Cisco is sitting a mammoth $26.6 billion in cash or short-term investments; Microsoft has $20.7 billion in available funds; Oracle has $10.6 billion in its current account; and SAP $2.2 billion. They general don’t touch that cash; it just sits
In an era when capital markets have dried up and bank’s have closed their doors to loans, businesses are struggling to fund initiatives that will grow or bring greater productivity to the operations, they must look on this IT industry cash reserves with envy.
IT vendors are acutely aware of that situation. Even when companies are keen to commit to projects, enhancements and services that will save them money, the budget is simply not there.
That has prompted several cash-rich vendors to start bankrolling their customers’ purchases. In the past few months, Microsoft, HP, SAP and others have offered 0% financing on new purchases. They may not be drawing on their cash mountains directly, but they are leveraging their platinum credit worthiness to defer payments or spread those payments over two or three years at zero or minimum cost.
A few months back, at Microsoft’s annual business applications software conference, there was genuine excitement amongst customers and Microsoft partners as the new financing deals were discussed. Customers who had independently postponed deals involving six figure upfront purchases were now looking at taking delivery of software at four figure monthly payments. The business case they had sold to their senior management, but which was in limbo for want of funds, was now back in play.
Our cover story this month looks at vendors are coming up with a raft of new IT financing models in an effort to defrost IT budgets. But it identifies a wider trend: how the credit crunch is re-shaping the way businesses buy IT. The enthusiasm for software-as-a-service, managed and hosted services, and even cloud computing are just the manifestations of that.
And the evidence is that that companies of all sized are putting pressure on their suppliers to switch pricing – as well as delivery –to on-demand, pay-as-you-go, subscription, leasing or other financing models. It is still uncertain as to whether that groundswell will turn into a mass movement; and neither is it clear which vendors will have the stomach to switch from front-loaded licensing deals to drip-feed payments.
What is not in doubt is that the credit crunch will mark a turning point how IT is delivered and paid for.