Software Licensing and Pricing: Push for value from maintenance agreements, not discounts

Published on February 19, 2008 by John Ragsdale

I would like to provide an alternative view to Ray’s most recent post, Software Licensing and Pricing: Stop the Anti-Competitive Maintenance Fee Madness. As head of research for the SSPA, whose members rely on maintenance revenues for their livelihood, I’m not ready to say maintenance contracts are overpriced. In fact, the SSPA view of this is the continued push back on maintenance pricing is having some major impacts on how (and how well) products are being supported.

According to our benchmark database, 81% of maintenance contracts for hardware and software are renewed annually, but over 1/3 require concesssions or discounts to renew. Enterprise hardware companies discount an average of 15% on renewals; for enterprise software companies the average is 9%.

What do you get for your maintenance? Bug fixes, new releases of software, access to community features to share best practices, and of course access to technical support. If the vendor did a good job of fulfilling these deliverables all year long, why are you balking at the maintenance renewal?

And, things are getting trickier for support organizations, whose push into proactive service means that more technical issues are identified and fixed remotely, before the customer is ever impacted. As Chip Gliedman always says, you don’t call your doctor and thank them when you haven’t been sick in a year. Similarly, support managers tell me that they are increasingly charged with “What have you done for me lately?” upon renewal, because so many problems were intercepted and eliminated that customers rarely interacted with support. In other words, when innovative support teams do a great job, they are invisible. And under appreciated.

If a contract is up for renewal, before you trot out your handbook on ‘Negotiating with Terrorists,’ be sure to get an account review for the past year and understand how many service issues may have been proactively resolved with little or no involvement from your staff. Review what support and maintenance options you were entitled to under last year’s agreement and determine if the vendor delivered on these commitments. If they fell short (no timely releases, missed SLAs, etc.), give ’em hell.

This may be a radical suggestion, but instead of asking the vendor to continue giving you good service for less money, the renewal discussion should be “How can your support team help me get better value and more quickly achieve my business goals for your product over the next year?” If the vendor has not embraced this view of Value-Added Support and can’t articulate how they are going to partner with you to help better leverage their products, then you are dealing with a support group in continual ‘breakfix’ mode that is unlikely to meet your needs for a strategic implementation. And that is a maintenenace contract worthy of hard negotiation.

If the vendor, and their support organization, has a shared interest in helping you succeed with their products, and you are getting as much (or more) value from your purchase as anticipated, then the maintenance agreement is a good investment.

Just my 2 cents. Thanks for reading!

(The personal contents in this blog do not reflect the opinions, ideas, thoughts, points of view, and any other potential attribution of my current, past, or future employers.)
Copyrighted 2008 by John Ragsdale and R Wang. All rights reserved

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