Today there is a very interesting piece from Information Week on software maintenance. It’s full of issues and gives views by several leaders on what you might be thinking of doing and what they have done.
It’s interesting why this debate is attracting so much attention. In the case of SAP it’s been ignited by price increases forced upon customers for a mandatory new support model. In the case of Oracle it’s happening through the economic conditions, which in truth is also part of the SAP issue.
So lets forget the argument, that has been mooted by some, of the SAP direction of increasing it’s margin model to be comparable with Oracle for the moment, and consider the economy and why the area of maintenance is so sensitive. An awfully large number of organisations are seeing their sales drop (either volume or value), and with reduced sales comes a reduced overhead recovery. However you look at it, IT is a business overhead and to maintain the business percentage margin (note – not increase it) overheads have to reduce to fit the new realities. So the CIO must examine his cost base and crudely put there are three areas, fixed, semi-variable and variable. Variable would be things like volume related activities such as power, telecoms, number of pieces of kit related to employees, semi-variable would be IT people (I class them as semi variable because there is delay in hire and fire, and also a loss in investment) and fixed which is things like licencing and maintenance. The dilemma in these conditions is that any increase in the fixed costs starts to then require a larger decrease in the variable and the semi-variable costs that the CIO is responsible for.
In businesses that are very efficient and working with world class IT costs (<1% of revenue) there is very little space to work with and this is forcing even bigger decisions. Some businesses are considering ending maintenance fees altogether – they see it as a major risk but also see it as potentially the only place to go, whilst still being able to maintain operations.
These are very different times that nobody can have predicted and they need a very different solution and model in the area of software maintenance. All this change is driving CIO’s to challenge all the previous ways of working and a catlyst as big as the one delivered by the economy will generate options previously unconsidered .
Update: Rimini Street announced a quadrupling of sales – highlighting the changes in the way CIO’s are starting to think.