Many of our clients continue to be furious about their inability to effectively manage the economic value of their ongoing support costs for major software platforms like SAP and Oracle. Clients are often frustrated that as they deploy and consume the technology, integrate it into their environment, develop a center of excellence for maintaining the value of the ongoing solution, and as their support calls go down, and the critical nature of their support needs diminish, their annual maintenance costs continue to go up, year after year.
During the past several years, many clients have taken a closer look at these costs, and among other tactics have tried to reduce ongoing annual obligations by trying to remove software titles that are no longer in use, or by right-sizing deployment levels to meet lower quantities of users, or by trying to adjust license levels to business metrics in use at the time to govern license capacity. The results of many of these efforts have resulted in only marginal improvement, and in many cases have resulted in an outright inability to reduce costs, or at least punitive effects and increasing costs on the remaining software assets under maintenance.
Even though buying enterprise software is generally a huge capital outlay, the costs of ongoing maintenance and support services often dwarf the originating cost of software. Considering a $1M capital outlay for software at a 22% annual maintenance rate, and an 8% annual increase in costs, clients will pay over three times more for maintenance than they will for the license in just 10 years.
Maintenance costs are generally broken up into two categories (i) software upgradability – which allows clients to upgrade the software when new functionality becomes available and (ii) technical product support – which allows clients to obtain technical support for general support, bug fixes, and tax and regulatory updates. In most cases, suppliers allocate approximately 68% (15/22) to product upgrades and 32% (7/22) to technical support. As such, if a client were to evaluate the costs of product upgradability and product support over that same 10 year period of time, they would find that they will spend approximately $2.2M for product upgrades, and about $1M for product support.
As most clients experience reducing needs for ongoing technical support, just as the costs are going up year over year, they often consider alternative ways to support the products, but once they learn that suppliers generally do not offer to ‘unbundle’ product upgradability and product support, they are often forced to continue to pay their software supplier increasing costs of support for diminishing returns.
This has caused some clients to strongly consider alternate means of support, especially on legacy applications that are often highly stabilized, and also on applications where the pace of innovation has slowed. At discounts of 50%, third party support providers offer some economic benefits, and potentially offer some strategic ones as well. Chief among some of our clients’ concerns are ‘forced’ product upgrades (to remain on supplier support) that do not offer any additional business value, and in general, third party support providers do not force clients to upgrade their applications.
When it comes to cost containment and reduction of annual support fees for enterprise software applications, clients are now considering several choices:
1. Reset:
Some of our clients have been able to reset the costs of ongoing annual support by eliminating entire segments of functionality that is perhaps no longer in use, or was ordered by never deployed (a more common problem than many readers may realize).
2. Renegotiate:
Many clients face the mysticism of incumbent supplier FUD (fear, uncertainty and doubt), and try to negotiate with their software supplier to navigating the myriad of complex options, convoluted license grants and usage rights, unintelligible contractual terms and conditions, and tyrannical supplier policies.
3. Repair:
In some cases, our clients have been successful bringing in new capital to repair the originating software investments via a major upgrade or by adding on some major piece of functionality. In some cases, repairing major software assets can help you save considerable costs in comparison to buying new stand-alone functionality.
4. Replace:
Some of our clients have switched from one supplier to another. In doing so, often times, they have been able to significantly reduce costs, and still get enterprise class software from a world class business software company.
5. Retrench:
Some clients have a highly stabilized environment and have decided to lock down their enterprise business software at the current release levels. With no need for future upgrades, they are able to more strongly consider alternative support options like third party support and can commonly achieve savings of 50% in doing so.
6. Re-license
Some of our clients have re-licensed their enterprise software after maintenance and support costs have gotten out of control. If clients intend to re-license with the same supplier, in many cases, clients need to retrench first for a minimum amount of time before they can successfully re-license. In some cases, clients have saved 50% or more utilizing this approach.
7. Revolutionize:
Some clients are moving away from monolithic enterprise software platforms in favor of more nimble, easier to deploy cloud based SaaS solutions. Clients often report the ability to stand up an entire SaaS environment for a little less than their annual maintenance obligations for the software alone. This can represent a significant opportunity to reduce costs when you consider you can often get the facility, hardware and management costs in addition to the SaaS software for less than the costs of the software maintenance alone.
The primary attraction of many of these options is cost reduction. With savings that range from 20-75%, it’s no wonder clients are strongly considering their options. Another ancillary benefit that some clients are seeking is to regain control of their supplier investments and relationships, which they often feel have gotten out of control. Many clients have suffered at the hands of unilaterally controlled supplier policies, and revised supplier interpretations of their existing contractual rights and benefits, and the seemingly malevolent design to be one of denying customers the ability to effectively manage costs.
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