The analytics giant Teradata is combating falling revenues and the painful transition from on-premise to cloud delivery and fee models. This is one of the factors that have driven changes to Teradata’s pricing strategy. The vendor began launching the ‘TCore’ pricing metric in early 2017 to replace the previous ‘TPerf’- based model. These vendor-created metrics are supposed to offer an easy way to measure potential throughput and capacity. In reality, they allow the vendor to control what’s essentially a ‘black box’ pricing metric, as only Teradata uses it.
One element that calls for particular caution is Teradata’s new IntelliFlex (and the entry-level IntelliBase) platform that utilizes term subscriptions measured in TCores for hardware, software and maintenance. Touted as a new model that’s more “transparent and consistent,” NPI’s experience with TCore pricing is anything but.
Not only are offers for these new TCores highly variable on a price-per-unit basis, NPI is seeing major inconsistencies in how the vendor is converting old TPerf capacities to the new TCore model customer by customer. This inconsistency becomes more pronounced for customers on the short end of the stick when considering that this new model removes perpetual rights altogether and shifts to ongoing subscription payments in order to keep the solution running.
Financial Reports Shed Light on Teradata’s Pricing Strategy and Spell Caution for Customers
Reviewing Teradata’s financial reporting adds to the story. The Q&A section from a recent earnings call includes the usual vague language, but an analyst question around pricing in particular drew an interesting response from the vendor’s CFO:
“I think it's also true to say that the new customers who are coming through, with the high visible impact, the technologies we're working on with them, and how we're winning them as a result of that, you're seeing better pricing on the new customers coming through. And so, that's helping lift the overall pricing picture.”
Indeed, margins continue to go up for the vendor despite lagging revenues. Total first-quarter 2019 revenue was $468 million, compared to 2018 first-quarter total revenue of $506 million. Meanwhile, 2019 first-quarter gross margin reported under GAAP was 47.9 percent versus 44.1 percent for the first quarter of 2018. Of interest also is the trajectory of U.S. revenues, which have been down as much as 25% in recent reporting cycles as international revenues have stayed mostly flat. While difficult to pick apart because of the way these reports group and disclose specifics, the reporting plus the CFO’s comments could suggest Teradata is offering new customers (and specifically new international customers) higher pricing to offset declining business in more established areas.
To be fair, the transition from on-premise to cloud pricing models is tough for all legacy IT vendors from a revenue perspective. But once they make it to the other side, the recurring revenues make the company more valuable. Most vendors’ pricing is volatile as they feel their way through this transition. That creates risk – and opportunity – for savvy customers.
Teradata customers should be cautious when looking into this new TCore model, and should avoid being forced to shift away from perpetual TPerfs without close analysis of the situation. Teradata is struggling as a whole, and the vendor has shown it isn’t afraid to offer inconsistent pricing to major customers.
Whether an existing customer or new, it’s imperative to conducting price benchmark analysis on all Teradata transactions. As the vendor’s pricing strategy evolves, it’s the only way to ensure the price you pay is at or below fair market value.