Maintaining the CMS Habit

In many end-user organizations, software maintenance fees make up the bulk of the yearly IT budget. This is hardly surprising when vendors typically like to calculate maintenance contracts on the basis of 20% of list pricing per annum, in perpetuity. So for example, on a $1 million software deal (list price), you will pay $200,000 per year in ongoing fees. Even if you negotiate the initial licensing costs down to $500,000, you will still pay $200,000 per year in maintenance fees.

This adds up to a lot of money. And just as these fees often make up the bulk of most firms’ yearly IT expenditure, so too do they make up the bulk of many software vendors revenues. Hence, while vendors will usually negotiate on upfront license costs—in some cases, to the point where they are virtually giving the licenses away for free—they will seldom budge an inch on the maintenance fees.

It used to be that maintenance was calculated at closer to 10%. However, 20% seems to be the average now, with some vendors wanting even more than that. That percentage has risen over the years as the amount of money buyers are prepared to spend up front on licenses has dropped (to zero in some cases). The net is that you pretty much spend the same today in the long run as you did back in the day, only you feel better about it now as you don’t have to cough up quite so much in advance.

Now one might ask why you should have to pay “maintenance” fees at all. Suppliers will argue that this provides you with online and in-person support, fixes, and, in some cases, patch and version upgrades. However, not everyone buys into this rationale, and certainly not everyone accepts that the ratio between what one receives and what one pays is a fair one. Particularly for systems that have been running perfectly well for a few years, maintenance fees can become a debating point. You may be of a mind that you can simply cease paying the fees and figure that you will pay for help in a time-and-materials manner if and when you need it. You may figure that this will prove to be a considerable saving.

However, if you are not prepared to cut ties altogether, you may want to think about finding a third-party firm that will provide you with the same support at a lower cost. The fact is that maintenance and support costs are, in effect, insurance payments, analogous to paying for the American Automobile Association (AAA). Membership of a service such as AAA is arguably pretty cost-effective: Heaven forbid you do break down at the side of the road; you will pay through the nose for the dubious services of a local tow truck. That said, enterprise software maintenance fees are high, very high indeed.

Just to be clear: I am not suggesting that you don’t pay these fees. I am suggesting that you attempt to negotiate them, and for long-term legacy systems, at least do a proper cost analysis and look at your options rather than simply continue to pay very high rates for a service you don’t use.

What this means for you the buyer is that you need to always compare and contrast the total cost of ownership (TCO) of any new system over a 5-year (or longer) time period to fully understand what this is really going to cost you. You also need to recognize the reality that when vendors are happy to slash upfront prices or give their software away for free, they are not doing it to be charitable to you or because you are a mean and lean negotiator; they are doing it because the real money lies elsewhere.

As an interesting aside, I discovered that a small number of European CMS vendors have recently been prepared to calculate maintenance costs on negotiated prices rather than list. This is highly unusual and not something I have seen happening elsewhere. It may simply be that list pricing is in the slow process of adjusting downward to simplify the process, or it could be a knee-jerk reaction to the perceived commoditization of CMS systems. Whatever it is, this is a trend that we will continue to watch with great interest.