Vendor vs. Third-Party Software Maintenance Contracts
Whether to continue to pay for software maintenance contracts for on-premise solutions is a tough question for many, especially as the tough economy of the past few years settles into a new reality. Cost pressures continue, and many companies feel these contracts deliver limited value, especially when plans to upgrade have been put aside.
Software Insider Ray R Wang recently reported that in his survey of 240 CIO’s, a strong majority sited poor service, feature-light releases, and a downright dislike of the vendor as reasons why they’re weighing their options. A full 30% of his respondents have no software maintenance contract and provide their own support.
Almost 60% of CIO’s expressed interest in third-party maintenance providers. Granted, most of these CIO’s represent companies with over 1000 employees and larger vendors like SAP, Oracle, PeopleSoft and the like. But here’s the interesting statistic: these CIO’s increasingly believe it’s their right to choose third-party maintenance providers, currently 76% and up from 58% just two quarters ago (Q309 to Q110).
Intellectual property rights are still an issue, and with software maintenance contracts representing 50%-80% of vendor revenue streams, no doubt they’ll duke it out in court. But a trend may already be well underway, and small to mid-size businesses stand to benefit as well.
What should you negotiate into your software maintenance contracts today to prepare for a stronger third-party maintenance presence in the coming years?
1. First and foremost, a provision that protects your right to use third-party maintenance providers.
2. Custom stipulations that steer your key vendors away from the need for third-party providers, such as:
* Insisting on a tier of support that meets your business need rather than paying for more services than you really need.
* If you’ve been paying full maintenance fees for several years on more licenses than you use today, demand value through lower fees or credit towards other products and/or services.
* Appropriation of maintenance fees for lower cost future offerings such as SaaS subscription services.
* Extended online self-help services, including user forums, knowledge bases and blogs. Insist on social networking and polling features to keep vendor participation credible.
* Vendor-offered financing to SMB’s who have otherwise seen it evaporate.
3. Urge your strategic vendors to work out how 3rd-party providers can deliver maintenance services without violating intellectual property rights.
4. Seek action against vendors who hinder 3rd-party providers.