Software Licensing and Pricing: Stop the Anti-Competitive Maintenance Fee Madness

Published on February 15, 2008 by R "Ray" Wang

Recent maintenance fee increases by several large vendors lack any logical rationale other than pure greed. Customers and prospects should demand lower maintenance fees in their contracts because:

  • Maintenance fees represent the biggest cost items in the software ownership lifeycle. Every percent reduction in a $1M deal equates to an annual savings of $10,000. Controlling the base line costs and future increases results in long term cost savings. Keep in mind most deals focus on the net license cost.
  • Maintenance and support remains highly profitable. Support and maintenance profit margins often hover between 60 to 85% after the third year of a product’s introduction. If a vendor invests 50% of that revenue into R&D, then the customer benefits. However, if the vendor pockets the profits, then the customer loses.


The bottom line
The lack of third party maintenance offerings and the anti-competitive behavior among the large software vendors has led to a de facto increase in maintenance fees without any subsequent value to the enterprise. On top of this, vendors come back and charge for new modules and functionality paid for from the maintenance and support profits. Market place consolidation has ultimately resulted in a less competitive market for consumers. Customers should revolt en masse by protesting any maintenance fee increases that do not come with additional value. Expect a potential class action lawsuit some time in the future where customers will claim collusion among vendors in charging exorbitant maintenance fees while keeping third party maintenance providers from delivering cost effective alternatives.

  • Well said! I was having a Kramer “Mad Money” moment. A good partnership can be established when vendors are able to show value for support and maintenance contracts and clients have a good understanding of what they have paid for.

  • Let’s not lump all vendors and maintenance agreements into one bad bucket. If the vendor delivered on all the commitments from last year’s agreement; if you are receiving the business value you expected from their products; if they embraced Value-Added Support and can articulate how they will help you achieve even more business value next year, then renewing makes sense.

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