Software Licenses Are Too Costly And Complex, Survey SaysSoftware Licenses Are Too Costly And Complex, Survey Says

Vendors don't provide rationale behind license fees and are shifty about discounts, but the SaaS model may force them to change their ways, Forrester predicts.

Mary Hayes Weier, Contributor

January 25, 2008

3 Min Read
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When it comes to licensing software, many IT professionals think they're not getting their money's worth, according to a new Forrester Research report. They also think software vendors don't understand their business, are shifty about discounts, and don't always provide clear direction following an acquisition.

Such complaints are hardly new. But traditional software vendors will be forced to start changing their ways, Forrester predicts, once more business users get a taste of software as a service, or SaaS.

Forrester recently surveyed 25 customers of large software companies and 215 business and IT professionals. Eleven of the 25 big software customers complained that license agreements are too complex and maintenance fees are too high, according to the report by analysts Ray Wang and Elisse Gaynor. Respondents said they're often not clear on the value of what they're paying for and don't understand the rationale behind expenses, discounts, or provisions for changes to their licensing.

Among the 215 respondents, the maintenance fees they pay average 26% of their total cost of ownership of software, even though 87% said a fair price would be 24% or less of the total cost. Many respondents said they have paid for maintenance services they never use, according to Forrester.

One-quarter of the smaller respondent group said big software vendors were too "rigid," meaning they wouldn't accommodate specific needs or make an effort to understand how their businesses worked, which leads to "force fitting" apps for each client.

The fast pace of mergers and acquisitions in the software industry in recent years, meanwhile, is apparently generating some chaos around licensing, according to Forrester's survey. Customers often look to renegotiate their licenses when an acquisition occurs, and "vendors either agree or never respond -- leading clients to run illegally until completely off the system," according to one Forrester respondent. Some said that they're left in the lurch about future support and enhancements when a vendor they use is acquired.

There were more complaints. Some respondents said that while vendors give steep discounts to lure in new clients, they believe they lose negotiating power once they become customers. Some small and midsize companies say they don't have any negotiating power at all and always pay the "off-the-shelf" price for software.

And vendors often provide discounts with no clear reasons, which makes it difficult to point to a previous rationale when a customer wants to request a discount at a later date. Fear of vendor lock-in is a continuing concern, too, with respondents worried vendors will be unresponsive or unwilling to negotiate the longer they stay with them.

But Forrester is optimistic about the future. Growing interest in software as a service will force providers of traditionally licensed software to change their ways. The pay-as-you-go SaaS model "will give business owners a taste of streamlined, more easily consumed licensing," Forrester predicts, noting that SaaS also typically comes with a bundled license, maintenance, and upgrade package. Customers will "gain more interest in and grow more vocal for simplistic and holistic approaches to usage-based pricing agreements," the analysts predict.

The growth of service-oriented architectures, meanwhile, will force vendors to be more flexible about pricing, Forrester predicts. As SOA eases integration among apps, the analysts reason, customers will have an eye toward their business processes when negotiating with software providers, and "will demand that vendors deliver or improvise flexibility for business process pricing."

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