Tuesday’s Tip: Note To Self – Start Renegotiating Your Q4 Software Maintenance Contracts Now!

Published on September 1, 2009 by R "Ray" Wang

Labor Day (US Holiday) traditionally marks the end of summer BBQ’s, the beginning of the fall conference season, and yes, the time to begin a review of your software maintenance contacts that expire end of year.   As clients prepare for this seasonal ritual, a few trends in 2009 should set the stage for negotiations:

  • Continued weakness in the economy. Vendor revenues continue to decline as new license sales drop and vendors become more dependent on support and maintenance revenues.  Customers looking to upgrade or commit to new apps can expect vendors to be more generous on the support and maintenance front.
  • Dated and inflexible architecture of legacy applications. Change in business models, workplace dynamics, and macro economic conditions apply new pressures to aging systems purchased pre-Y2K.  Customers seek paths to upgrade but are limited by economic pressures.
  • Vendor awareness of customer discontent with existing support offerings. Customers now seek to understand what value vendors deliver in their support and maintenance agreements.  Many vendors have proactively responded by improving service or making appropriate concessions.
  • Growing acceptance of third party maintenance (3PM) options. Vendors such as Rimini Street and Spinnaker have proven to the market that they can deliver 3PM to an array of ERP applications.  Cutting maintenance fees by 50% or more can free up funds for innovation or pay for the next upgrade.

Align your apps strategy before negotiating contracts – do your homework

Contract negotiations strategy should be planned in conjunction with an overall apps strategy.  Begin the process 2 to 3 months in advance.  Make sure the teams have the proper incentives in place.  Take the following steps as you prepare for your maintenance renewals:

The bottom line – follow the seven simple steps to successfully negotiating software contracts.

  1. Ensure that the right team is in place
  2. Identify the organization’s key business drivers
  3. Determine the product adoption plan
  4. Consider contract strategy implications of the software ownership life cycle
  5. Align contract strategy with product adoption
  6. Identify leverage points
  7. Prioritize key contract objectives

Your POV

Looking to hear your best practices with software maintenance contract renewals.

  • Is your maintenance contract up for renewal at the end of the year?
  • Do you need help putting a strategy in place?
  • Have you conducted an apps strategy assessment?
  • Would you like to break free from your vendor but don’t know what options exist?

Post your comment here or reach me direct at r at altimetergroup dot com or r at softwareinsider dot org.

Copyright © 2009 R Wang. All rights reserved.

  • Ray,

    We are seeing a fundamental shift in enterprise software. This market has matured beyond “the tornado”. Most vendors are pushing more features and attempting to gain a larger share of the customer software portfolio. Maintenance revenue is increasing in revenue share to the point where it is has become crucial for vendor survival. So, vendors are leveraging marketing muscle, FUD, proprietary middleware and acquisitions to “own customers”. Yet, customers now own vendors because of the implication of maintenance revenue.

    The SAP maintenance soap opera is a case in point. SAP found that customers want value in maintenance. Most enterprise software customers do not want to be dictated to upgrade to new versions with all the expense and problems with limited visible incremental value. They want software to change to be easier to maintain in-house. They want fixes. And, they want longer times for version support.

    It is the software vendor attitude that needs to change. None of the major enterprise software vendors appears to be customer intimate. The software channel distances vendors from customers. Vendors are organized with “support” as a separate “profit center.”

    It’s no wonder that customers are more willing to engage 3PM firms and specialist software manufacturers. In many ways, the “boutique” provides a more personalized and satisfying experience than the ERP “department store.”

    I agree with you. Customers need to look at the financial statements of vendors. The % of maintenance revenue to overall revenue and the vendor profitability. Customers should point out how they are disproportionately contributing to vendor profitability, particularly as new license sales fall.

    Customers should band together using social networking. The “user group” is an ideal tool for vendors to broadcast to customers and to push for upgrades. It’s expensive for customers to attend. Customers should use social networking to demand better support and more effective pricing.

    On another note:

    I generally dislike our industry Three Letter Acronyms (TLA). “3PM” is ideal. As in: it’s 3PM at quarter end and salespeople are trying to close business to meet quota while managers are running reports. The system grinds to a halt and who is going to respond to fix the problem?

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