Lower-Cost Options Free IT From Software Maintenance Fees
As sales opportunities diminish, vendors are relying more on income from maintenance contracts to keep growing. With fees generally set between 17% and 22% of the original software license price, such expenses can exceed the original cost of a purchase in a few years.
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.
Microsoft: Upgrade Privileges
Microsoft's Software Assurance program includes 24-by-7 phone support, desktop deployment planning services, and privileges such as the right to upgrade from standard editions to enterprise editions of Microsoft software by paying only the difference between the two. Enrollees also receive exclusive access to the forthcoming Windows Vista Enterprise operating system.
Customers that purchase Microsoft software under the vendor's Enterprise and Open Value licensing agreements are automatically enrolled in the Software Assurance program. Software Assurance is optional for customers that buy software under the company's Select or Open licensing agreements, with annual fees equal to 29% of the discounted price of desktop software and 25% of server software. -- Rick Whiting
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).
SAP: From Premium To A La Carte
SAP offers Standard and Premium maintenance and support services with annual fees priced, respectively, at 17% and 22% of the cost of the software license. Both include upgrades to existing applications but not to new products. Standard Support includes 24-by-7 problem resolution, access to an online knowledge database and tools for implementation, performance monitoring, and change management. For businesses that need more, Premium Support provides guaranteed service-level agreements, annual system assessments, and a support consultant contact. SAP also offers its MaxAttention service, which provides on-site support tailored to large companies' needs. Its Safeguarding tools and services assist with installation and upgrades. MaxAttention and Safeguarding are priced based on services delivered.
-- Rick Whiting
New capabilities built into software help lower cost of ownership, and maintenance isn't just about bug fixes and phone support. "It's about moving the technology along," says Masney, who's also president of the Americas SAP Users' Group. O-I subscribes to SAP's maintenance program for support of its ERP, supply chain, and Business Information Warehouse software.
Not everyone is as satisfied as Masney. Discontent with high-priced maintenance and support services is one reason some businesses are turning to software-as-a-service vendors and third-party service firms.
TomorrowNow, which SAP acquired in January 2005, and Rimini Street provide technical support, software fixes, and regulatory updates--but not complete application upgrades--for Oracle's JD Edwards, PeopleSoft, and Siebel software. Third-party firms say they can provide maintenance for less than Oracle, because they don't need to fund software development. TomorrowNow and Rimini Street charge half of what Oracle charges for support.
TomorrowNow, with about 150 employees, serves businesses that want to extend the life of older applications, says Andrew Nelson, the company's president and CEO. Older applications often have fewer problems than newer software, he says, but they require deeper expertise when problems arise.