Customers milked dry by recurring contract costs

Discounts a front for expensive upgrade cycles

Business should avoid bundled and discounted software contracts or risk being locked into exorbitantly priced maintenance, support and upgrade cycles.

Warning users of the hidden tricks used by vendors in software licensing deals, Gartner analyst Jane Disbrow, said upgrade cycles can push contract costs up as high as 50 percent with an average rise of 35 percent for SOA deals.

Speaking at the Gartner Symposium ITxpo in Sydney yesterday, Disbrow said users should spend about 25 percent of the time evaluating contract usage rights because this is where the highest area of risk lies.

She said contracts should be ditched if they do not clearly define a licensed user, such as multi-role, casual and work-from-home staff, or non-human devices including multiplexing front ends.

"Business must be scrupulous with understanding usage rights and must nut-out how users across internal departments will affect licensing costs," Disbrow warned.

"One of the biggest problems is vague usage rights. Think about what should be excluded as well as included, because you don't want to pay excessive costs when an audit comes around."

Maintenance and support costs are the surreptitious money spinners of software contracts, according to Disbrow. She said vendors will drop software costs by more than 20 percent or bundle 'free' software to lock customers into mandatory support maintenance and upgrade cycles.

"They offer suites of so-called free products at high discounts which is used to push out competitors because the bundled software is generally what customers will turn to if they need a product," she said.

"But it is a double sting because you still need to buy licenses - the up front cost is all about getting the foot in the door.

"The best discounts often have the worst [up-front] purchase prices."

Customers who avoid lengthy contracts or opt for off-the-shelf products are free to evaluate emerging products, which Disbrow says will give a competitive edge over those locked into deals.

Upgrade cycles, which can cost more than the value of the contract, should be free according to Disbrow's customers.

They argue new releases should be free as part of ongoing maintenance and support costs, which average 22 percent of the contract price.

"It really gets to me that that customers are getting squeezed for often outdated software upgrades when there can be better alternatives in the market; it's just a revenue generator, " she said.

Virtualization is a licensing cash cow for furtive vendors. IBM, Microsoft and Oracle are all guilty of manipulating useage rights on virtualized platforms, according to Disbrow, which often lumps customers with extra user fees.

"Every time a new virtualized technology is used, new licensing rights come out, and there is no consistency. Customers can be hit with additional fees for deploying on a virtual machine even if there are no extra users," she said.

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