Maintenance Contracts: Vendors' Gold or Yours?Maintenance Contracts: Vendors' Gold or Yours?

Don't let your term agreements hold you back from taking advantage of new UC and collaboration technologies.

The communications technology landscape is changing, and the future is undoubtedly going to be very different. No Jitter bloggers, including yours truly, tell us this change is coming, likely faster than we expect, in the form of UC as a service, new collaborative interfaces (Microsoft Yammer, Cisco Spark, Unify Circuit), communications-enabled business apps (Salesforce.com, Micrososft Dynamics, and others), new gateway-based architectures, and mobile-first or mobile-only directions.

But your enterprise's ability to adapt and change may be held back by a major issue, a veritable boat anchor in the form of the maintenance contracts on your existing systems.

All Bundled Up
In most enterprises, maintenance contracts have terms of at least three years. And, in most cases, vendors bundle software maintenance with "upgrade protection" by which the enterprise pre-pays for major upgrades. This maintenance and upgrade bundle usually costs between 20% and 25% of the net price of the software licenses; the cost of hardware maintenance, without the pre-payment, is usually around 15% of the net new cost. This means your enterprise is essentially buying a new copy of the entire system every four to five years.

Moreover, these contracts have stiff cancellation clauses, usually one year's cost for termination or even downsizing.

In effect, vendors have a very rich and predictable cash flow. In addition, the termination or modification penalties make switching systems quite difficult. If the vendor gets word of a change, the contract renewal may suddenly turn much less congenial, often with lower discounts or less-attractive terms. Time and again, we see our clients limited to just doing their best to negotiate one or two percentage points of discount every three years and continuing on with the same core communications system.

In this situation, many enterprises find they are duplicating the communications technologies in their product portfolios. The new UC and collaboration technologies are so compelling that the enterprise either must use or at least try them. What's more, vendors bundle these technologies in ways that provide a very low incremental cost, such as enterprise agreements combined with software or networking products.

A Fighting Chance
This tectonic collision may seem problematic and even earth-shaking. But it's really an opportunity for your enterprise. Let's look at a couple of options.

A primary option is to move some portion of the communication system's users -- you know, the enterprise employees -- to the new technology before it's time to begin bargaining for a maintenance contract renewal on the old platform. Usually, this first move is only for 30% or 40% of the employees based on the usage profiles that have the least need for old technology feature sets and the most to gain from the new system's capabilities (see related article).

By planning ahead, an enterprise can usually fund the costs of the migration for a specific set of usage profiles entirely by reductions in the legacy platform maintenance agreement, either in the same or the following year. The negotiations over the reduced size of the traditional platform maintenance agreement may be tough, but that vendor will realize it is at risk of losing it all, so is likely to be at least "rational" in the contract renewal.

Another option, even if the enterprise is not ready to move to the new technology, is to continue with the same size of traditional technology system, but change the enterprise plans for the future. In other words, buying the upgrade protection -- pre-paid software replacement -- on the existing system isn't necessary.

Assuming the enterprise upgrades the existing system to the current software level before the maintenance contract date, the latest software level should be vendor-supported for at least five years after the maintenance contract renewal. This option may be ideal if an enterprise has a clear expectation of moving all, or almost all, of the enterprise users and communications functions to the new technology platforms. The saving of 40% to 60% of the software maintenance costs per year is very likely to fund the migration to the new platform and have some net savings for other budgetary needs or bottom-line savings.

A third option, which many seem to embrace, is just to keep renewing the traditional communication system maintenance agreement, including the software upgrade add-on, and hope that the incumbent vendor will be sufficiently innovative. That may seem viable on the surface, but remember that the communication technology landscape is changing and the innovation seems be coming from new providers.

Your enterprise may have other management approaches in your maintenance contract strategy, but, at a minimum, it is smart to at least have a real strategy. It will be worth it, especially if you plan ahead!