Talk to enterprise software vendors about offering multiple maintenance plans, including low-touch, cheaper ones to more mature customers as Vinnie “Maintenance” has been saying for years and they will parrot back “Wall Street will not let us”
Peter Goldmacher dispels that myth in a recent note I have attached below with permission from Cowen & Co, the firm he works at.
Here is a summary:
“We believe that application software vendor maintenance fees are
at risk. Our research indicates that companies continue to tighten their belts
around IT spending, and ERP upgrades are not a priority. This is not a macro issue that we expect to diminish as the economy strengthens. We believe ERP upgrades, the primary motivation to pay maintenance fees, are on the wane because it’s a mature market. Vendor investments in R&D are on the decline, innovation is lagging and redeployment costs are multiples of the license fee. As a result, customers are increasingly questioning the value of paying annual maintenance fees of 20% of the cost of the original license for the occasional use of technical support. We believe that as the value proposition around maintenance fees diminishes, there is significant opportunity for third party service providers to offer low cost tech support. While there are only a small number of these third party providers today, we believe that as Apps sales continue to decline, there is a significant over capacity of consultants with ERP expertise looking for opportunities to leverage their skills. We believe these dynamics will result in the creation of a number of businesses designed to chip away at the exorbitant revenues and margins associated with vendor maintenance fees.”