Are your suppliers making 80% margin from you?

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How much does your enterprise software supplier make on maintenance contracts? Are their margins 30%, 40 % or 80%?

Well, according to Ray Wang, the Forrester analyst who has become a real champion of enterprise IT end users, some vendors are making “margins as high as 80% on maintenance”.

Talk about cheaper to keep a customer than acquire a new one. No wonder then that the Oracle – SAP legal battle over TomorrowNow is so bitter.

SAP bought TomorrowNow,which offered third party Oracle maintenance, as a way to lure customers from its rivals, and at least until the legal battle began, it must have been a highly profitable trojan horse.

But back to the point. As the recession bites, vendors are trying to extract more revenue from their existing customers. And Ray has come across a disquieting new trend – for vendors to try to prevent their customers from taking out third-party support at all, through a contract lock-in.

In several contract negotiation support calls this month, clients have discovered interesting language in their contracts designed to prevent them from choosing a third party maintenance option. The language is often buried deep into the legalese and many unsuspecting clients may sign without understanding the future implications in the software ownership life cycle and the Software Licensee Bill of Rights .

This really is a step back to the bad old days, and it is why you should not only read more on Ray’s Software Licensee Bill of Rights here, but act on it too.

Ray backs up the warnings with examples of some recent contracts and some sound advice.

Until market forces change or governmental action is taken, customers must fight for third party maintenance rights and band together to reduce the overall cost of ownership.

If you want to keep the initiative in contract negotiations, says Ray, Make sure you:

  • Review your contracts with your legal team for such similar anti competitive language
  • Validate any suspicious terminology with the vendor
  • Work with the user groups to force the issue for the need for third party maintenance

There are plenty more insights and action points on this subject and much else on Ray's excellent A Software Insiders Point of View blog. Bookmark it or get the RSS feed.

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