Software Maintenance Strategies For CIOs That Can Save Millions

Software ownership costs continue to escalate as vendors accelerate their efforts to capture software support and maintenance revenues. Some vendors have gone to the extreme to eliminate third-party options for their customers. Through the report - Best Practices: Three Simple Software Maintenance Strategies That Can Save You Millions, Constellation Research outlines three strategies to free up unnecessary costs to fund innovation and new projects.

On average, IT budgets are down from 1-5 percent year-over-year, yet software support and maintenance costs continue to escalate ahead of inflation. Hence, continued pressure on IT budgets and a growing need for innovation projects have top business and technology leaders reexamining their software support and maintenance contracts for cost efficiencies. Based on experience from over 1500 software contract negotiations, Constellation Research suggests three approaches to reduce the cost of software support and maintenance. Key strategies include third-party maintenance, shelfware reductions, and unbundling maintenance contracts as part of every organisation’s tech optimisation strategy. Successful implementation can lead to savings from 10-25 percent of the IT budget, freeing up cash to fund innovation initiatives.

Research Findings – Why Every Organisation Should Consider Third-Party Maintenance, Shelfware Reductions and Unbundling Maintenance Contracts:

Most organisations suffocate from the high and hidden cost of support and maintenance. On average, Constellation’s surveys reveal global IT budgets trending down from 1-5 percent year-over-year since 2008. Consumerisation of IT, rapidly changing business models, and aging infrastructure have exposed the high cost of software support and maintenance. Because most organisations allocate from 60-85 percent of their budget to keeping the lights on, very little of the budget is left to spend on new projects (see Figure).

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Organisations can unlock millions by considering third-party maintenance (3PM), reducing shelfware, and keeping support and maintenance contracts unbundled. Each strategy on its own creates opportunities to drive cost savings. All three strategies combined, provide a roadmap for funding innovation.

Third-party maintenance (3PM) delivers the most immediate cost savings and opportunity for innovation. Third-party maintenance describes support and maintenance offerings delivered by non-OEM providers. These vendors can provide a range of options from basic break/fix to bug fixes, performance optimisation, tax and regulatory updates, and customisation support. Keep in mind, 3PM does not provide access to upgrades and future versions of the OEM’s product. One big driver is the lower cost of delivery, as much as half the cost of the original vendor’s pricing. The report shows a survey of 268 respondents and why organisations choose 3PM and who the key vendors are.

Reduction of shelfware remains a key pillar in legacy optimisation strategies. Shelfware (i.e. purchased software, not deployed, but incurring annual maintenance fees) is one of the biggest drains on operational expenses for enterprises. The simple definition of shelfware is software you buy and don’t use. For example, an organisation that buys 1000 licenses of Vendor X’s latest ERP software and uses 905 licenses, becomes the proud owner of 95 licenses not being utilised. That’s 95 licenses of shelfware because the user will pay support and maintenance on the license whether or not they use the software or not. The report details 4 successful and proven approaches.

Unbundling maintenance contracts prevents future vendor mischief. About a decade back, vendors would offer support and maintenance as two separate line items on their contracts. Support would run about 5-10 percent of the license fee and so would maintenance. Keep in mind, average support and maintenance fees were under 15 percent back then. Unfortunately, many users have expressed a growing and concerning trend with support and maintenance contracts. Vendors concerns about support and maintenance contract retentions have led to new initiatives to consolidate contracts. At first glance, this may appear to be proactive and beneficial to customers, but the report details three rationales vendors provide and three strategies how to avoid bundling.

The Bottom Line: Users Must Advocate for Third-Party Maintenance Rights Across the Technology Stack

Vendors continue to conspire to remove third-party maintenance as an option for their customers. What’s extremely disturbing is how vendors are working hard to prevent customers from having third-party maintenance options. The notion of perpetual software license rights should include the right to self-support software or engage in a third party to provide tax, regulatory, and additional updates. As many vendors try to close up these loopholes, customers are left in a no-man’s land position of being forced into de-facto maintenance contracts with only the vendor.

End users need to band together and collectively demand clear rights to third-party support options. Based on survey data, most already believe or feel that 3PM should be a right (see Figure below.)

Most Users Believe Third-Party Maintenance Should Be a Right

Otherwise, users will face a situation similar to automakers forcing drivers to only go to them for maintenance. If some of the industry’s largest systems integrators actively entered the third-party support market, it would effectively disrupt the balance of power and put more money into the hands of the end-users and the system integrators.

_The author is Principal Analyst & CEO, Constellation Research
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