Erik Keller: Fall cleanup time: Step one is software maintenance

As SAP and Oracle go toe-to-toe in court over alleged intellectual property misappropriations via the SAP-subsidiary TomorrowNow, I think it's a good time to review the four main levers that buyers should use when negotiating maintenance payments with software vendors. Maintenance renegotiation. Though many software vendors state that their maintenances charges are fair and just, it is hard for...

10/01/2007


As SAP and Oracle go toe-to-toe in court over alleged intellectual property misappropriations via the SAP-subsidiary TomorrowNow, I think it's a good time to review the four main levers that buyers should use when negotiating maintenance payments with software vendors.

Maintenance renegotiation. Though many software vendors state that their maintenances charges are fair and just, it is hard for many buyers to take such statements at face value. For example, many software vendors have gross margins for maintenance above 85 percent—the main driver of profitability for the vast majority of software sellers.

There also has been an increasingly vocal and negative voice by CIOs as to the value of maintenance. While many vendors state that maintenance payments are not negotiated, their claims are as hollow as that of any company stating that they must sell at “list” price. Significant discounts are garnered by savvy buyers.

Inventory and portfolio management. As in manufacturing, inventory control and management is one way to keep IT maintenance costs down. Shelfware continues to be a large challenge in companies. Realizing there is a lot of potential waste to be found in software assets, buyers are starting to actively manage their solution suites.

The ultimate challenge for companies is their inability to track the number of licenses they have contracted, as well as how such licenses actually are used—and tie that back to maintenance charges. A new generation of asset management companies is emerging to help buyers better manage and track IT assets. Think of them as ERP for IT.

Using third-party maintenance providers. While the current SAP-Oracle lawsuit will temporarily dampen enthusiasm for third-party maintenance providers, this area is well-positioned to grow. Until recently, software buyers have had little opportunity to purchase maintenance from third parties, thereby relying on the selling software vendor to provide such services, or managing the software themselves—if permitted by the terms of contract.

Companies including Rimini Street, NetCustomer, and TomorrowNow offer services that permit customers to maintain their current solution sets at a lower maintenance price point—50 percent or more off standard list price.

Upgrade slowdowns. After many years of painful and expensive projects, buyers are slowing the pace of enterprise software upgrades. Often such delays prove beneficial. By extending the life of a release that is working well and serving the needs of users, corporate IT groups can spend upgrade revenue on initiatives that have a greater impact on corporate profitability. In response, software vendors have been forced by buyers to offer longer-term support for older software releases.

In the 1990s, vendors typically supported releases for three to four years. Today support time frames have doubled or tripled to accommodate the needs of buyers, as well as to ensure a steady stream of maintenance payments.

By using a combination of these four techniques, CIOs can cut wasteful maintenance spending while maintaining the integrity of their enterprise software packages. During a time of slight budget increases and increased desire for innovative IT solutions, it is a strategy that is finding favor with many corporate technology groups.


Author Information

Erik Keller is principal of Wapiti LLC, an independent consulting firm. Prior to forming Wapiti, Keller was a research fellow, director of research, and vice president with Gartner. He is perhaps best known for being a key member of the Gartner team that coined the acronym ERP, for enterprise resources planning. Erik can be reached through Manufacturing Business Technology, or e-mail at erik.keller@att.net .




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