The Problems with Vendors

The problems start with the term maintenance fee, which implies that it covers help desk calls, tech support and other such expenses. The truth, however, is that most of the benefits to a user company are indirect. Twenty percent to 50 percent of the maintenance fees collected by the top 10 major ERP vendors actually go toward the development of future releases, according to a 2002 AMR Research survey of those companies. In this regard, "maintenance" is a misnomer, since the fees represent a steady source of income for software vendors. The annual payment helps them make projections and balance their budgets, both bottom-line boons. Furthermore, annual fees keep the licensing cost artificially low; if vendors charged for support and R&D costs up front, software would be prohibitive for all but the wealthiest of organizations.

With an eye toward increasing revenue and lowering up-front payments in order to spur sales, vendors have been raising maintenance fees every year. In 1996, maintenance fees on enterprise software accounted for about 18 percent of ERP vendors' annual revenue, reports AMR. By2000, that percentage jumped to 25 percent. And AMR predicts still another increase by 2005, to 30 percent.

Vendors insist that maintenance is a crucial part of what CIOs are buying. "As the pace of change increases, so does the cost to keep up," says Claus Heinrich, a member of SAPSAP's executive board. Maintenance fees allow vendors to make investments and upgrades that individual companies could never afford or have the time to do themselves. For example, Heinrich has a team of 430 (350 full-time) developers working on SAP's human resources module. Ultimately, Heinrich says, the cost to individual companies to develop similar updates on their own would be much higher than that of maintenance fees. Vague, yet risky scenarios like that are one of the reasons CIO rarely risk finding out how much it would cost to try it on their own. Alles zu SAP auf CIO.de

In addition, after a system has been in place for a couple of years, most CIOs rarely use technical support. Then the primary return on investment is updates. "Yet [vendors] will not give you any clear indication of what the product is going to look like over the next five years, and [they] won't tell you what will be in there," says Jerry Hale, vice president and CIO of Eastman Chemical. That updated product may turn out to be wrong for your business. Or worse, says Hale, "we get the feeling that the majority of the development fees are going toward products that we have to license for again."

All of this may have been fine in 1999 and 2000 when you could simply pick the money off the tree in headquarters' new arboretum. But today, many of the maintenance contracts signed in the good old days hang around CIOs' necks like a noose.