Friday, January 9, 2009

Maintenance Contracts are the big revenue stream

While researching the technology news for today's posting, I stumbled across this chart. It indicates the percentage of revenue major firms derive from maintenance contracts. It should be a real eye-opener for CIO's, CTO's and CFO's (Credit: Goldman Sachs).

I find it astounding that Computer Associates and BMC get about 60% of their top-line revenue from maintenance agreements. There are two takeaways as far I can see.
  1. If it seems the sales reps are pushing maintenance contracts as if their careers depended on it, then it's probably because they believe their careers actually depend on it.
  2. This is negotiating leverage point. A firm should absolutely be able to use this information to get better deals on licensing fees, as well as on professional services.
On a related topic, isn't time to rethink the whole maintenance agreement?
What are you actually buying? Upgrade assurance? Response Time?
  • If all you need is to be able to get the next version for free, can't that be negotiated into the original agreement?
  • And how many times has your staff called into their customer support requiring immediate attention? Aren't most emergency situations handled by your team? Do you really need to fork over tens of thousands of dollars every year for a service you hardly use, and probably don't need?
I believe that the maintenance fee gravy train is coming to an end. Competitive pressures will force firms like these to rein in their fee structure. It may not happen in 2009, but within five years, we'll see a major shift in this area.

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