Shopping for software maintenance

Take care to avoid paying for service, support and upgrades that you neither need nor want.

As for any discerning shopper, value is the end goal for companies buying software licenses and maintenance contracts for service, support and upgrades. However, the problem is that today it is getting harder to calculate if the goal has been met or can be met.

For Kennametal, a Latrobe, Pa., manufacturer of tools and heavy machinery for industries such as mining and construction, those calculations started to get foggy over the past three years as the maintenance costs on its IBM software increased by double digits.

With such rising rates, all companies are left with the issue of figuring out the business value of continuing to pay for maintenance contracts. “You have to know where the product is headed,” says Brian Forsyth, software systems analyst for Kennametal. “You have to know how many times you used your [previous] contract, just what the vendor did for you and whether you could have gotten it resolved without the contract. Every vendor wants to sell you maintenance, but you have to determine what that means to your business model.”

It’s not an easy game anymore, according to users who say calculations also turn on how many years the software will be used before being upgraded; how the software is licensed, such as by server or by CPU; how critical the systems are to a business; what is added in terms of perks such as training vouchers; and the value of the advice on the other end of the phone.

Making mistakes is getting more and more costly, experts say. Gartner research shows that the cost of maintenance is now on average 21% of the purchase price of the product.

“In the mainframe days, maintenance was about 12% to 15% of the licensing costs. No one sells it for that these days,” says Alvin Park, an analyst with Gartner. Among the top vendors, Oracle is 22%, IBM is 25%, and Microsoft is 25% on the server and 29% on the desktop, he says.

Those numbers are forcing users to circle their decision-makers and come up with strategies to ensure they aren’t paying for unnecessary software or services. “The issue is figuring out just what you own and determining when is the best time to buy more,” Forsyth says.

Kennametal’s strategy is to do yearly license renewals for its nearly 7,000 seats of Lotus Notes/Domino. “IBM has added a lot of enhancements to the contract like adding access to instant messaging and Web conferencing, so there is some value there other than stock standard maintenance,” Forsyth says. He adds that those enhancements help offset the 8% to 12% rise in maintenance costs he has seen over the past three years.

Microsoft also has spent the past 18 months adding enhancements to its Software Assurance program such as giving users rights to install the software on their home machines and providing training vouchers for IT administrators. Those benefits represent the majority of the value in a maintenance contract when a product upgrade doesn’t fall within the length of the contract.

“Software Assurance is something that Microsoft has updated to give companies some additional benefits for the amount of money they pay, because sometimes product upgrades come out and sometimes they do not,” says Pam Peschel, business support specialist for Denver Water in Denver.

Peschel says she turned to Microsoft’s Enterprise Agreement site license as opposed to buying licenses for each individual product. The decision made sense because Denver Water upgrades on a regular cycle and finds that the additional maintenance benefits, such as home use rights, provide a discernable value.

“Because we have continual maintenance we don’t have to go out and buy upgrades, and that has made a big difference. You have to think long-term,” says Peschel, who supports 950 desktops and pegs her yearly maintenance fees for Microsoft and third-party software at $150,000.

And users say you have to think across the entire organization.

“Today, our CIO has a more direct link with the CIOs of our business units,” says Chip Goodall, senior business analyst for Carlson Shared Services, a travel, hospitality and marketing company in Minneapolis. “We are involving more departments than in the past, and the CIO drives these centralized [licensing and maintenance] agreements.”

However, Goodall says the licensing game is getting trickier because vendors sometimes change the way products are licensed, such as CPU-based pricing that has been adopted for products such as databases. “Vendors are always looking at how they can update their licensing, and we are always trying to evaluate those changes vs. what the value of that contract is to our business,” he says.

Users say when those changes come in, contracts are sent directly to corporate lawyers for review.

Some users have taken those evaluations to creative levels, playing all the angles and all the options that are open to them.

Scott Matthews, CTO of Digitech Systems, found Microsoft’s Software Assurance too costly for his small to midsize business. So he got creative, using the company’s expertise in software development to its advantage.

Matthews discovered that certifying the company’s software under the Microsoft Certified Partner program entitled Digitech to 10 licenses to various Microsoft products for internal use at no cost. The Greenwood, Colo., company is now in the process of moving to Gold Partner status, which will give it 100 licenses for the Microsoft products it uses.

And given Digitech’s independent software vendor (ISV) status, they also receive technical support on those products through Microsoft Developer Network services.

“We get better technical support then what we were getting through Software Assurance,” says Matthews, who says the less-than-$2,000 price tag for the partner program in addition to related certification testing and development costs pales in comparison to his Software Assurance bill, which was pushing $70,000.

Yet the certification hasn’t eliminated the need to license software from Microsoft because the deal doesn’t include such things as the SQL Server Enterprise Edition that Digitech runs.

There are drawbacks and risks, though. If the ISV loses partner status, it also loses rights to run the Microsoft software that may well be running its business operations. With Software Assurance, even after the contract expires users can continue to run the software they purchased.

“Microsoft has every right to change its business model,” Matthews says. “Sometimes that comes at a cost to your customers and partners. Our way of solving the problem was to come closer to Microsoft.”

It is such creativity and attention to detail that is helping companies turn themselves into savvy licensing shoppers, experts say.