Software Licensing Pay Us Now AND Later

The moment you buy a license for enterprise software you begin paying a maintenance fee that adds up to 25 percent of the license price for the latest version. Those fees, charged by most software makers, are becoming a sore point for CIOs as the percentages rise: from 15 percent to 18 percent in 1999 to 18 percent to 25 percent today, says Jane Disbrow, a CRM software analyst at Gartner. (For more on upgrades, see “Enterprise Software Upgrades: Less Pain, More Gain,” Page 46.)

But what really gets CIOs is that the fees don’t just go to bug fixes and help desk staff. Between 20 percent and 50 percent of the fees is used for future R&D and upgrades, according to AMR Research. Such software is a long-term investment, and some CIOs question whether they’re getting an adequate return.

Jerry Hale, vice president and CIO of Eastman Chemical of Kingsport, Tenn., says he feels he’s already paid for new functions through maintenance fees. “If I’m paying 20 percent of my license fees for maintenance for five years and that money is going toward new development, then I should expect to get a lot of new functionality when I upgrade,” he says. “There needs to be some kind of grassroots effort where companies start insisting that the software vendors unbundle the different components of maintenance payments and give us more visibility into how those dollars are being spent.”

Vendors acknowledge that in a tight economy customers are complaining about paying such fees. But they say that the fee system keeps the initial license fees from ballooning while also funding the new functionality that customers demand. Mike Gregoire, senior vice president for PeopleSoft global services, says, “You’re not just paying for support; you’re paying us to innovate because it’s not a stagnant world.”