Back to Top

HR software subscription costs mount over time

30-second summary:

  • The HR software market is already worth an estimated $15.8 billion and is currently growing so quickly that, within just three years, analysts believe its value will have reached $25 billion – an increase of over 60%.
  • Software Advice’s new report looks at 11 different software providers and evaluates each of the three major pricing models: perpetual license, subscription, and open source.
  • The research suggests that the vast majority of software providers have already abandoned perpetual-license plans in favor of subscription-based models.
  • Software Advice find that subscription models actually carry a number of the same up-front costs as perpetual licenses, including installation, customization and integration. 
  • Perhaps a more important point to consider regarding subscription is the huge variability in prices, particularly at the higher level. In fact, among the 11 companies surveyed in the Software Advice whitepaper, the base cost of enterprise packages varied from $1,004 to $3,051.
  • As more and more companies enter the market, the price will only go down – so it will become cheaper and cheaper for small firms to secure professional HR technology.
  • Open-source plans actually carry a number of hidden costs. As the report makes clear, these can include training, data migration, hardware and IT and maintenance and upgrades.

The outbreak of Coronavirus may have forced millions of people around the world to fire up their laptops and embrace remote working, but this is really only an acceleration of an existing trend. Long before the COVID-19 crisis crashed down on us, the world was moving inexorably towards virtual, asynchronous offices, attracted by the freedom and flexibility of distance working. This global trend has proved a major boon to the HR software market, which is already worth an estimated $15.8 billion and is currently growing so quickly that, within just three years, analysts believe its value will have reached $25 billion – an increase of over 60%.

At the same time, however, the market is having to grow up fast. New entrants are arriving all the time, driving a shift away from traditional, perpetual-license models towards more flexible alternatives. The entire industry, in fact, is in something of a state of flux.

So it was with great interest that we read a new whitepaper from Software Advice on the evolution of HR software pricing. The report looks at 11 different software providers and evaluates each of the three major pricing models: perpetual license, subscription, and open source.

In this report we summarize the main findings of the whitepaper. You can find the full version here, which contains a number of equally interesting takeaways.

Content produced in partnership with Software Advice.

Move away from perpetual-license almost complete

Software Advice’s research suggests that the vast majority of software providers have already abandoned perpetual-license plans in favor of subscription-based models. Of the 11 ‘popular packages’ listed in the report, only one – People-Trak – offers a perpetual-license plan. 

This only adds to a wealth of evidence that perpetual licenses are facing extinction, particularly at the mid-level, which previously relied on lifetime purchases plus maintenance fees.

The continual improvement of SaaS technology makes it increasingly easy for companies to store their core HR functions in the Cloud, and the adaptability of a subscription service is a major incentive for customers, who are already using subscription-base services like Netflix and Amazon Prime in their personal lives.

Over the next few years the trend is only likely to continue; By 2020, Gartner estimates that subscription models will account for 80% of all license models, and this is backed up by experts we spoke to on the ground. 

Sarah Dowzell, an HR commentator and founder of software company Natural HR, said “a few years ago, in the market we did come across the question [of which model was better]. No, no-one would ask that question.”

Ben Gately, who runs his own software business, CharlieHR, adds: “Software is about giving customers absolute choice and flexibility, and perpetual-license doesn’t do that. By locking people in, you’re not necessarily driving your company to solve problems. You’re doing what’s right for you, not what’s right for the customer. We’re going to see the end of perpetual-license models, probably within the next five years.” 

Subscription doesn’t necessarily deliver cost benefits

Despite the burgeoning popularity of subscription models, the Software Advice whitepaper suggests they don’t always deliver greater cost savings in the long run. The authors find that subscription models actually carry a number of the same up-front costs as perpetual licenses, including installation, customization and integration. 

What’s more, the costs of the two models tend to converge over time. While a perpetual license model costs double a subscription model in year one, by year nine the two parabolas tend to have met.

The finding will no doubt surprise many readers, given the widespread view that subscription models offer considerable savings over their fixed-fee counterparts. However, as John Curtis, CEO and founder of Myhrtoolkit points out, this might not be a relevant factor for many firms.

“Who wants software for seven or eight or nine years anyway? Seven years is an eternity in software. The quality increase in HR software in the last three years is exponential. Look at UX – it barely existed as a discipline 10 or 15 years ago, now everyone is used to it as standard. It just shows you can’t afford to carry legacy software.”

Sarah Dowzell makes a similar point: “Whilst we all want client retention, there’s a natural churn rate for most vendors. Also, a change in staff within the client can prompt a change in software – sometimes it’s just down to their preferences and other experiences. I’m not sure of the typical staff tenure, but I’d bet it’s closer to 4 years than the 7-10 range.”

Huge disparity in subscription models

Perhaps a more important point to consider regarding subscription is the huge variability in prices, particularly at the higher level. In fact, among the 11 companies surveyed in the Software Advice whitepaper, the base cost of enterprise packages varied from $1,004 to $3,051.

This disparity reflects both the immaturity of the HR software market, and the wide variety of functionality among programs at the sharp end, a point Sarah Dowzell readily acknowledges. 

“At the top level, when you’re comparing software, all the headline bullet points look very similar. But when you go into it, the depth of the functionality and automation carries a lot of difference. A really simple example is around the concept of time-off – a reason for tracking someone’s time away from work. Every HR software package does it, but the amount of complexity will vary greatly from one to the next.”

With this in mind, larger firms looking to buy a more advanced software option will need to do plenty of homework before deciding what’s right for them.

Wealth of choice at lower levels

At the lower end of the market, however, there’s a huge amount of options for smaller firms looking to secure a starter package.

Of the 11 companies included in Software Advice’s comparison, six – BambooHR, Kronos, PeopleHR, PurelyHR, WebHR and Zoho – offer starter packages from $6 a month or less. What’s more, two of the companies also offered free versions.

In fact even the giants of the industry are now offering start-up packages at very low prices. Xenefits’ subscriptions, for example, start from just $10.

As more and more companies enter the market, the price will only go down – so it will become cheaper and cheaper for small firms to secure professional HR technology.

Open-source comes with a raft of hidden costs

This relentless pressure on subscription prices may start to squeeze open-source providers, whose main benefit is their cost-effectiveness. Open-source licenses are typically offered free of charge and are marketed as a ‘DIY’ option for companies with in-house technology expertise.

However, as the report points out, open-source plans actually carry a number of hidden costs. As the report makes clear, these can include training, data migration, hardware and IT and maintenance and upgrades.

To critics, this finding will add further weight to the case against open-source software. After all, it doesn’t stay automatically up-to-date like subscription software, and there’s no guarantee of quality.

As Jon Curtis says, “open-source is only going to suit a small minority of people. What you sometimes get is an in-house tech guy who says ‘I really enjoy coding, here’s some open-source software, I’ll do it’. But firstly that person will massively underestimate the task at hand, secondly you won’t have the project management skills that are needed, thirdly, if they leave, you’re left high and dry. 

“Then there’s all sorts of security issues. Security’s all about the quality of your code – how do you know, if you’re using open-source software, what standards have been used? It’s a bit like writing your own will, or building a kit car. It sounds great in theory but anyone who understands these things will suck in their breath and advise you against it.” 

To find out more, please click here to access the full whitepaper, and get the complete picture on HR software pricing in 2020.

The post HR software subscription costs mount over time appeared first on ClickZ.

Reblogged 7 months ago from www.clickz.com

Comments

Write a comment

*