Editor's Letter: The cashflow crunch

There’s a focus on cash this issue. Actually, there’s a focus on cash every issue: we’re a business magazine. This issue, though, it is an article on cash flow that got me thinking.

I’ve heard it called ‘the gap of death’: that difficult transition as customers move from one-off perpetual spending to periodic payments. Buyers and sellers can find something to love and hate about these different pricing models. Nate Cochrane looks at this issue in some depth.

I remember when Adobe first mooted Creative Cloud, a SaaS product of particular interest to those of us in the publishing game. For young designers, Creative Cloud’s monthly pricing meant that for the first time, they could get their hands on full (and legal) versions of the Adobe suite. Yet early on, many users identified the rub: the subscription service was cheaper in the first year, but by year two, the balance tipped in the vendor’s favour.

Adobe would’ve faced a cashflow gulf in that first year, as users switched from spending $1,000-plus on a new perpetual licence and moved to the new $50-per-month subscription.

While Adobe could afford to weather the gap, few Australian resellers are in the same luxurious position. That won’t stop the tide if customers want utility pricing rather than making major up-front outlays.

Meanwhile, many vendors still want to shift widgets in a single, lumpy capex sale. These big deals equate to healthy quarterly sales figures and happy shareholders. They don’t favour the partners trying to resell access on a piecemeal basis.

This is not just a divide in preference; it is a cashflow crunch that too often puts pressure on partners to wear the risk. While this could lead to crisis, it is also driving creativity around financing. In this issue, Sholto Macpherson speaks to Saxum, a company acting as a middleman in cloud sales.

There are clearly opportunities for companies that can act as a bank to bridge the capex-opex divide. Distributors seem like obvious candidates, especially in the cloud era, when some sales of storage, compute and software may no longer require back-end logistics networks and big warehouses.