In October, Microsoft announced plans to raise the cost of cloud software for British businesses due to the falling value of the pound post-Brexit. The company said in a statement: “Most enterprise cloud prices in British pounds will increase by 22% to realign close to euro levels.”
Brexit, no Brexit, strong Brexit, half Brexit – whatever it ends up being, the pound has gone up and down like a yo-yo since the ‘leave’ result in June. Then there was Donald Trump’s victory in the U.S presidential race, and the subsequent rise of the U.S. dollar, but bottoming out of other markets across the globe.
This begs the question: if software providers change their pricing according to the value of local currencies, is it better to buy a SaaS product where you are charged in your own currency or the currency of the vendor (often US dollars)? This article investigates:
- The effect of currency fluctuations due to world events on the cost of cloud software
- How you can mitigate any currency fluctuations from current events such as the ones above
- Whether it is better to buy software from a company that charges in your local currency.
Why the price hike?
While the latter half of 2016 has been a turbulent time in terms of world events, currency fluctuations and pricing adjustments are nothing new.
Microsoft made adjustments to its pricing for customers billed in Norwegian krone and Swiss franc in April 2016. Adobe also got in on the act: in early 2016 the company hiked the price of its Creative Cloud prices in Australia, citing currency exchange rates of the Australian dollar as the reason. Predictions of a strong dollar for 2016 had Gartner suggesting that companies needed to reevaluate their IT budget for the year.
“On the whole yes, as presumably most of the business is paid in local currency. If you use USD and the USD rises or the local currency falls then your product will have a noticeable price increase.”
Whether it was wishful thinking or lack of insight, when asked about this very subject on Quora in late 2015 (pricing changes according to currency lows and highs), one software vendor was bullish, suggesting that as USD/GBP haven’t changed much recently, there was no reason to worry too much about exchange rates.
“At SalesSeek we bill in GBP and USD. We don’t worry too much about the actual exchange rate, instead preferring to keep to “round” numbers – in our case £30 or $48. I would not bother to change these. In the long run, currency rates USD/GBP have been reasonably constant.”
How do exchange rates alter the cost of cloud software?
Despite Hampson’s response, world events such as Brexit and Trump’s election win have knock-on effects on exchange rates, which may be passed on by the software provider. And the last thing a small business needs is a sudden increase in the cost of cloud software.
“We are deeply worried about the effect that the Brexit vote will have on the ability of our UK-based customers to afford our services over the long-term,” says David Batey, CEO of Nickelled. “We are currently exploring solutions for this, including localized pricing.”
Due to this instability, there is a case to be made for looking for a software provider that charges in your local currency to negate these effects. According to Sachin Dev Duggal, CEO of SD-Squared, the main benefit for businesses dealing with their local currency when purchasing Saas products is predictability.
“When dealing with your local currency you can predict what you will pay and the cost is both transparent and fixed,” he says. “By paying in alternative (non-local) currencies, it’s possible to be affected by currency exchange rates, which can and have a tendency to change from day to day. Many small businesses also pay terrible exchange rates, as they don’t have the purchasing power on the currency.”
Another business benefit to choosing a product is increased efficiency and productivity due to less time spent processing transactions in other currencies. Duggal explains:
“Forex currency transaction can be taxing and at times drain valuable resources of your organization, which you would want to be focusing on your core business priorities
He adds: “Companies in emerging markets where their local currency is valued lower than the dollar run the risk of having to pay more for comparable products and services in comparison to those companies operating in markets where their local currency is valued the same or higher than the dollar. Added to this are challenges of creating documentation that is required, each time you do a forex transaction which is a laborious process, eating up precious human resources and bandwidth.”
Finding an alternative
However, is it worth ditching a software provider just because they don’t display prices in your currency?
Some software vendors will take the hit of the conversion rates themselves. Nickelled uses Stripe to bill in local currency and convert back to their own currency. Other alternatives are Recurly, and Zuora, both of which support multi-currency.
“We use Stripe for 90% of our billing volume, which means customers are billed in their local currency and Stripe makes the conversion back to our operating currency (GBP) according at a rate fixed at two percent above the mid-market exchange rates at the time,” says Batey.
For Batey, displaying prices in USD was a no brainer. He says:
“As a British company doing extensive business in the US, we want to make things as easy as possible for our customers, and having to deal with conversion charges is a headache we know they can do without. We believe that the reduction in friction for users more than makes up for the hit we take on currency conversion.”
There are also specialized solutions such as SD-Squared’s CloudOps Consolidated Billing, which provides customers of Amazon Web Services with special optimization for local currency, optimized tax treatment benefits and consolidated volume discounts.
“This service delivery is localized to the markets we operate in so the customers get the best local deal, and a global delivery team will also pro-actively advise them on how to save money through AWS specialized strategies such as reserved instances, spot instances and region selection,” says Duggal. “Another benefit is the more they use, the bigger the discounts they receive – again, all in local currency.”
Not passing on the cost
Not all vendors will make adjustments to the cost of cloud software according to currency fluctuations, or not for the more minor fluctuations.
Jacob Hughes, cross-platform developer at AppInstitute, says: “Initial pricing strategies for each currency were based upon currency exchange rates and trying price our services/product to be of equivalent values. If the exchange rates were to change drastically, we may need to review pricing for different currencies, but so far we have not had to do this and we also don’t foresee having to make any changes to our pricing based on exchange rates.
“We are also able to adjust pricing based on currency, to provide a more targeted pricing strategy for customers in different countries.”
Another way to mitigate any possible change to the cost of cloud software is to negotiate fixed priced contracts over a certain period of time to protect against currency fluctuations. This is what London’s Havering and Newham councils did for their Microsoft and Oracle SaaS products.
What approach do top cloud apps take?
As GetApp is based in Barcelona, we decided to have a look at some leading cloud apps for small businesses to see if they displayed billing information in Euros or US dollars.
When accessing the Quickbooks website, it automatically detected the location and suggested we visit the site for Spain. The site then displayed the prices in Euros, but all product information is in English.
However, Quickbooks offers different plans and different discounts on its US site – not the self-employed version offered on the US site, and not the Spanish site.
Surprisingly for this global company, Salesforce’s Sales Cloud website displays pricing in US dollars, with no currency conversion options, and no auto-detect that we’re based in Spain. Even the phone number displayed to contact Salesforce is a US number.
Customer service app Zendesk localizes its prices, showing them in Euros according to our location.
Marketing automation app HubSpot shows price in local currency, as well as providing a Spanish phone number to call for customer service.
Project management software Asana doesn’t localize its pricing or customer service.
Next steps in evaluating cloud software prices
If you want to evaluate the cost of cloud software before selecting a new solution then check out our App Finder where you can select different pricing models based on your business’s needs. We also profile a range of leading free and freemium cloud apps for your business.
If you’d like any more information or want to share you experience, let us know in the comments below or email firstname.lastname@example.org.