IT Budgeting, Impossible?
As the consolidation of solution providers continues and our choices of vendors providing the tools we need to work are paired down to a quasi-monopolistic "choice" We see the way in which we pay for the use of tools changing as well. Software licensing is based on a recurring charge. Purchasing perpetual licenses for word processing client software as well as elaborate specialized scientific applications has become a month to month or annual relationship “Right to use”
There are benefits to this pay as you go system. First, you do not have an initial larger capital expenditure to budget for, second, the fast paced evolution of software versions which would otherwise leave you with the need to upgrade, is normally built in to the recurring fee. Lastly, the software support can be part of the agreement as well, with software providers realizing that they need to respect the SLA or risk losing your business. However, consolidation of providers removes the chances of bringing in an alternative to your current small business accounting software. When there is only one real game in town, good or bad, you have no choice but to play.
Defining a monopoly in today’s digital world is nearly impossible to do compared to yesteryear when something like the brick making industry suddenly became controlled by a single brick manufacture. It was easy to identify and easy to divide into smaller self-sustained brick providers. Conversely, It can be argued that one specific provider of a specialized software program has 99.9 percent of the market, but is not monopolistic because there are other choices and more so there are other ways of processing the same data using programs that are similar enough to the product of choice but are not marketed for that purpose. But in the long run, business owners will continue to forgo alternatives because the risk of change is far greater than swallowing the bitter monetary pill that comes along with the product that has been on their desktop for as long as they can remember.
In our opinion, something has to give when it comes to this software leasing business model when the provider realistically has no competition. Right now, during the transition from upfront software licensing to recurring “cloud based” services, vendors have themselves to compete with. The uncertainty of acceptable software licensing agreements will function makes all other decisions for IT budgets a bit foggy.
Hardware platforms have a life cycle expressed by their manufacturers specifically stating the amount of time that hardware will be usable. There are benefits to knowing up front. When you are buying a half dozen laptops for your sales department, it is advantageous to know how long the usable life of that laptop will be.. The calculations are based upon factors that include the assumption mechanical parts like fans, and hinges and keypads will wear out or the cost benefit to fixing a damaged laptop will outweigh the benefit of replacing it within a few years. The life-cycle calculations are also predicated on newer software requiring a more robust platform. Hence, if your software license agreement calls for you to always have the latest and greatest version, the validation of a hardware life-cycle is a forgone conclusion. This may not be a conspiracy, but when the controller for a small business sits down with the CEO, and they are looking at the budget for the next five years, I doubt thoughts are completely absurd.
Procurement of systems we need in our business must take into account these calculated assumptions and they are no doubt designed to create a reliable predictable revenue stream for the provider. This crystal ball related calculation of future needs and your ability to have employees stay productive is something that theoretically makes sense, but there are too many variables to make precise time-lines to prepare for functional antiquation.
But a small business is not entirely powerless in this shifting paradigm. At some point they need to either put fear aside and take the path less traveled, or at least employ the services of an IT consultant who can help them maximize their investment in the tools of their trade. The safe way may seem to be use the hardware provider's guidelines when budgeting for and depreciating hardware, but there are also things that every organization can consider up front to maximize the investment in infrastructure.
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