Recently, readers and clients have been approached by on-premise vendors offering free software modules to incentivize new license purchases. However, free should not be confused with the Open Source (i.e. Freeware) movement, where source code is provided with minimal copyright restrictions. Free should not be confused with any other obligations upon receiving license to that software. Free should not be confused with… well – free! In fact, a closer evaluation of free software should include the following 9 test questions:
- Are you required to purchase a minimum amount of some other module?
- If you are required to buy a minimum amount, what’s the discount off list for that required module?
- Could you get the paid module on its own for less than the discount?
- Could you get the free module on its own for less than the discount?
- Do you have to pay maintenance on the free module?
- What value will be assigned to the software licenses when maintenance is calculated?
- Do you get a discounted value for the maintenance on the free software license?
- Can you return the free software without any charges?
- Can you trade the free software for other products?
The Bottom Line – Calculate The Total Account Value (TAV) When Comparing Software Ownership Costs
Total account value (TAV) provides a methodology to calculate the true cost of ownership over a period of time, typically 10 years. TAV represents what your worth to the vendor and your total costs. Components for a side to side comparison should include the following 10 elements:
- License fees
- Maintenance fees over a fixed period of time (e.g. 10 years)
- Implementation costs
- Patching, bug-fixing, and upgrade costs
- Testing costs
- Training costs
- Internal support-related staffing costs
- Hardware or hosting costs
- Retirement costs
- Cost over-runs and that miscellaneous bucket
Use this methodology to compare costs as you figure out your enterprise strategy. This includes total account value cost comparisons such as:
- Vendor X vs Vendor Y vendor selection
- SaaS versus On-premise ongoing- costs
- Third party maintenance versus extended support
Did you really think you’d get free software? Have you done a comparison of your existing costs versus scenarios for a new apps strategy? Need some guidance on TAV? Feel free to post your comments here or send me an email at rwang0 at gmail dot com.
*standard disclaimers apply. always check with your legal counsel and procurement experts before taking any action with your vendor contracts.
Copyright © 2009 R Wang. All rights reserved.