Why Pay Maintenance on Enterprise Applications?

May 28, 2009

A client asked me the title question recently, and my answer was just a shrug of the shoulders. The answer is, “They probably shouldn’t.”

Yes, it’s a little more complicated than that. Maintenance on enterprise applications may be worth it to some customers, just as an extended warranty plan might well be worth it to some buyers of appliances, automobiles, or electronic, because they they get some comfort in knowing that they can do something if it breaks. It’s also worth it–absolutely 100% worth it–if your installation is in its early stages or incomplete, that is, you’re planning on buying more software from the company or you’re certain that you will need to maintain an aggressive updating policy.

But for most customers of most enterprise applications, it seems to me that paying a maintenance bill is in some ways akin to putting down your money in a three-card monte game. The money is gone. And it is more than a little unlikely that you’ll get any return from it.

Have I ever done this? Well, I’ve avoided three-card monte. But there was a period in my life when I paid for a health club membership that I wasn’t using. I kept on thinking, “Oh, I’ll go there next week,” or “I don’t want to have to pay the initiation fee,” or “My doctor told me to get more exercise,” and so I paid.

But really, it was just that I couldn’t face the facts. I hated that health club; I hated the pool and the locker room and the crowding. I hated the way they were gouging me. And I hated having to admit all this to myself. So I paid.
I didn’t use my membership, but I paid.

So is that why most people pay maintenance. I think so. At the moment of payment, it’s easier to write a check than it is to face facts, so they write a check.

Now there is an obvious counterargument to this. It goes like this. Paying maintenance isn’t like paying for a health club membership; it’s like paying for insurance. True, with insurance, you pay and you pay and there’s little visible benefit. But that’s the idea. Frankly, you ought to be happier to pay and not get much visible benefit than to pick up the phone and call the insurance agent.

This is certainly the argument that the CFO hears when he calls up a CIO and says, “Can’t we do something about the 2 million a year we pay to $AP (that is, any of the middle-aged apps vendors)?” The CIO says, “There’s nothing we can do. It’s an insurance policy. We have to pay. What happens if our system goes down?”

Most CFOs seem to find this compelling. But they shouldn’t. Come on. They’ve been to business school. There is a point, obviously, when it’s not worthwhile to pay insurance. To see what that point is, imagine that you lived in a normal, middle-class neighborhood where there hadn’t been a serious house fire in twenty years. Would you carry insurance if the insurance cost was 1/5 the cost of rebuilding the house? You shouldn’t. What about 1/10? Nah. What about 1/50? Well, maybe, but probably not. 1/100? Nope. Normal insurance for this kind of situation shouldn’t be much more than 1/200, and that should cover a lot of other things besides fire replacement.

So the CIO is right only if the odds of failure are high or the cost of maintenance is low. As for the odds of failure being high, I don’t think any CIO should be basing the argument on this. If the odds of catastrophic failure are high, even after operating the system for years, maybe you need a new CIO. As for the cost of maintenance being low? Well, they’re not. They’re a a little more than 1/5 (of the software costs). So you could just stop paying maintenance and after five years, you’d have enough money to buy a brand new package, with money left over to pay the integrators. Yes, the integration and hardware costs would add on a fair amount. But to pay those, you could just coast for a few more years. And remember, when you’re finished, you’re getting a new system, one that is now ten years more advanced than the system you bought.

So which should you do? Don’t pay and save for a new system that will work better. Or pay for insurance that you don’t or shouldn’t need.

So what’s the answer? Don’t pay. It’s really very simple.

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One Response to “Why Pay Maintenance on Enterprise Applications?”

  1. Monty Kalsi Says:

    David,

    I enjoyed reading your blog and found it filled with good practical business advice for enterprise customers. In the last decade enterprise software market has evolved significantly with the growth of SaaS and Cloud computing and the new software and service delivery business models.

    Actually I would say that the economic downturn has accelerated that growth. It will be interesting to see how large enterprise software vendors respond to this change in next few years.

    Best,
    Monty


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