The Ultra-Low-Cost Software Movement

By Mike Cooke, Aveek Guha, and Marc Johnson

Just when companies’ functional organizations—from finance to IT and everything in between— felt that they had squeezed out nearly all of the excess costs in their organizations, senior management turned the screws yet again and asked for even larger reductions across the board. As all industries feel the effects of the global economic downturn more broadly, it is likely that sustained cost reduction among all functions will become a priority until signs of recovery are apparent.

We recently conducted a survey of several global Tier 1 automotive companies to understand the challenges and opportunities facing their IT organizations. During a heated a discussion, one of our survey participants asked the assembled group: “How do we compete with new Tier 1 automotive suppliers in emerging markets that have extremely low-cost internal service provisioning and are often leveraging free IT capabilities, such as Google Apps, in place of traditional software solutions?”

Low-cost (or free) enterprise software solutions provided over the Internet are not a new phenomenon, but their usage was previously relegated to smaller companies or start-ups with no formal IT support function. However, we are now seeing the CIOs of larger companies and government entities beginning to experiment with ways to take advantage of the benefits of these software solutions:

  • A North American Tier 1 automotive supplier has been testing Google Apps with application development contractors for e-mail, calendar functions, and certain aspects of project collaboration—rather than setting up the standard temporary IT guest services for deployment and integration work.
  • New market entrants in the Tier 1 automotive space in emerging market countries are using free applications online to varying degrees and are gaining a significant cost advantage as a result. One of our survey participants met with a potential supply partner in India earlier this year and learned that this company has been using free online e-mail and team collaboration workspace applications since the company’s inception.
  •  The city of Washington, D.C. recently signed an agreement with Google to use its online applications for the majority of end-user computing utilities, including e-mail, spreadsheet, calendar, and team collaboration.

While the organizations using these services are still in the learning phase of their experience, several advantages and disadvantages have already become apparent.

 

Advantages

Bare-bones costs
Many applications have no license fees, no hosting costs (since the majority are accessed online), and/or flexible scaling in pricing agreements (particularly for operating system licenses).

Ease of implementation
The learning curve for staff training is unmatched—staff members already use many of these free applications in their personal lives.

 

Disadvantages

Security
A number of these free applications (with the exception of mega-tools such as Google Apps) are developed and supported by small providers who are early on in the process of establishing security standards.

Compatibility and familiarity
While some free application suites are beginning to provide read-only capability, some users are frustrated with the inability to share files freely with users of traditional software products. Additionally, some IT managers are hesitant to embrace technologies with which they are unfamiliar or sometimes perceive as merely hype.

While the jury is still out on the efficacy of deploying low-cost or free software alternatives at the enterprise level, it is clear that their usage is gaining traction and that overlooking them is not an option. The business is moving toward these tools and IT needs to act as intermediary or risk being marginalized. Companies need to investigate their options in Web 2.0, new media, and “office killer” technologies, with a focus on monetization or efficiency. We expect traction in this space to increase exponentially as both the technologies and IT comfort levels mature.

 

Contact

Mike Cooke is a Partner with Booz & Company in Chicago. He leads the firm’s IT transformation service offering, with a focus on automotive, transportation, and industrial products companies. He can be reached at 312-578-4639 or [email protected].

Aveek Guha is a Principal with Booz & Company in Chicago. He specializes in leading large IT cost and capability transformations for automotive, transportation, and industrial products companies. He can be reached at 773-710-9921 or [email protected].

Marc Johnson an Associate with Booz & Company in DC. He specializes in IT transformation and effectiveness for automotive, transportation, and industrial products companies. He can be reached at 703-377-5755 or [email protected].

 

Related Resources

Jim Weinberg, Mike Cooke, and Aveek Guha, “Kiss and Make Up: Industrial Manufacturers Need to Patch Up Relationships with Their IT Organizations,” Booz & Company, 2007.

Mike Cooke, Jordan Milner, and Marc Johnson, “Keeping IT Relevant in a Hyper-Changing Environment,” Booz & Company, 2008.

Mike Cooke, Aveek Guha, and Marc Johnson, “Facing the Challenges of IT Services in a Joint Venture,”
Booz & Company, 2008.

 
© 2014 PwC. All rights reserved.
PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details.