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HR Technology Supply and Demand Curves

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I’ve written about it, and so have many others.  The economy sucks.  Thus, software sales in the HR technology space must also be down.  In fact, I’m pretty sure they are – at least in the talent space.  Major ERP decisions seem to be on hold too, although some of my fellow bloggers don’t necessarily agree.  The point is, I’ve been thinking about some basic economics for a while.  Here is how it usually plays out from a supply and demand curve perspective:

In the first picture, as the economy gets worse and spending decreases temporarily, the demand curve shifts to the left, forcing not only less buying, but also lower prices.  We are seeing this today as not only is buying down, but vendors are clearly making price concessions to those who are in the market.

As vendors adjust to the lower prices and volumes, the market perhaps will consolidate as supply tightens.  Vendors decide to get out of a business that is either less or no longer profitable.  Some vendors merge, but overall, there is less volume available in the marketplace.  I think we’ll start to see this very soon as quite a few vendors were profitable even when sales were good, and now that the market has tightened, many are no longer financially viable.  Strong organizations are looking to purchase weaker ones with good products at a bargain price.

Ultimately as vendors consolidate or vanish, supply tightens and overall prices increase again.  Eventually the demand curve will shift out again (back to what is now the grey line) but it is possible that in the mid-term, prices are higher while the market adjusts to the overall lower volume due to vendor consolidation.  In the long term, with prices higher than they are today, new vendors get into the business and the supply curve also shifts back.  And the whole cycle repeats.

The point is, buying right now is good if your company has the financial ability to do it.  License fees and subscriptions are low.  In the mid-term, prices will increase marginally or steeply as vendor disappear and demand returns.  The only problem with buying in the near term is that you really don’t know if your vendor will be around in a year or two.

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One response to “HR Technology Supply and Demand Curves”

  1. Sudhanshu Pant Avatar

    You had a good point on why people may defer decisions to invest in technology. In addition a client may want to wait for:

    i) in the future there may be product introductions/ innovations as tech firms try to spark growth in demand.
    ii) the client has the fear of taking on too much expense right now.They may want to retain liquidity to meet unforeseen requirements.
    All this said, this is a good time to invest for the future.