Adriaan Bloem is starting to hear both customers and vendors estimate implementation costs to be 7-8 times software licensing costs. That is a big increase over the old budgeting rule of thumb which was 4-5 times licensing fees. I am not saying that there was a sudden increase, but I had been holding onto that old number for a long time so the new number came as a bit of a shock.
My immediate reaction was to try to explain the increase and I thought I would share some of my ideas here.
- Sites and technologies are getting more sophisticated. We have come a long way from the old world of static publishing. Now we are building interactive content applications that can be constantly tuned to optimize visitor experience and maximize business value. The tools have come a long way to support this but that doesn’t mean that everything comes out of the box. Every new feature and option requires design, configuration/customization, testing, and management. The market is buying potential and the vendors are selling it — but realizing that potential isn’t free.
- Document management is no longer bringing down the average. Back when I heard the 4-5x estimate, it seemed that was across web content management, document management, and digital asset management. Back then many document management projects had minimal implementation effort. There was basic functionality that came out of the box that didn’t need to be (or couldn’t be) configured. You just had to configure what metadata was captured, roles and permissions, and, for that nice touch of customization, add the client logo. That was OK because it didn’t really matter if Company A’s document management system looked nearly identical to Company B’s. Not only am I seeing more web content management these days, but document management is getting more web-like. Leading the charge is SharePoint, which you use to create an interactive web site out of your documents (plus a whole lot more). Understandably, SharePoint implementations are very expensive. I am seeing the same thing with digital asset management systems that allow you to create an eCommerce-like site to browse through and collect assets.
- The technologies are getting cheaper. Content technologies are coming down in price — not just because of the pricing pressure from open source. The market is maturing and that leads to commoditization and competition. The super high-end products which commanded ridiculously high license fees are quickly becoming irrelevant and being acquired by infrastructure companies for maintenance annuities rather than sales potential. When buyers are using cheaper technologies to build more sophisticated websites, the implementation/license multiplier is going to go up.
The net of all of this is that buyers are seeing the potential of content and are investing in building solutions that can realize that potential. The underlying software products are only part of those solutions, which also require strategy, execution, and continual attention to be successful.
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Hi Seth,
I like the view on the evolution of Document Management, it clearly isn’t anymore as simple as before. Not that it’s more complex now to setup for the same result, but clearly because Document Management goes beyond the simple use case of the first generation of Document Management, with may be more implementation costs, but definitely more opportunities and in the end more return on your investment as well.
I am, as you are, a bit surprise by the 7-8 factor, but more than challenging the number, how can we still use that ratio when licensing fees doesn’t mean that much nowdays, when many software solutions are sold on a subscription basis, as a service or per usage, on operational costs and not anymore capex?
This might explain the jump in the number… For us at nuxeo for instance, it simply makes no sens to use that ratio as there is no upfront license! The ratio should be made on a TCO over let say 4 or 5 years period.
However, when it comes to implementation costs over the last 2 or 3 years, the tendancy is more to have them going down than up, as this is where we focus our features > making it easier and faster to build applications.
Hi Seth, good article and inspired some thinking around the evolution of the WCM market. Is it ok that the services ## keeps going up? what are the implications on the business when all of that custom implementation work is done? I posted some thoughts on the Percussion Blog here:
http://www.percussion.com/blog/marketing-blog/Web-Content-Management-Product-or-Framework/
@ajdun
Hi Seth,
Its an interesting point you raise, personally I agree that this shift is in part in reaction to your first point, websites are getting much cleverer and that cleverness requires development and implementation time and effort which translates to the bottom line very quickly. Not something buyers are always ready to accept as they often look for fixed deployment costs without always knowing what they want when they start their process.
As you say, the market has matured and become commoditised, yet bizarrely with this often creates conflict with the fist point. People have the perception that they can simply select some open source or similar CMS then deploy a whiz bang website with very little effort and then wonder why it doesn’t do what Amazon does!
In my experience, the market now needs to look beyond which CMS platform they pick as this is, in the main becoming irrelevant as the mainstream are all much of a muchness. Buyers need to consider what their chosen CMS partner of choice can do for them, it is more about the skills, services and expertise now and less about the technology.