Breaking News: Discounted Cheap Services and Lower TCO Aren’t The Same Thing

This morning I was reading a post by Seth Fineberg on WebCPA. He apparently picked up on the press release issued by Accession Technology promising that they will be offering a 0% financing option and free consultation services to all companies interested in upgrading or converting to Sage Software’s MAS 90 and MAS 200 4.4, the latest version of MAS 90 and MAS 200.

This post from WebCPA elicited some excellent discussion on the Sage LinkedIN group about reducing software implementation and support Total Cost of Ownership (TCO).

The only problem is that a lower service fee (or discounted software) – isn’t the same thing as a lower TCO (total cost of ownership). Not by a long shot.

The fatal flaw in labeling Accession’s offer as a reduced TCO is that it disregards that there are typically two components to Total Cost of Ownership.

  1. Total cost of acquisition (what Accession and similar offers seek to reduce)
  2. Total cost of operation – or ongoing operating costs.

Simply discounting the initial acquisition cost produces a “feel good” immediate sense of saving money – or reduced cost of acquisition.

What happens if the software being sold is the wrong choice for the company? What happens if the company failed to consider growth when selecting their system and within two years they’re forced to change software to another package at greater cost and incur yet another round of costs.

Indeed the web site for Accession displays a simple order form that promises to return a quote after a prospective customer enters in a few key pieces of information – the most important being “how soon do you want to implement” and “what is your budget”.

If the sales process is flawed – as it most certainly would be if Accession’s methodology is to allow web visitors to self-diagnose their software needs – then the Total Cost of Ownership might skyrocket in the second phase (cost of operation or ongoing costs).

If the wrong software package is selected because the user was focused on the level of discount available or the number of free hours bundled with the initial sale then the much longer term operating cost of ownership could be enormous.

Another trend that we’re hearing about but have been unable to confirm is the use by some consultants of off-shore labor at significantly  (80% cheaper) rate reductions.

If the rumor mill is to believed –  MAS 90 end users are being offered upgrade consulting services for about $28 per hour by some big name consulting firms who allegedly in turn supply the labor from overseas.

Does a heavily discounted consulting rate produce a lower TCO?

Perhaps initially – however the risks of problems are greater than the savings masked by a lower rate.

For example – will the $28 an hour consultant think to tell you about  your software options or will they plow ahead like a robot on a $28 / hour mission?

What if part of the news a (more expensive) consultant might share involved projects for which drastic future changes were happening such as module upgrades or even discontinuation. And if that news caused you to avoid a major software project instead of plowing ahead.

TCO would skyrocket. In the instance of a cheaper rate the company’s purchasing nothing but — well, a cheaper rate.

Cheaper does not usually translate into a long term lower Total Cost of Ownership – especially if what was done cheaply has to be redone.

Update: Stephen Smith who is one of the lead architects of Sage Accpac (and a Sage employee) has a great look at TCO from the development side of the fence.

Image: Flickr

One Reply to “Breaking News: Discounted Cheap Services and Lower TCO Aren’t The Same Thing”

  1. Wayne,
    Excellent argument for a big picture perspective of TCO. As for Accession Technology, it was only a matter of time before some players commoditized the VAR services space. I think it’s both a threat and an opportunity for VARs with a true client focus and excellent consulting skills. Companies like Accession are bound to leave a bunch of train wrecks in their wake for real consulting firms to clean up.

    And off-shore consultants from of India may drive the initial purchase price down but their inadquate communication skills, lack of real industry knowledge and consult-by-numbers approach to consulting will untimately require much more money to deliver the desired peformance improvements. Moreover, as the reputation for cheap off-shore consulting becomes more clearly defined as “you get what you pay for,” I think that can be a way for good consulting firms to differentiate themselves from these bottom-feeders.

    It’s a challenging time in the VAR space, but one full of opportunity for organizations that know how to adapt.

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