![]() ![]() If the vendor is charging maintenance fees based on the list price of those modules, you’ll likely be paying for software that you never implement. Ask for maintenance fees to be locked in, not allowing the vendor to increase fees from year to year.įurthermore, don’t buy software you don’t need, even if the vendor offers a tremendous discount on additional modules. Ask for maintenance fees to be based on the discounted price of the software, not the list price. Maintenance fees as a percent of the license cost are not cast in stone. If you have not yet purchased the system, understand that your negotiating power will never be greater than before you sign on the dotted line. If you are concerned about high software maintenance costs, there are several steps you can take to keep costs in line. A study by AMR last year found that because of maintenance policies, 22% of customers are considering switching vendors, 21% intend to stop taking upgrades, and 12% will discontinue paying maintenance. There’s a limit to what the market will bear, and I think some vendors are starting to reach that limit. My feeling is that if vendors continue along this path, there’s going to be a backlash. Customers are a captive audience-to a point. Few customers are going to select a new system and go through the pain, risk, and expense of another implementation just because they are paying a bit more in maintenance fees than they had planned on. Implementing an enterprise-wide system is a huge undertaking for most companies. And, as we just saw, the easiest way to increase revenue is through maintenance fees.īut more significantly, vendors are increasing maintenance revenue because they can. Vendors are finding that they don’t need to make as many concessions as they have in the past. Why are vendors squeezing customers? First, it’s a sign that, although we’re not returning to the heyday of tech spending in the 1990s, business is improving. Vendors are enforcing their contractual rights to audit customer usage of the software and are charging customers license fees for additional seats, plus the maintenance fees on those seats. In the past, vendors might not aggressively pursue customers that exceeded user counts, which usually forms the basis for software pricing. Second, vendors are tightening enforcement of existing agreements. That equates to a price increase of 25% (not factoring in the cost of money, of course). On a $500,000 license deal, a five percent difference in maintenance fees is $125,000 over five years. It might not sound like much, but run the numbers out three or four years and see the impact. Now, I’m seeing vendors quoting 20% or even more. A few years ago, 15-18% of the software license fee was a typical benchmark. First, they are increasing maintenance fees directly. Vendors are working to increase maintenance revenue in two ways. ![]() Software vendors understand this, and as new sales continue to be hard to come by, they are turning their attention to increasing revenues from their maintenance business. Over the life of the system, most customers pay far more in maintenance fees than they ever pay in up front license fees. But when they pay a dollar on software maintenance fees, they pay that dollar again and again, year after year, as long as they stay on maintenance. Buyers forget that when they pay a dollar for a software license, they pay that dollar once. I’ve long thought that software buyers are too focused on the up front license price and not paying attention to how much they are paying on the back end-in software maintenance fees. Buying enterprise software is similar, with the key difference being that you don’t really have the option to forgo the maintenance contract. But when you go to sign the deal, there’s a lot of pressure for you to sign up for the extended warranty›-where the store, and the salesman, make most or all of their profit. You may be impressed with the terrific bargain you’re getting on the sales price. It’s somewhat analogous to the situation when you shop for a big screen TV at Circuit City. One little secret of the software industry: the maintenance business is really profitable for vendors. You pay for the software, and then you pay the vendor to fix defects in it.) Second, maintenance fees pay for phone and Web-based support for times when you need help with the system. First, they pay for ongoing product development that provides new product features, regulatory updates (e.g. Software maintenance fees pay for two services from the commercial software vendor to the customer. Avasant Empowering Beyond Summit 2023 Middle East.Digital and Application Services Benchmark.Global Equations™ – Country Data and Index.Digital Public Infrastructure Consulting.Governance, Risk & Compliance Consulting.
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