Friday, April 24, 2009

Attacking and defending software vendor maintenance fees

Conversations in the so-called blogosphere can be hard to follow sometimes, and there's an interesting one going on the subject of vendor maintenance fees.

The short version: on my previous post on the Lawson CUE conference, I had one point regarding a dialog that several of us had with Lawson executives regarding Lawson's maintenance program.

Paul Wallis commented on the post, expressing the view that vendors need to do a better job defending their maintenance programs, and pointed to one of his own blog posts where he elaborated in more depth, concerning SAP's maintenance fee hike.

Vinnie Mirchandani then responded on his own blog.

Anyway, if you want to follow along, read the following posts in sequence:
My take: I'm with Vinnie on this one. The balance of power between software vendors and customers has tipped too far to the side of vendors. This is what many of us feared when the software vendor consolidation trend heated up with Oracle's takeover of PeopleSoft. The escalation of maintenance fees is just one symptom. I am a believer in free enterprise, and I believe that ultimately the economics of the current situation are unsustainable.

Some possible market responses include:
  • Some vendors deciding to compete on maintenance and flexibility
  • Third-party maintenance offerings (perhaps strengthened by some much-needed antitrust rulings)
  • Open source business applications
  • A pendulum swing back toward custom-development, especially when combined with open source
  • SaaS alternatives
I don't know what the answer is, but as I indicated, I think the current situation is unsustainable.

Related posts
Infor's opportunity: value in maintenance and support
Spinnaker offering third-party maintenance for JD Edwards clients
SAP and third-party maintenance: good for me but not for thee
SAP maintenance fees: where is the value?
Mad as hell: backlash brewing against SAP maintenance fee hike
Legal basis for third-party ERP support industry


vinnie mirchandani said...

Thanks for the link.

I am not sure how anyone can defend value from maintenance so long as formal SEC and other filings clearly show only 10 to 12% in R&D - out of which only a fraction goes into new product development and 30, 40, 50% goes towards SG&A. Unless they say they are misstating their financial statements it is there for everyone to see.

as I like to say if the Red Cross only contribtued 10% towards actual charity, there would be all kinds of protests and Congressional inquiries, but we have let sw vendors get away with it...

Paul Wallis said...

Hi Frank,

Thanks for the reference above.

It’s been interesting to see the reaction to trying to place the maintenance cost issue within a context of business worth rather than being “just more IT spend”.

I was once told that a good accountant would always save me more than he charged. I think the same about software - we shouldn’t look at the costs in isolation, but try to see and value them in the context of business contribution.

Having said that, I think that you are right that free market economics could cause a bit of a shake up in the market. We are at a point in time where companies are looking to reduce spend and charges are going up, which leaves a vacuum - and where nature abhors a vacuum, entrepreneurs love one.

We’re already seeing growth in third party support, which could well force prices down over time. Personally, I’m not convinced about Open Source business applications taking on the big boys. In my experience it is very difficult to get the business to place a value on something free.

“If we don’t pay for it then it’s not worth anything, and if we do pay for it then the cost is too high!”

Frank Scavo said...

Paul, I appreciate the feedback.

Regarding open source, I think most users have gotten past the concept that open source doesn't cost anything. There are plenty of costs in open source, just generally not in license fees.

As advocates like to say, open source is free as in "free speech," not as in "free beer." In other words, the freedom is in what you can do with open source, not what you pay for it.

At any rate, I happen to agree that the jury is out on whether open source business applications can make a dent in market share of the major vendors. But excessive vendor maintenance fees certainly help strengthen the case.