August 19th, 2008
Why there's a software support and maintenance revolution underway
There’s a brewing backlash among software customers as big vendors raise their support and maintenance prices.
Dennis Howlett has captured an emerging backlash among SAP customers over an enhanced support and its costs. Oracle is doing the same drill. And Mary Jo Foley detailed a “proactive” support offering that will likely cost more–not that Microsoft would do something crazy like disclose prices. Across the board, exact pricing details are hard to come by since a lot of large enterprise deals are custom, but the overall theme is the same–support and maintenance prices are going up. You’re locked in and stuck.
Dennis has cooked up a plan for when the vendor gravy train ends and these empty calorie (a term cooked up by Vinnie Mirchandani) maintenance deals go away. Dennis writes:
It is clear that the homogeneous application of round sum percentages applied to software maintenance pricing is a dead business model. Nowhere is that more clearly illustrated in the recent kerfuffle over SAP’s forced price rise for its maintenance services. SAP has put up a spirited defense but on the basis of the customer conversations I’ve had, it is falling on deaf ears. Thinking about this more broadly, I have posed the question whether Oracle can realistically continue to trumpet high 30’s percentage points earnings when it is obvious from its financials that these are largely derived from maintenance revenues. These are but two of the more prominent examples. The same goes for almost every other traditional software vendor right down to the Sage’s of this world. It is unsustainable and there will come the day, whether locked into the vendor or not, that customers will come together and say ‘no more.’ I absolutely believe that to be a reality.
Also see: Traditional software licensing: Why you pay more and a look at your options
The big questions: What will push customers over the edge? And are we nearing an inflection point where customers will revolt? I’d argue that we’re getting to a real backlash that could turn into a revolution.
Here’s why the time is ripe for disruption:
A weak economy: Your IT budget is being squeezed. And if it’s not being squeezed you’re still in a situation where you can’t really fund the great projects without cutting elsewhere. When your software vendor raises maintenance fees it just makes your life harder.
Maintenance and support inflation makes no economic sense: Inflation is a fact of life these days. Oh sure, you can quibble over “core” inflation rates that exclude food and energy costs, but that’s just silly. Who doesn’t buy fuel and food? But when Kellogg’s, General Mills and UPS raises prices I don’t like it, but I understand it. These companies buy commodities and fuel. You can’t eat those costs forever without passing it along.
Now let’s zoom in on the software companies. Labor going offshore. Check. No commodity costs. Check. Weak dollar helping results. Check. Folks, something doesn’t quite add up here. Perhaps support is improving, but not by that much. If anything you should be seeing support costs fall. Software vendors aren’t passing along lower costs they are gouging you to inflate already healthy profit margins.
Software vendors think their customers are stupid. What’s truly galling about increased support costs is that it appears that vendors don’t believe that you can read the economic tea leaves. Anyone that has bought software and groceries can see there’s a big disconnect on software support inflation.
Customers are cornered. The movement for the last decade has been to standardize on fewer vendors. You allegedly want one throat to choke. Well here’s the downside: You’re stuck with that vendor who will raise prices. Are you really going to swap out your ERP system? You might as well try brain surgery while riding a motorcycle. Good luck with that. What happens when you get cornered? You come out swinging and you’re a little PO’ed.
Because of those aforementioned reasons this time could really be different. Perhaps customers won’t roll over so easily as software maintenance and support increase at a rapid clip each year.
More reading and resources:
- Vinnie Mirchandani on negotiation best practices
- SAP wrap and transparency points
- SAP: Oracle price-gouges customers even more than we do and SAP response
- SAP to shut down TomorrowNow; Oracle gets its sacrifice
- Unintended Consequences and the Future of Maintenance Revenue: SAP Jettisons TomorrowNow
- Traditional software licensing: Why you pay more and a look at your options
Larry Dignan is Editor in Chief of ZDNet and Editorial Director of ZDNet sister site TechRepublic. See his full profile and disclosure of his industry affiliations.
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| 08/19/08
