Software Slump Is Deal Time

The financial slowdown in the software market makes for a nice opportunity for data center managers to strike deals on software.

The IT industrys long-awaited economic recovery appears to be slowing in the software sector. Vendors feeling the pinch include BMC Software Inc. (NYSE: BMC), Siebel Systems Inc. (Nasdaq: SEBL), Veritas Software Corp. (Nasdaq: VRTS), PeopleSoft Inc. (Nasdaq: PSFT), and Computer Associates International Inc. (CA) (NYSE: CA). (See CA Warning Points to Product Holes.)

Even IBM Corp. (NYSE: IBM), which reported strong second-quarter earnings last night, admitted that its software business is essentially flat, compared to the second quarter of 2003 (see IBM Unveils Q2 Results).

Analyst firm Gartner Inc. warns that there will be slow growth in the software space until around 2006 and blames falling license sales for the financial shortfall many vendors are experiencing. With many users signed up for two- or three-year licensing deals, the vendors have little choice other than to sweat it out.

But, for those data center managers that need new software or are planning future requirements, now is a great time to buy. Gartner analyst Joanne Correia believes that there are plenty of good deals to be had and urges prospective users to make vendors demonstrate the real business value of their software.Amy Konary, program manager for software pricing, licensing, and delivery at IDC agrees that it’s a buyer’s market at the moment. “The vendors are clearly under the gun at the moment: They are under a lot of pressure to close deals.”

Specifically, it's software products that compete with open-source alternatives that are under the most pressure, according to Konary. “I have heard that some customers will go in [to meet their software suppliers] and put a Red Hat mug on the table.”

But, what about the users? Have they noticed the tide turning in their favour? Scott Blancett is the senior project manager for Denver-based fiberglass manufacturer Johns Manville., where he oversees the data center’s Unix servers and storage systems.

Blancett has definitely noticed the software market turn to the user's favor. ”I think this is very good news,” he says. "It will give us the breathing space we need to evaluate new software products, so that when things really pick up, we will be well postioned.

”Storage management software is still in its infancy, but, with the vendors hurting, you can afford to take some chances."Over the coming months, Blancett will be examining software products that can monitor and virtualize storage at Johns Manville’s data center, where SAN products from Hewlett-Packard Co. (NYSE: HPQ) are already in use.

”For storage management software, we will look at HP, but, if there are companies with better products, we will definitely pick and choose,” he says.

— James Rogers, Site Editor, Next-gen Data Center Forum