Tuesday, June 17, 2008

Vendor maintenance fees: just say no

A journalist contacted me last week on the subject of vendor maintenance and support contracts. Maybe Spectator readers can help him out.

He wanted to know if I had seen evidence of a trend for companies to "essentially forego support and maintenance contracts for enterprise applications, hardware, or networking infrastructure, electing, instead, to have internal IT support the products." He also wanted to know if I had an opinion on what types of IT products are good candidates for abandoning vendor support.

His inquiry got me thinking on this subject.

"Going naked"
The practice of just saying no to support contracts has been going on as long as software vendors have been charging for maintenance and support. It may sound crazy, but it may make sense to abandon vendor support if an organization (a) has highly modified the software, or (b) is running on an older release no longer supported, or (c) intends never to upgrade, or (d) plans to migrate from the system in the near future.

I think that any software package for which vendors charge maintenance for is a potential target for a “go naked” strategy. Systems that have frequent regulatory updates (think, payroll, or sales tax compliance) have a stronger business case for staying on maintenance. But systems that have maintenance/support contracts only for bug fixes, or help desk, or access to future enhancements have a weaker business case for vendor support contracts.

An alternative to “going naked” (as this practice is sometimes called) is to buy a maintenance/support contract from a third-party service organization, such as TomorrowNow or Rimini Street.

My own opinion is that the trend has increased toward going naked, or signing up for third-party support, as software vendors have increased their fees for maintenance to the point where they may not be justified in a larger percentage of cases.

Good idea or risky tactic?
Vendors love their maintenance and support businesses. They provide recurring income and often carry the highest profit margins of any revenue source. But do maintenance contracts always make sense for the buyer?

Now I'm looking for examples. Do you work for an organization that has dropped its maintenance contract for an existing system? Was this the right decision? Leave a comment on this post or email me with details.

Related posts
Reading the fine print on ERP contracts
High software maintenance fees and what to do about them


Paul Steynberg said...

Hi Frank

I cut all maintenance on our current ERP solution 2 years ago. The reason being that I had supported the product without any calls since 2003 and it was stable. We had tested our DR many times. I am also in the process of converting to Dynamics AX and will be live by end September 20008. We have saved a packet but will definately not take this stance on the new system. FYI - We are running Masterpiece with +- 100 concurrent users.



Anonymous said...

You make a very good point about the type of system. I'd like to add that with payroll applications, for example, the state in which the organization primarily does business is a very big factor, as is its taxation policy. For example, a firm in Florida that does not take out its employees' local taxes could more easily "go naked" than a firm in Pennsylvania that takes all of its employees' locals.

I describe many different support options in my book. I'm sure that there are some creative ones out there and there will continue to be more as long as vendors charge 20 to 22 percent of the annual license for support.