Cutting software maintenance costs 101

Maintenance and support costs are increasingly gobbling up more of your IT budget despite the occasional bone thrown to you from your friendly neighborhood software vendor. The larger question is what can be done about this maintenance inflation.
Written by Larry Dignan, Contributor

Maintenance and support costs are increasingly gobbling up more of your IT budget despite the occasional bone thrown to you from your friendly neighborhood software vendor. The larger question is what can be done about this maintenance inflation. 

Luckily Forrester Research has a few answers. 

In a report timed shortly after SAP and Oracle made a few maintenance concessions, Forrester Research provides a few pointers. 

The situation as we know it via Forrester analyst Duncan Jones:

It’s one of the unwritten rules of software that maintenance costs only go up — never down. But we used to say that about house prices too. Today, software vendors are coming under increasing pressure from customers to cut maintenance bills, but the vendors are robustly defending their lifeblood with age-old, inflexible policies. However, enterprises’ imperatives to reduce cost and the contrasting flexibility of new commercial models such as software-as-a-service (SaaS) are making the perpetual licensors realize that they may have to change their ways if they are to be in place to win new business when budgets return.

However, these negotiations won't be a cakewalk for customers. In fact, you'll have to scrap for every dollar saved. Why? It's about the profits. Maintenance revenue generates the profits. As Rimini Street CEO Seth Ravin noted, the business models behind printers and enterprise software are the same. Get folks in the door and then charge them on an annuity basis. Ink vs. maintenance revenue all looks the same after a while. 

Also seeRimini Street chief: Where's the maintenance cost 'peace dividend'?

You'd have to be an idiot not to protect these margins:


And to protect that revenue enterprise software vendors have to resort to a few trendy techniques:

Charging you for shelfware, the stuff you bought for a discount but haven't deployed. Duncan reports:

The traditional policy that buyers find hardest to accept is the policy that customers pay maintenance based on all licensed products, even if they aren’t using some modules and haven’t deployed to full capacity. We only found one company that would admit to allowing customers to take a maintenance holiday on shelfware and then reinstate licenses at a later date when it needed them again. Most would allow customers to reduce cost by scrapping shelfware — irrevocably waiving rights to excess products or capacity, but customers are loath to dump assets that they may need again later. Some won’t even allow customers to do that.

Bundling support with upgrade rights. 

And keeping potential competition at bay. Other companies, say Accenture supporting SAP, could support enterprise software but they fear the backlash from valued partners. 

The good news? Duncan reports that software vendors will cave "if the market forces them to."

Along those lines enterprises should:

Cancel nonessential maintenance contracts. The purpose of this move is to send a message to your application vendors. These cancellations will be easier if a company isn't committed to a product for the future, don't need an upgrade and can support an application in house. That last point is notable since Forrester even questions third party support.

Third-party support, if it is available for the product concerned, will almost certainly be cheaper than the vendor’s offering. Many IT departments will be able to self-support mature versions or noncore products — the risk that serious bugs will have a significant impact on the business may be too low to justify the annual insurance premium. The vendor manager should collect data on support incidents so he knows how many there have been, how quickly they were fixed, and what the business impact was in the meantime.

Go for the maintenance cut not the license discount. Enterprises should take shelfware off support, move to lower service levels and negotiate global deals to get economies of scale. 

Use the "strategic vendor" line to get cuts. Forrester writes:

The software companies we spoke with admitted that they would consider requests for maintenance cuts in exceptional circumstances. They know that technology investment budgets will return and that giving ground now might be essential to be in a good position to win their fair share when they do. For instance, the head of IT sourcing at one Fortune 100 company told all of its technology vendors, “either you are a strategic vendor, or you’re not. This is table stakes to continue in the game.”

The catch: You need to lay out your strategy and how it lines up with the vendors. No vendor will give you cuts without proof that they're strategic. Toss in an agreement to be a reference customer and you may convince your vendor to accept fee cuts now in return for keeping you.

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