SOFTWARE DEVELOPMENT - Let's Stop Wasting $78 Billion a Year

Greg Seyk, newly appointed CIO of VisionQuest, had only months to rid his organization of its Y2K bugs. (Y2K, after all, was not a top priority for the Tucson, Ariz.-based national youth services organization, whose mission is to keep kids out of jail, and Seyk had just come on board the previous spring.)

The first thing Seyk did was purchase a Y2K-compliant ERP system?Lawson Insight version 7.1.5?from Lawson Software, a St. Paul, Minn.-based vendor. But just as he and his staff of five got around to testing the software, Lawson released a new version (Lawson Insight version 7.1.6) that included a function for prioritizing bill payments. That function had been promised but never delivered in any of the previous versions, Seyk says.

With just two months to go before the clock struck midnight on Dec. 31, 1999, Seyk didn’t have time to deploy the upgrade, even though the payment prioritization function had been a critical selling point for the 53-year-old CIO. "We had to implement accounts payable, the general ledger, payroll and human resources to make sure they were Y2K compliant. It was no small feat," says Seyk, who is also a vice president of the private company.

Between November 1999 and July 2001, Lawson released seven new versions of its software to fix bugs or add functionality that had been promised but absent in each previous version. Seyk was outraged. He documented his problems in a series of letters to Lawson executives, met with them on two occasions, and sank a total of $594,974 into software and maintenance to correct the flaws in their products.

And then it dawned on Seyk why the software and support were so bad: That’s the way vendors make money. They push products on the market before they’ve been adequately tested, demand payment up front and then are often not available to deal with the sequelae of poorly performing products. (Lawson officials declined to comment specifically on VisionQuest’s problems with its software. All a Lawson spokesperson would say is that the company is working with VisionQuest in an effort to resolve its concerns. "We are committed to 100 percent customer satisfaction," says Bev Bergstrom, vice president of communications for Lawson.)

How Bad Software Pays Dividends

CIOs have been complaining about poorly designed and buggy software forever. In a recent survey on, almost half of the 88 IT professionals questioned said they were unsatisfied with both the quality of their business software and the support. (For full survey results, see The problem is a big one: Faulty software costs businesses $78 billion per year, according to Jim Johnson, chairman of The Standish Group, a research company based in West Yarmouth, Mass.

But now many CIOs are beginning to realize that the root of the problem may lie in the economics of the industry. Vendors generate most of their revenues through perpetual licensing agreements, which force CIOs to pay up front for an application. In return, CIOs own the software and the right to use it "in perpetuity." The problem with this model is that in reality, CIOs are lucky if they can get three years out of a product before vendors release entirely new versions of their software. Vendors further pressure CIOs to buy those new releases by threatening to stop supporting previous releases?a tactic they often take both to cut their tech support costs and to get CIOs to pay again and again for what is essentially the same product.

Another problem with the perpetual model is that CIOs have to fork over an additional 15 percent to 20 percent of what they paid for the software in annual maintenance fees to cover product updates and tech support, according to Chuck Phillips, managing director and software industry analyst at Morgan Stanley Dean Witter. If CIOs want to receive upgrades, patches and access to tech support?as inadequate as it can sometimes be?they have to pay the yearly maintenance fee. Software companies earn a significant amount of cash from these fees. So it’s in the manufacturer’s best interest, at least financially, to make products that need maintenance and that have to be continually improved with successive updates, patches and versions that CIOs pay for up front. In sum, bad software works for the vendors.

There are, of course, other reasons for all the bugs. IT professionals point to a whole litany of causes: bloatware, with all its useless bells and whistles; programmers working in isolation, blissfully ignorant of how people will ultimately be using their software on a daily basis; reusable components that may already contain bugs; an absence of agreed upon professional standards; and developers who take shortcuts to meet deadlines during development.

But a large part of the story may indeed be the way vendors sell software. CIOs are finally waking up to this, and a growing number are demanding that vendors change their business models. A council of IT leaders from a dozen heavy-hitter enterprises convened in August under the auspices of Boston-based analyst company AMR Research, intent on pushing for software industry reform. The group issued a peaceful statement of its desire to "work with" software companies for improvements in quality, delivery reliability and versioning. However, with big names like Becton Dickinson, Boeing, Cabot, General Dynamics and Kraft on the roster, the council has enough weight to change "work with" to "lean on."

Some other IT users have resorted to more extreme measures?such as withholding payments to put pressure on vendors?but new legislation may soon make it harder for CIOs to employ such brute financial tactics. The uniform computer information transactions act (UCITA) makes it harder for customers to sue vendors and allows vendors to more easily change contract terms. The UCITA has already been passed in Virginia and Maryland and is under consideration in seven other states and the District of Columbia.

Fortunately, there are a host of alternative solutions on the horizon, and a growing number of CIOs are determined to make them a reality. They include renewable licensing agreements, in which CIOs purchase the right to use software for two to three years at about 85 percent of the cost of what they’d pay under a perpetual license. CIOs then have the option to renew the license at the end of the term if they’re happy with the quality of the product and the support. Subscription licensing agreements are similar to renewable licenses, except the term is shorter, lasting about a year, and CIOs rent the software, as opposed to owning it.

Finally, some CIOs are opting to circumnavigate packaged software wherever possible. They’re turning to open-source technologies such as the GNU and Linux operating systems, the Apache Web server and Sendmail e-mail. "People are not involved with [the open-source movement] for profit; they’re involved with it because they want to write good product," says Bill Lessard, coauthor of NetSlaves: True Tales of Working the Web and a former developer for Prodigy and AOL Time Warner. "If software makers see they are losing money to people going the open-source route, then they will change. Until then, it will be business as usual despite appearances."

As much as eight years ago, Patricia Wallington, president of CIO Associates and former CIO of Xerox, was envisioning a new method of buying software. "I wanted it to be like a lending library where you could find modules on the Web, buy the ones you were interested in, cobble them together and create your own software," she says. "We need to rethink the way we deliver software because it is so intransigent."

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