Be it with money, support, or service, the companies providing the bulk of systems software used by LBMs definitely aren't responding in lockstep to the housing slump. About the only thing that's consistent is the feeling among the trailing companies that this crisis might deliver an opportunity to erode Activant's standing atop the league table.
While Activant has raised its service fees, others have put out press releases saying they're holding the line. Rumors suggest Activant wants to leave the business, but Activant counters that it's not only here to stay, it also had some big product announcements slated for release in late April, after this issue goes to press. And while several companies say they're growing, their growth rates are puny compared to the 2,400 customers Activant claims.
It's no surprise that all five software companies ProSales talked to painted a favorable self-portrait. But in the background, one can see signs that tech companies, like the LBM dealers they serve, are facing turbulent times.
Take the rumors that Activant's owners want to leave the business. "Our commitment to the industry is absolute and hasn't wavered a bit," states Steve Bieszczat, senior vice president of corporate marketing for Activant in Livermoor, Calif. "New sales were going gangbusters in 2006, 2007, and in 2008, we had 65 implementations of lumber systems. That's a pretty good number." He admits that sales of new systems have slowed, but because add-ons and upgrades provide 80% of sales, the result is "LBM is still a pretty healthy business for us."
However, Bieszczat wouldn't address reports that Activant has trimmed its support staff. He would say only: "We've resized our business to reflect the overall macro economic conditions."
Bieszczat did confirm Activant has annually increased its support fees while offering fewer services in return. He noted that three of its five LBM systems were developed in the early 1980s. "Support fees have become the lifeblood of those systems since you don't sell them anymore," he says. "We looked at what was being charged for those versus the new systems and we trued them up to what we think of as market norms. ...Those platforms are 25 years old and we keep them running."
Competitors, seeing an opportunity in these cash-strapped times for dealers, have responded by issuing statements declaring that they are freezing their support and maintenance fees.
"The competition is obviously very present," says Len Williams, president and CEO of Progressive Solutions in Richmond, B.C. "We're seeing signs of desperation as far as pricing. Some are being slashed. We've also seen some interesting approaches to support and maintenance fees, raising the rates significantly, 20% to 30% to 40% list on annual support. We have frozen our service and maintenance rates. We're having no price increases across the board for 2009."
Replies Bieszczat, "The competition is hungrier than they've been, so anything is possible."
How well are the other companies doing? Reports vary.
"Business is great," proclaims John LaFave, marketing director of Spruce Computer Systems in Latham, N.Y. "We are fortunate in that we introduced a completely new software package for LBM and hardlines dealers in mid-2006." But while LaFave notes Spruce has been converting six new customers from other software packages to SpruceWare.NET every month for well more than a year, at that poaching rate it would take 33 years to steal all of Activant's customers.
Jim Hassenstab, CEO of Omaha, Neb.?based DMSi–which has focused on serving distributors but is getting deep into the lumberyard business–says customers are cutting back on the number of software users and on their IT spending in general. That said, DMSi remains "committed to providing the same level of support to customers through this downturn. In addition, we've not increased our support fees significantly over the past year," Hassenstab says.
Progressive Solutions added "well over 30 new customers in the last 12 months and has a backlog to carry us through 2009," Williams says. "It is not as hot as 2007, but again, we see business as being good with consistent growth. We're bullish on what is out there, and there are opportunities to catch."
Ray Chisholm, manager/member of Turnkey Programming in Arden, N.C., reports that business has grown both vertically and horizontally and that the company has been expanding its services since mid-2008 to meet demand. "Since then, we have hit record number of sales and services," he says. "We had to hire more full-time and part-time employees to meet the demands of our services." But again, Turnkey is a far smaller company than Activant. In addition, it occupies a technology subniche: providing software as a Web-accessible service rather than something that you load onto your office computer system.
Like the other tech providers, LaFave says he sees dealers who are using the downturn to hone their business practices. "There has been an increase in interest among business owners who wish to decrease their fixed costs by improving their software infrastructure," he says, "including straightforward improvements like lower support rates as well as more qualitative savings from lower training costs, streamlined processes, fewer mistakes, and less time devoted to paper chases."
From Turnkey's perspective, the future is also bright and the company is not bothered by what the competition does. "We feel that we do not have a competitor that we know of," says Chisholm.
–Cheryl Dangel Cullen