Avoiding "Empty Calories" in Software Spend
Vinnie Mirchandani does not have many friends -- except his blogging brethren -- at Oracle and SAP (or Infor, JDE, Ariba, or any other vendor who has come up against him on the other side of the negotiating table). As a hired gun for the CIO, Vinnie's job is not only to help companies think about how best to select the right software and outsourcing solutions, but to get the costs associated with said code and services down as well. In a recent post, Vinnie describes why "software maintenance reflects the most empty calories in IT spend from a buyer's perspective."
Here are some of his more salient thoughts on the matter: "Paying for bug fixes smacks of 'double jeopardy'. The software industry delivers shoddy code and charges a license fee for it (with minimal warranty), then expects buyers to pay maintenance to get bug fixes ... During implementation before they go live on software, few customers tax support lines. Indeed they are under another 'double jeopardy' -- paying the systems integrator (often Oracle or SAP Consulting) in addition to paying maintenance ... [and] most software vendors have moved maintenance of older releases offshore to India, E. Europe etc, but have kept the savings without passing any of that along."
Vinnie suggests that "fair maintenance pricing would be in a bell curve -- gradually ramp up years 1 and 2, gradually ramp down starting in year 5. But today the software industry expects full rates from day one through termination." So if you’re looking to reduce IT spend, definitely put software maintenance on the negotiating table. And don't be deterred about going with a third-party maintenance and support package as well (despite Oracle's recent actions against SAP).
Here are some of his more salient thoughts on the matter: "Paying for bug fixes smacks of 'double jeopardy'. The software industry delivers shoddy code and charges a license fee for it (with minimal warranty), then expects buyers to pay maintenance to get bug fixes ... During implementation before they go live on software, few customers tax support lines. Indeed they are under another 'double jeopardy' -- paying the systems integrator (often Oracle or SAP Consulting) in addition to paying maintenance ... [and] most software vendors have moved maintenance of older releases offshore to India, E. Europe etc, but have kept the savings without passing any of that along."
Vinnie suggests that "fair maintenance pricing would be in a bell curve -- gradually ramp up years 1 and 2, gradually ramp down starting in year 5. But today the software industry expects full rates from day one through termination." So if you’re looking to reduce IT spend, definitely put software maintenance on the negotiating table. And don't be deterred about going with a third-party maintenance and support package as well (despite Oracle's recent actions against SAP).
As Dennis Howlett says a number of vendors get mad at me pointing out what is obvious to most who are not in the industry. Many of your readers are sourcing executives...ask them how many indirect items earn more than 10% net margin..maintenance gross margins are at 90+...and they crowd out money for innovations both at incumbent vendors and exciting start ups. There is no magical new budget for innovations and most IT budgets will be flat or grow at single digits - something's gotta give - maintenance, outsourcing contracts, old leases, old telephone rates, shelf ware of different kinds, unused hardware capacity ..will get squeezed, like me or not... given a choice between exciting new mobile, telemetry, web 2.0, virtualization stuff and paying maintenance on legacy software, why is there even a surprise which way companies want dollars to flow?
P