Crash may force software price cuts

11 April 2001
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12 April 2001 | Liam O'Brien

Purchasers could benefit from a software pricing war as e-commerce companies fight to shore up their tumbling stock-market valuations, according to a leading industry analyst.

"E-business projects still have to go ahead because they are the only way of finding efficiencies. What this might do is dramatically change the price companies are willing to pay," Nigel Montgomery, research director, e-business Europe, for AMR Research, told SM. "I think there might be a price war, with reductions of around 25 per cent over the next three to six months."

Montgomery's prediction comes as leading US software providers saw their share prices sink to new lows on the Nasdaq market last week. Ariba, Commerce One and i2 Technologies were among the main losers, and have seen between 80 and 98 per cent of their value wiped out in the past six months.

Ariba's share price plummeted to $5, down from $173 in September, after it announced that revenues in the second quarter would be half earlier predictions. The Californian company also said it would lay off 700 staff, a third of its workforce.

The next day, Commerce One also announced lower revenues and greater losses than analysts had forecast.

Commenting on the poor results, Paul Taylor, Commerce One's general manager in Europe, said: "Firms are making much more considered decisions based on a stronger evaluation of their future direction and how they can use these solutions."

Firms have found that buying the technology does not automatically lead to saving millions of pounds. "It doesn't work like that," said Moira Crabtree, director of global purchasing at insurance firm and Ariba customer Royal & SunAlliance. "It can cost £3 million to buy software, but then another £10 million to implement it."

Regardless of whether there is a pricing war among solutions providers, question marks now hangs over such large investments as the downturn in the US economy begins to affect buying and expansion plans in Europe.

"A lot of people have been asking the question 'are we going to keep our project going?'" AMR's Montgomery said. "Others are delaying their decision. The technology companies hope that the decisions will still go ahead."


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