Zar, chief financial officer at CA.

With customers paying for software over a longer period of time, revenue figures should be more evenly dispersed throughout the financial calender. Where a vendor might have signed a large contract just before the end of a particular quarter, for example, that vendor will now report payments month by month, breaking up the total throughout subsequent quarters. Zar sought to assure analysts that CA's cash flow levels should remain on par with those shown throughout the company's history.

The model will allow CA to better attack the ASP (application service provider) market, because CA will be able to offer its software to an ASP on a month to month basis more easily, Kumar said. This should allow ASPs to see what products show high demand and where users spend most of their time and money. With this in mind, they can adjust software purchases on a more frequent basis, he said.http://www.cai.com/

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