Lower-Cost Options Free IT From Software Maintenance Fees

The city of Orlando, Fla., pays Oracle for maintenance and support on its Oracle database and JD Edwards financial applications. "Would I prefer to pay less? Sure," says John Matelski, chief security officer and deputy CIO for the city. "But am I getting value for my maintenance dollar? Certainly." Orlando paid 18% of its JD Edwards applications license fee for support in 1998, and the fee has risen about 5% or 6% each year since, he says.

Matelski singles out Dell, Hewlett-Packard, and Oracle as companies that provide "the most bang for the buck" when it comes to support. The good ones employ customer tracking systems that give support personnel access to Orlando's service history, he says.

Vendors are playing up the insurance angle. Support and maintenance services are in greater demand than in years past as ERP systems have become critical to companies' operations, says Greg Pike, senior VP of active global support for SAP Americas. Customers want to mitigate risk with the help of engineering support, and they also hope support can reduce ERP operating costs. In January, SAP added a premium tier of support that includes guaranteed service-level agreements, annual assessments to reduce unforeseen problems, and a named support consultant who troubleshoots problems. Price tag: an annual fee of 22% of the software license cost, compared with 17% for the vendor's standard maintenance services.

Maintenance programs cover new releases of a vendor's software, but this can be more of a curse than a blessing for customers who lack resources to install upgrades several times a year. Some customers welcome releases with the latest features, but many prefer IT system stability to frequent upgrades. So why pay for them? "I'm not a big fan of being tied into mandatory upgrades," Matelski says.

IT managers would like to split software support and upgrades into separate fees; this would let them choose whether to pay for one or both. Industry analysts don't see vendors giving up that revenue and question how much demand there is for such a split. Oracle offered an upgrade-only option priced at 15% of software license price but dropped it last year when only 3% of its installed base signed up, says Jacqueline Woods, Oracle's VP of global pricing and licensing strategy.

Then there are vendors that don't provide frequent upgrades, even though customers are paying for them through maintenance fees. Microsoft's Windows Vista, for example, won't be available until next year--the first upgrade of the operating system since 2001. The number of customers signing up for Software Assurance for Windows has dropped since Microsoft introduced the support program five years ago, and the lag between new products may be part of the reason.

Still, keeping applications current through upgrades is a big part of getting value out of a business' software investment, argues Rodney Masney, global information and technology architect at packaging manufacturer O-I (formerly Owens-Illinois).