Analysts for Gartner Research are predicting that volume software licensing costs for organizations will drop in 2008. The company's research indicates that newer licensing models and business process outsourcing (BPO) are responsible for the expected decline in costs.

The amount of BPO will double between 2008 and 2011. This is significant because many outsourcing firms do not use the large erp software packages. The move to outsourcing will mean that traditional ERP vendors will have a more difficult time making their margins, and the overall software licensing market will grow tighter.

Additionally, more businesses are beginning to look at software as a service (SaaS). This model is forcing software licensing costs down because the on-premise vendors must cut costs to remain competitive.

Open source software will play a role in reducing costs in areas such as server markets, OS markets, development and database technologies. It is not seen as being a potential cost-reducer at the desktop level.

Gartner also predicts that software vendors will react by offering longer-term contracts that will lock customers into a particular product or architecture for a longer term. In accepting these contracts, customers may not be able to reap the benefits of a more competitive software marketplace.