On-demand application providers are offering their products for as low as €100-200 per person per month whereas more traditional client-server applications are sometimes giving away their application in return for lucrative services and annual support contracts.

In the late 1990s, nearly all system vendors were introducing their web extensions to their core products. These extensions were perceived well by the market place and vendor sales revenues were rising at an average annual rate of 25 per cent. Soon both clients and services consultants were facing a dilemma which was known all along to architectural technical consultants. These web extensions were about to reach their scalability limit depending on underlying language, tier structure and the server set-up of the core application.

As a result, in most cases it was no longer possible to roll out the new web extension to all subsidiaries as it was originally planned and budgeted because the underlying core application was not supporting the web extension. As an alternative solution, technical architects were quick to propose a different solution, of which, leveraging the core application over Citrix, a platform that allows remote access to client-server applications which otherwise are not possible to roll out within the organization, seemed to be the most popular choice. Citrix looks like a web solution but fat clients (clients that perform the bulk of the data processing operation) were being implemented across the organizations. Many organizations have deemed Citrix too expensive to operate because each client requires individual services when new patches are released or versions are upgraded.

While alternative technical solutions are being reviewed, US and EU markets have headed into a reversed situation in their concentrations. In Europe, change from currency exposure and risk management from multiple currencies to improved liquidity planning and general scrutiny over working capital management has become more sensitive than ever before. At the same time, SOX-driven legislative changes are still driving US organizations not only to improve their workflows but also their audits and segregation of duties. Commonly, US listed EU corporations are being asked to do their parallel accounting as required under SOX-404 and as a result systems vendors are facing unplanned complex development costs. Technical architects are re-designing applications with treasury sub-ledgers in order for corporate treasury accountants to close the books according to different valuations and local GAAPs.

Sales and the Emerging Price War

While web extensions have largely failed to meet the scalability expectations and while system vendors are facing extra major development costs, a new breed of solution providers are pressing prices down for on-demand applications.

On-demand, or Application Service Providers (ASPs), offer their applications on a hosted pay-as-you-go basis. These providers have quietly built their core applications in recent years with new scalable fourth generation languages so that solutions are only available over the Internet. Although these solutions are typically somewhat limited in their functional flexibility when compared to traditional client-server applications, some are quicker and cheaper to roll out and maintain. Furthermore, some Wall Street analysts predict that on-demand vendors that survived the Internet bubble will collaborate with voice-over-Internet-protocol providers for the next IPO bubble and many venture capitalists are already planning their exits from traditional vendors in order to invest in on-demand ones.

Naturally, traditional client-server application vendors have realized the threat of on-demand vendors and this has not only resulted in a price war but has also changed their new business sales strategies. In other words, client-server application vendors are now optimizing their revenues and are concentrating on account management while downsizing their new business sales offerings as pre-configured solutions to emerging treasury system markets, such as Eastern Europe, Middle East, Africa and Latin America.

At the same time, on-demand application providers are entering into a growth phase of their product life cycle and are aggressively targeting not only new treasuries, but also those that are undergoing legacy system upgrades, general cost-cuttings, M&A or just benchmarking exercises. Since on-demand system vendors can offer profitable and attractive prices over any traditional client-server application, organizations are viewing them as attractive but still somewhat limited alternatives.

As an indicative pricing matrix, the tables below highlight how up-front investment for on-demand cash management applications at €200 per person is only about one-quarter of the price of traditional cash management applications.

Scenario: 6 users, 2 treasury users and 4 subsidiaries, same cash management and liquidity planning modules, 7-year contract 

Summary

The emerging price war among the treasury system vendors is a natural technology driven evolution. It is not a new phenomenon within the software industry and it will not be the last one either. Traditional client-server applications are in a maturity phase of their product life cycle and they are about to turn into a decline phase where price dumping and entering into emerging markets are typical characteristics. While organizations are benefiting from the situation, a new generation of technology solution providers are about to pass their introduction phase and enter into their most aggressive growth and sales phases.