Data Point

Software Licensing and Pricing Is Still Too Complex and Costly

A Forrester Research survey of IT professionals finds that enterprise vendors have yet to solve pricing and complexity "pain points."

January 28, 2008 — CIO —

A January 2008 report from Forrester Research, which combines survey data and interviews with IT managers, states that software licensing and pricing continues to be "marred by complexity, soaring maintenance costs, and a lack of flexibility and alignment with business goals."

Forrester interviewed 25 clients of top enterprise applications providers and surveyed 215 business process and applications professionals about their software licensing and pricing experiences, according to the "Trends 2008: Applications Licensing and Pricing" report, by analysts Ray Wang and Elisse Gaynor.

Though the Forrester analysts reason that "application innovation trends like service-oriented architecture (SOA) and software-as-a-service (SaaS) will be the impetus behind a shift in how firms view apps licensing and pricing and what they demand," this recent batch of survey data shows that vendors still have a long way to go to meet their customers' needs.

Overall, software users are dissatisfied with the current state of licensing agreements and costs, as well as maintenance pricing. Here's why:

License agreements remain too complex. While some people will concede that licensing and pricing complexity is "a necessary evil to combat misuse of applications and to accommodate a heterogeneous community," a little less than half of the respondents said that licensing structures and language are still too complicated and are among the biggest problems with licensing today. "Users felt there was often a lack of clarity regarding the exact value they were receiving for the pricing and often did not understand the rationale behind expenses, discounts, or provisions for changes to their licensing," the analysts write.

Imposed maintenance costs continue to lack value. Companies believe that maintenance costs are way too high. Surveyed companies reported that they were paying an average of 26 percent of their total cost of ownership, while approximately 87 percent of these respondents believe a fair price for maintenance is 24 percent or below. "Striking a particularly strident chord for licensees," the analysts write, "many clients Forrester spoke with indicated they paid maintenance fees but never used the services."

Rigidity and misalignment of metrics persists. Those IT managers who were interviewed expressed dissatisfaction with their vendors' inability to accommodate their individual business needs. Specifically, Wang and Gaynor write, users want vendors to "understand how their companies actually operate and acknowledge the structures that are most in line with these operations, instead of force fitting existing structures to each client."

Mergers and acquisitions (M&A) create a hodgepodge of licensing and pricing models. M&A activity brings its share of renegotiation issues, and in the cases of "rapid employee change from acquisition or from divestiture, customers want the freedom and agility to change models to match their new circumstances," the analysts write. But according to one client they interviewed, it's "always a problem in licensing, and vendors either agree or never respond—leading clients to run illegally until completely off the system."