The True Cost of Software Maintenance

by john on February 23, 2003

Software is expensive. Enterprise software even more so. The licenses themselves? Sure – they are expensive. But where you can really get into trouble is in the annual maintenance you pay on your software. For most enterprise software you’ll find yourself paying 15-20% of what you spent on licenses for something usually referred to as “Maintenance” which gives you two things: software updates and technical support. Depending on the company you are buying from and how much you pay in maintenance you may get full blown support with direct contacts in the support organization, or you may get an email address to send questions to. But that 20% hits you year after year, and of course there are usually increase clauses written into the contract so it grows a bit every year too, and as you add licenses it gets even bigger.

Some companies charge maintenance based on the list price of the software, regardless of how big a deal you were able to negotiate up front. Be especially wary of this. In this economy as companies struggle to remain afloat you will see them offer huge discounts to keep the dollars coming in. Maintenance is an annuity that keeps software companies afloat and if you are considering buying from a company who charges maintenance on list price, consider this example. Let’s say you are looking at buying $1,000,000 (list) of some software and you are able to negotiate a 75% discount. Cool – license fees of only $250,000. But guess what – they charge maintenance of 20% on list price, meaning you get hit for $200,000 that first year and a quarter of a year into the second year you’ve already spent more on maintenance than what you paid for the software. And it’s all down hill from there.

This is particularly devastating when you consider the impact to budgets and the ability to hire new people necessary to fuel the innovation and growth our companies pay us for. In his article “Software Complexity and Deflation of IT Value“, Brent Sleeper addresses this issue and asserts that this burden negatively effects corporate productivity:

I’ve been doing some macro-analysis that shows two things, one well understood and the other less so: (1) there is indeed an empirical connection between IT investment and corporate productivity, but (2) when new application development is constrained by maintenance costs, these productivity benefits begin to lag. In fact, when maintenance costs peak relative to cyclical software investment, productivity growth plummets.

To benefit from the productivity increases that software promises it is imperative that your software investments are continually evaluated to be sure the productivity gains you hope to be getting are actually being seen. If they are then you are one of the lucky ones. If not, it’s a hard hole to dig out of because to fix the problem will most likely require people and your budget is constrained by the growing line items of maintenance and depreciation (that’s an article for another time).

The true cost of software maintenance is the risk that you will be trapped – trapped into keeping the status quo and unable to deliver the productivity your business requires. To pull yourself from this quagmire is expensive so don’t fall in if you don’t have to.

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Henry February 27, 2003 at 5:18 pm

I took the opportunity during the dot-bomb to renegotiate some of those larger maintenance costs. Software vendors are EXTREMELY reluctant to negotiate unless you have a large stick or they are in a serious bind.

It’s not just software that does it — hardware has some pretty hefty maintenance fees built in as well. Software & hardware maintenance fees are 13% of my budget. As we add more, that figure continues to rise.

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