Some of the largest IT vendors in the industry, including IBM, Microsoft, SAP and Oracle, are mining their install base in a bid to offset the damage being done to revenues by new disruptive technologies.
Analyst Alexa Bona, speaking at Gartner’s Symposium event in Barcelona said that this is being done through complex terms and conditions (T&Cs) and a renewed focus on increasing maintenance charges.
For example, she said that enterprise resource planning (ERP) vendors that pushed the enterprise application in the 90s are now increasing costs for their traditional customer base due to the rise of cloud computing.
“So then what happens is the software vendors selling the ERP solutions become a bit more interested in how they can derive revenue not necessarily from new licence sales, but from mining the installed base,” said Bona.
“That’s when the terms and conditions really start to play [a role] because T&Cs in the contract that seem to have no meaning, now have a very precise meaning that often ends up in an invoice.”
Vendors are now, for example, introducing new costs through indirect access — Bona said that some are now requiring that enterprises buy licenses for all of the users that might have software interfaced into that vendor’s package. She said: “These things happen when the product starts to get more mature.”
Bona also highlighted that maintenance costs are increasing and they are becoming increasingly hard to reduce. According to Gartner, vendors are becoming extremely protective of this revenue stream because the vendors are making between 85 to 95% profits margin on them.
“Maintenance revenues are incredibly predictable, because most companies renew them year after year, and for some of these providers (SAP, Microsoft, Oracle and IBM) they are nearly half of their revenue,” said Bona.
“So they are very vital sources of their financial health.”
She said that the complicated T&Cs are extending into maintenance contracts, often making it impossible for companies to get a reduction.
“You’ll see clauses that say maintenance is all or nothing — so if you have bought a big bundle of software but have decided that you are not using CRM, but you want maintenance for ERP, unfortunately you can’t cancel the maintenance on the CRM without cancelling it on ERP as well,” said Bona.
The vendors that are allowing you to cancel the licensing on separate components, according to Gartner, are then re-pricing all of the remaining licenses on a company’s order form at a discount that they think reflects the lower investment.
“Then you see a massive erosion of the discount. You find yourself paying exactly the same, but for less licenses,” said Bona.
“Be very aware of this and don’t buy licenses that you are not sure whether you will need or not, because you will pay maintenance probably until you die.
“It may even be the inheritance gift that you send to your grandchildren. Look very carefully, do not over commit just to get a better discount on licenses.”
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