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 .




No comments
The Engineers' Choice Awards highlight some of the best new control, instrumentation and automation products as chosen by...
Each year, a panel of Control Engineering editors and industry expert judges select the System Integrator of the Year Award winners.
The Engineering Leaders Under 40 program identifies and gives recognition to young engineers who...
Learn how to increase device reliability in harsh environments and decrease unplanned system downtime.
This eGuide contains a series of articles and videos that considers theoretical and practical; immediate needs and a look into the future.
Learn how to create value with re-use; gain productivity with lean automation and connectivity, and optimize panel design and construction.
Go deep: Automation tackles offshore oil challenges; Ethernet advice; Wireless robotics; Product exclusives; Digital edition exclusives
Lost in the gray scale? How to get effective HMIs; Best practices: Integrate old and new wireless systems; Smart software, networks; Service provider certifications
Fixing PID: Part 2: Tweaking controller strategy; Machine safety networks; Salary survey and career advice; Smart I/O architecture; Product exclusives
The Ask Control Engineering blog covers all aspects of automation, including motors, drives, sensors, motion control, machine control, and embedded systems.
Look at the basics of industrial wireless technologies, wireless concepts, wireless standards, and wireless best practices with Daniel E. Capano of Diversified Technical Services Inc.
Join this ongoing discussion of machine guarding topics, including solutions assessments, regulatory compliance, gap analysis...
This is a blog from the trenches – written by engineers who are implementing and upgrading control systems every day across every industry.
IMS Research, recently acquired by IHS Inc., is a leading independent supplier of market research and consultancy to the global electronics industry.

Find and connect with the most suitable service provider for your unique application. Start searching the Global System Integrator Database Now!

Case Study Database

Case Study Database

Get more exposure for your case study by uploading it to the Control Engineering case study database, where end-users can identify relevant solutions and explore what the experts are doing to effectively implement a variety of technology and productivity related projects.

These case studies provide examples of how knowledgeable solution providers have used technology, processes and people to create effective and successful implementations in real-world situations. Case studies can be completed by filling out a simple online form where you can outline the project title, abstract, and full story in 1500 words or less; upload photos, videos and a logo.

Click here to visit the Case Study Database and upload your case study.