NETTING IT OUT

Business, Technology, Culture, & Ideas That Matter

Thoughts and Readings on The Software Maintenance Fee Model

As I read the transcript of Oracle’s recent 1Q2010 results, and some analyst reactions to it, I am more and more intrigued by the market forces at work in the third-party support area.  As almost everyone knows, maintenance and support fees are the lifeblood of many enterprise vendors.  While maintenance and support from an end-user’s enterprise software vendor provides excellent protection for a large investment, the support comes at a price that some, if not many, consider onerous.

I have been part of many discussions with clients around strategies for managing their relationships with their vendors of choice; maintenance and support have often part of that discussion.  End-users are really struggling with the concept of being so locked into paying these support fees, often for software that is not even implemented, with so little recourse.  We all have heard from end-users about the shockingly high percentage of their IT budgets that goes just to KTLO (keeping the lights on), leaving precious little for new investment.  The 82% of its IT budget that HP recently reported for “just to keep things running” is typical.  Here is where the frustration starts.

What exacerbates the frustration is when the end-users hear software vendors boasting of margins as high as 90%, and talking about the difficulty of spending through all of the cash.  End-users are expecting (and are hearing) that they will benefit by not only getting excellent support, but by also providing the cash base on which the vendors can develop better, newer functionality.  When, however, there are figures showing in some cases declining investments in R&D, and Salesforce.com’s CEO Marc Benioff is talking about “the end of maintenance“, as reported by Vinnie Mirchandani, surely many end-users are wondering how eagerly their enterprise vendors are pursuing new technologies that possibly threaten the enterprise vendors’ maintenance and support streams.

The software vendors themselves have to be wondering if they aren’t to some extent eating their own young when their software maintenance fees consume so much of their customers’ IT budgets that their customers cannot procure more of the new functionality (funded by the maintenance fees) that the software vendors would like to sell to them.

Thus you have the proverbial dog chasing his tail – or the “Perfect Storm”.  Choose your own metaphor, but the situation is only likelier to get more and more interesting, as these opposing forces gain in strength.

Recommended Reads:

•    The Maintenance Renewal Landscape
Dennis Howlett on ZDNet
October 23, 2009

•    SAP-Siemens: He said, she said
deal architect / Vinnie Mirchandani on disruptive trends and economics in technology
Vinnie Mirchandani
October 22, 2009

•    Software Maintenance Fees: An Outdated Cash Cow?
Adrian Gonzalez
Posted on Oct 13 2009

•    Tuesday’s Tip: Call Vendors On Their Bluff About “Rev-Rec” And Software Maintenance Contracts
A Software Insider’s Point of View
By R “Ray” Wang
September 29, 2009

•    An Emerging Threat to Oracle and SAP
Barrons online
Mark Veverka
September 28, 2009

•    Revisiting My 2006 “ERP Doomsday Scenario”
The Future of Enterprise Software
Bruce Richardson
September 23, 2009

•    Oracle demands information from Rimini Street to boost SAP lawsuit
Computerworld
Chris Kanaracus
August 27, 2009

•    Why vendors resist negotiating software maintenance fees
The Enterprise System Spectator
Frank Scavo
Wednesday, November 26, 2008

•    News Analysis: Rimini Street Launches Third Party Maintenance for SAP
A Software Insider’s Point of View
R “Ray” Wang
May 16, 2009

•    Cutting software maintenance costs 101
ZDNET
Larry Dignan
May 12, 2009

•    Rimini Street, SAP, and the future of third-party maintenance
Enterprise System Spectator
Frank Scavo
May 11, 2009

•    News Analysis: Oracle Waives Fees On Extended Support Offerings
A Software Insider’s Point of View
R. “Ray” Wang
May 4, 2009

•    SAP postpones its maintenance fee price hike
The Enterprise System Spectator
Frank Scavo
April 29, 2009

•    Unaffordable at any cost
deal architect / Vinnie Mirchandani on disruptive trends and economics in technology
Vinnie Mirchandani
April 29, 2009

•    The End of Maintenance
deal architect / Vinnie Mirchandani on disruptive trends and economics in technology
Vinnie Mirchandani
April 28, 2009

•    Defending Maintenance Pricing
deal architect / Vinnie Mirchandani on disruptive trends and economics in technology
Vinnie Mirchandani
April 23, 2009

•    Rethinking Software Support / Recession Puts New Focus on Oracle Maintenance Contracts
Wall Street Journal
Jessica Hodgson
March 12, 2009

•    Oracle: Innovation Beehive, Innovation Light or Innovation Free?
deal architect / Vinnie Mirchandani on disruptive trends and economics in technology
Vinnie Mirchandani
February 26, 2009

•    Software Maintenance Fees: Time For This Model To Change?
InformationWeek
Mary Hayes Weier
January 24, 2009

•    Legal basis for third-party ERP support industry
Frank Scavo, from his blog, Enterprise System Spectator
June 12, 2008

Share

October 26, 2009 - Posted by | Technology |

2 Comments »

  1. […] and maintenance revenue has always been a lightening rod in the software industry (see “Thoughts and Readings on The Software Maintenance Fee Model“, on the Netting IT Out Blog), and this becomes even more of a contentious issue when the […]

    Pingback by SMB Research – "Large-firm" technology advisory for the small-to-medium business (SMB) and midmarket sectors » Everest Software and Versata – Software Vendors or Portfolio Companies? | June 8, 2011 | Reply

    • The cat is out of the bag was my first reaction when FreshBooks ancounned the launch of their new benchmarking service in October 2006. Then, and later I called it the hidden business model in SaaS: He basically ancounned the hidden value proposition enabled by SaaS: competitive benchmarking. All previous benchmarking efforts were hampered by the quality of source data, which, with all systems behind firewalls was at least questionable. SaaS providers will have access to the most authentic data ever, aggregation if which leads to the most reliable industry metrics and benchmarking.

      Comment by Anderson | August 6, 2013 | Reply


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Follow

Get every new post delivered to your Inbox.

Join 1,544 other followers