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Albert D. Kallal
I ran across this on the web and it really sent me off:
Here follows my take on things:
Ok - I am one of those evil software developers. Here is the story from the other side of the fence. In sum, stop your whining. The reason you are paying on the back side is because you are generally too cheap to pay on the front side.
Here is how it happens ... I see an opportunity in your industry that I think needs a software solution. I fund all the R&D up front out of my own pocket. Maybe the product will "make', maybe it will not. After 5 years of hell at my end, and 5 years of expense, and 5 years of risk, I have a package that with 5 people can do in 3 minutes what it used to take 300 people all day to do. So, essentially you are wasting a day-expense for 295 people. Let's say that your average cost is about $200/day/person and then add the hassle factor for all their whining and complaining and wanting of Christmas turkeys, etc etc --- you get the idea. At that point you are easily at over (200x300) $60,000 in expense (per year) to do this task. So the question is what is it worth to you to not have to pay this expense?
At my top end, with perfect software you should be willing to pay a little bit less that $60,000/ year for my solution, but of course my solution has cost too. Every once in a while your users will need training, every once in a while it will not be able to do something that you want it to do. And of course maybe it would be ok to split the savings.... You get the idea.
Now, are you willing to agree in your hearts that as an economic question that $60k/year should be the top end of yearly fee you could spend and still make money? NO - and the responses to this post will prove it. What happens is that you look at the software and you look at YOUR salary which is $150,000. Then, instead of keeping you eyes on YOUR dinner plate you look start looking at my side of the table to see how much money you think I am going to "make" out of the deal. So, instead of looking at things and assessing that in 3 years YOU will have saved your company $180,000, your will make a quick assessment that in 3 years you will have paid ME $180,000 and you will then fester and concentrate on this, whereupon, you will get jealous and begin to engage in populist thinking about how it is unfair that I get to make what YOU see as a "windfall". At that point the deal is essentially dead because now it is about YOU teaching ME a lesson. Remember now, it was MY brain that saw the solution in the first place, It was MY risk, not yours, that is all tied up in the offering - which is gong to save YOU $60,000/YEAR. So then, this is where the beatdown occurs and instead of negotiating with me as a value added ecosystem partner - a partner that can help you make money - you treat ME as a VENDOR. In that case then, I treat YOU as a customer and I will give you your deal, but then, in response to your cheap attitude, I simply will do not production test the main platform as much as I would like, and will I give you the software at your desired "serfs wages" cost, but, I will execute a maintenance contract with you. Now YOU think that this maintenance contract is to fix crap that is in the software, but THAT is NOT what it is for . What it is really for is to compensate me for my brain and to get me the payment I want to get for releasing MY intellectual property for you to use to save yourself $60,000/year with. It is sad to me the impediment is in large part your jealousy that I am making money out of the deal as opposed to your happiness at looking at how much money YOU are making out of the deal.
In closing, every once in a while I come across a ecosystem partner that "gets it" and makes a payment based on his benefit, not mine, and for these people I work MY ass off because they reflect my line of thinking of trading value for value, instead of thinking that they can trade me (my brain) like I was a commodity.
I think you're missing the point of the blog post. The writer does not take issue with having to pay for maintenance; his complaint is about maintenance that rises substantially every year, without real benefit.
With your numbers ($60,000/yr), his beef is that, if you raise the price of your maintenance every year by 10%, in three years, he is paying $198,600, not $180,000, which now makes your software MORE expensive than keeping keeping someone full-time to do the same thing manually.
Given that, your other arguments fly straight out the window. You are no longer making your customer money (you're costing them more, which is likely not what they wanted). Because you see this as "cheap attitude" on their part, you slack off on testing (or whatever), which I am absolutely sure does not make it seem like your additional $18,000 is worth it.
Really, dude, I'm with the client on this one 100%, especially given your attitude about the whole thing. You act like you're doing them a favour; in fact, the opposite is true. You say you treat these people like customers, but that certainly seems not to be the case. Most sensible businesses treat customers with a little bit of gratitude for their business, particularly when the customer is spending $60,000/yr. They don't act like they're entitled to their customer's unending loyalty and a perpetually-open wallet.
<q>...which now makes your software MORE expensive than keeping keeping someone full-time to do the same thing manually. </q>
#1 - Ah yes, exactly my point about how the replies to the post will prove its point and applicability.
#2 - Sure it cost him another $10 k ... for another year of saving $60k. Of course it that brings the total cost to $190k and his total savings to $240k. The point of the first article was that the example user wanted to not pay anymore ... why??? Not becasue it was not worth it but because they did not have any money in the budget. All this even though they would still be getting the benefit.
Again, I think that the replies prove the point - that people will start concentrating on what they are paying ME (and resenting my attitude for wanting to trade value for value) instead of concentrating on what they are saving by the act of paying me.
#3 - Nope, someone cannot do the same thing manually for less than the cost of the software. THAT is the point of the software. If what you say was the case then they should just keep on spending that $60k/year to do it manually.
#4 - I do not do creative work for free. If I am going to come up with a system to save folks $60k/year, then they are going to have to pay for it as a service just like then would have to pay their employees to do it, or they will need to pay some part of a NPV equal to the expected gain ... and my starting point to see if buyers understand the value that I bring to the table to see what side of that table they concentrate on. Just because I am "software" and come on one of those little 50 cent disk does not make me less valuable
If maintenance prices are increasing that fast, I suspect it's more because of the support side of the contract than software updates. The recent trend with my customers anyway was to cut back on expensive IT people and leave the operation and maintenance of their enterprise systems to non-IT types. That means those non-computer people end up having to call the vendor all the time with questions and needing a lot more support. I used to get calls asking where to find the start button ("I looked all over and I can't find it anywhere!!!!1!"), or how to create a folder, or people new to the job would call up and want to be taught over the phone how to "work it" because they're in a "hurry" (it's normally a 2 day training class on-site...). Those support costs really add up for demanding customers.
I know good customers who have their own IT department and help desk tend to get preferential pricing, since they don't ask for or need much. Maybe the original blogger should look at that?
Too many companies see "maintenance " as a profit center. CA was so notorious for it that many companies had written policies to replace any software if CA bought the vendor.
We produce software to help fill out government forms. Those rules change *every* single year. Whatever we, or our competitors charge, is *far* cheaper than hiring the staff needed to figure out the annual regulatory and legislative changes.
I think Aaron's point is that over time, the cost of maintaining software should fall, not rise. Realistically, the only aspect that should go up, is the wage expense and smart developers will leverage their skills such that they do more jobs for more total money in less time.
The same thing is true in automobiles (with the possible exception of exotic foreign cars). Replacement parts for my 15 year old car, actually fall every year. The mechanic's labor cost does go up, but that's partially offset by the fact that it no longer takes him all day to disassemble my car; he can now fix my car and still have time to work on five or six other cars that same day, thanks to better tools, planning, technique and training.
Spiritually, I have no issues with charging extra for "problem customers" that refuse to take my advice and modernize. I'm not sure that uniformly imposing a 10% raise on each and every single maintenance contract is good for you though; at some point you will price yourself out of the market and customers will decide that going open-source or some alternative, is a cheaper option for them.
Referring to the second half of Bill's argument...
This is a well known psychological issue. People will notice money going out of their pocket because it's an immediate impact. People won't notice money staying in their pocket because that's an impact that's only visible over time (assuming they're disciplined enough to continue saving).
A close cousin is the economic theory that says people will always choose short term profits over long term investments, even if those long term gains are substantially greater.
I think people who complain about it, either way, (including the Tech Republic blog writer) are just wasting a lot of time and energy. It's like arguing that violence is bad and the world will be better off if we all just simply agreed not to do it anymore.
Bill, I'm sorry but you make no sense. Everything that Aaron has said is right on the money.
A) The blog has nothing to do with paying software maintenance and only complains about raising software maintenance costs significantly each year. I have to agree with the blog post. 10%+ raises in software maintenance each year are ridiculous. We don't ever raise our software maintenance fees unless a customer is using a system that simply isn't supported anymore (for example, a highly customized 15 year old product that is well past end of life and the customer won't upgrade). We do just fine with this practice as we've found that software support costs typically decrease as products get older (customers settle in and learn to support themselves, enhancement requests dwindle, etc.).
B) You appear to believe that you are your customer's savior and that you deserve to be treated as such. Get over it. Sure, there are times when a customer will look at how much money you are making on the deal instead of how much they are saving in time and labor costs. That is perfectly reasonable to a certain extent. You have the right to set your costs at whatever you feel is fair. And they have the right to complain and walk away. But setting your licensing fees up to be initally lower than needed with the expectation that you will simply raise maintenance costs year after year to make up for it is sleezy. It's a form of bait and switch in my opinion.
C) When I go buy a car I want to make sure I am getting a good deal. If I find that the dealership is going to make $20k profit on the deal then I'm going to walk out the door. They are certainly entitled to make a fair profit. But not at my expense.
D) Hardware maintenenace contracts are different from software maintenance contracts. I can understand hardware maintenance costs going up on a yearly basis. But 10% still seems excessive.
I forgot one...
E) The original blog post said nothing about "software developers" and especial not about them being evil. The software developers are typically the last people in the company that have any say whatsoever in how much (if any) software maintenance costs are raised each year. So don't take it personally.
Except it's not really maintenance if you pay the same $ every year; more of a rental or subscription in which case you expect the software to evolve and stay current. Typical (enterprise) maintenance is something like ~20% of initial cost per year with a escalating cost factor of 5-10% to cover off the rise in costs and risk the vendor is assuming. The maintenance is exactly that; maintaining the working solution that was delivered.
@PP - you can't hold the alternative costs constant and increase the maintenance cost and then compare them. I agree with the OP in general, regardless of the specific situation. We build enterprise software and clients would rather pay $1 up front and millions on custom dev vs. $100K+maintenance on a turnkey solution where we assume all support and upkeep. The OP nailed it - they immediately fixate on how the vendor is "ripping them off" and how they could "do it cheaper in-house". Yeah right. Waste several years and millions, then give me a call.
Friday, March 20, 2009
The article linked to was written by the CIO at a college in Missouri. Right now, educational institutions that rely on endowment funds for a portion of their operating expenses are in real trouble financially (something about the value of investments dropping a bit last year). Personally, I thought the author was rather restrained in his complaints, and he is rather fortunate that his budget is only frozen, not cut. I completely agree with the comments by dood and AaronL. And when the board of governors that our CIO/author reports to, begin to look hard for places to reduce expenses, IT will be cut long before academic payrolls are. That's reality.
>Except it's not really maintenance if you pay the same $ every year;
I disagree with this and I think that's the whole point of the blog. We sell enterprise software too and our maintenance fees are 18% of the initial software licensing fee. This is on par with the rest of our industry. We do not raise maintenance fees as there is no need to and the maintenance fee is agreed upon in the initial contract to be stable for X number of years.
To give an example, we just finished implementing a deal for about $500K in licensing which leads to about $90K per year in maintenance fees. There is no reason to increase that fee on a yearly basis. Heck, that's what you'd pay a single programmer and it clearly doesn't take nearly that much effort to support our solution. Raising the fee every year would be a crime.
But maybe my views are what they are because I've always worked in the world of high ticket enterprise software. Every sale is at least $300K and some deals go for several million. 18% of those figures is plenty of money each year. Now if our product sold for $5K I might be more inclined to want to raise maintenance prices every year. But as it stands our pricing is set to allow us to reap a large sum of money on the initial licensing instead of trying to squeeze it out of our customers over the long term through costly maintenance.
That's the way I see it. YMMV
The marginal impact of your product is not how it performs compared to perfroming the same task manually; it is how it performs compared to your competitors in the marketplace.
Driving a car sure beats walking. But car dealers wouldn't get away with ratcheting up their leases 10% every year.
Friday, March 20, 2009
One other point, we don't see a significant difference in the effort it takes to support a $2M deal vs. a $500K deal. In fact, it is often easier to support the $2M deal because they have better infrastructure and stronger IT departments. The smaller the customer the more costly it typically is to support them.
"The maintenance is exactly that; maintaining the working solution that was delivered."
I think this is where things start to get fuzzy.
If I install a piece of software on a specific, dedicated machine and subsequently make no further changes to that machine or software, my maintenance costs shouldn't go up. The working solution that was delivered, should ideally require no further work.
If I desire updates to the software, particularly those that are externally driven, then I certainly am willing to pay for them. Examples include changes to regulatory forms. Likewise, if the vendor is providing customer support, I will pay for that too.
What seems to annoy people is when they're paying for bug fixes that should have been caught in beta, or forced upgrades for new features that they neither want or need. From talking to my peers, that's the biggest annoyance about maintenance contracts. As one poster said, it feels like a bait and switch.
TheDavid, I agree. That's why I said earlier that the older the customer is the less it typically costs to support them. Once all the kinks are ironed out they typcially don't want to upgrade and they pretty much learn how to support themselves. You might get a call from a 10 year old client once or twice a year. A new client is calling all the time and requires a dedicated project manager.
We've never been able to force upgrades on customers and have on a couple of occasions had to increase maintenance fees drastically in order to try and force the issue. One customer was running a 15 year old DOS system and was paying about $10K a year in maintenance. We literally didn't have anyone left who knew anything about it. So we pushed the issue and raised the maintenance fee to $50K. They obviously weren't happy about it but eventually upgraded. We probably lost money on the upgrade but we didn't want to leave them in the cold so we gave them a REALLY good deal. Now they pay $50K a year in maintenance anyway but it is for a new system.
Customers certainly don't want to have to pay to fix bugs but it is basically impossible to fix all bugs on the code base that each customer is on. If you had 20 customers you'd be fixing the same bug 20 times as everyone is potentially on a different code base if they've never upgraded. The cost of licensing fees would have to go way up to do business that way. Software maintenance gives them the incentive to try and stay on the latest version of the base code.
"Most sensible businesses treat customers with a little bit of gratitude for their business, particularly when the customer is spending $60,000/yr. They don't act like they're entitled to their customer's unending loyalty and a perpetually-open wallet. "
Aaron, take it you haven't met many large ERP vendors yet, have you?
@Bill: Upping you maintainance fees by some serious rate above inflation for products that do have a very high migration barrier is not very nice behaviour. Als for the difference in pricing for crossing the 1K seat barrier, this probably is something the customer knew before he went with this package, so that seems par for the course.
I agree with what dood's been saying. My company is also in the enterprise space with deals running from $300k up.
We have one client who's upgrading from a 4-major-release-old version of our software. We've been increasing their maintenance fees every year because if they want support on that version, we have to maintain (somewhere) knowledge of how things worked 7 years ago, what its limits are relative to the current version, how to use the tools used to build that version of the program (bug fixes or critical changes, tho that's not much of a concern now), et cetera.
They could have dropped the maintenance contract and paid our current consulting rates for support calls if they needed to make them. The economics say that being on a current release is a better deal for them. And we're closer to being able to drop years-old tools and training materials.
It sounds to me that the author of article isn't mad about paying maintenance and support fees it when they increase each year.
Say I buy a software product that costs me $60,000 up front and I'm told that the maintenance fee will be $6000 / yr. I'm okay with this. So in my budget I make sure to budget $6000 each year for the maintenance fee. Except, the next year the maintenance fee has gone up to 15%, to $6900. I don't have that $900 in my budget. And why did the fee go up? Are there more support/maintenance issues with the software? Did I take more support than you anticipated? (I know the real reason might be because you now have version 2.0 out and want me to pay and upgrade to that. Eventually trying to maintain an old version becomes cost prohibitive... can I get Windows 3.11 support?)
Continuing the example above, the next year the maintenance will be $7935 (15% more) or $7590 (10% more than previous year) more money that isn't budgeted and couldn't be (wasn't) factored into the cost of the investment because it wasn't disclosed.
OT: If you've ever worked for a large corporation, like a fortune 500 company, the stupidest thing occurs. Once a department gets their budget, if they have some extra at the end of the year, rather than save it and return it to the company as profits they will often find something to spend it on, even it's it wasteful and stupid. This is partly because if they don't use it, next years budget get's calculated on what was actually used the previous year. It's use it or lose it (this year, and the next, and the next...).
> Every once in a while your users will need training, every once in a while it will not be able to do something that you want it to do.
Take a close look at the bias there.
You're saving them all this money, yay you, and well "every once in a while" there's a cost to your solution.
what a load of bull. Quit downplaying their costs.
I don't have any experience selling in the enterprise, I sell mostly to consumers and small businesses. Now I can see why you'd charge a maintenance fee, and I think the author of the article can see that as well. However, his point is that this fee is rising by 10-15% each year, while the software is getting worse and worse quality.
Now to begin with you shouldn't be releasing worse and worse software. If I'm paying 10s of 1000s of dollars each year I expect each release to be at least as reliable and user friendly as the last. If the amount I'm paying increases by 10-15% each year I damn well expect the reliability and user friendliness to increase.
But even then, 10-15% is simply a money grab. Are your expenses going up by 10-15% each year? Probably not. If they were then I doubt people would complain too much, but the fact is that if you're making your software better with each release, and as the user is becoming more accustomed to the software, the amount of support they need should generally go down so the amount of strain on your support staff should go down. As such the main reason for needing to hire new support staff would generally be when you get new customers, but the increased income from these new customers should more than pay for the new support staff, without having to fleece your existing customers.
The fact is, if you treat your customers like shit, they'll start looking for the quickest way to dump you.
Friday, March 20, 2009
A maintenance contract of around 15-20% per year of the original licence price is standard. Unless it was specified in the original contract, upping the maintenance cost every year is not standard practice. You do normally force the customer to upgrade on a reasonable schedule. Your standard support limits the time after release a version is supported (e.g. 5 years), or the number of back releases that will be supported (e.g. 2 major releases). This last one is more tricky, as it depends on the supplier maintaining a relatively regular release cycle.
As a bad example of the latter, I once had an incident were a supplier suddenly decided to release two major versions in one year, effectively reducing the support time of the installed version to one year. Given that this was a not trivial to upgrade B2B product, involving major migration costs, this was absurd. We dropped the supplier as a result.
I agree that a 10-15% INCREASE in the maintenance fee every year is excessive. As many posters here have pointed out, companies don't have that kind of increases year after year in their costs, (i.e.: they aren't having to give 10% raises to their employees every year) so their cost of doing business is not increasing that much. An increase like that is profit-taking, pure and simple - and I agree with the blogger that this is wrong.
However, the notion from some here that maintenance costs should never increase beyond the initial amount is also wrong. Whether a customer calls with a problem, or asks for a new feature or not, you still have to maintain a staff ready to answer the phone and to add new features. Staffing costs money, and your staff expects raises every so often or they will jump ship. And there are other costs too: your rent or utilities increase, etc. So end users should expect periodic raises in support costs from time to time - in fact the blogger referenced in the OP said he would be willing to pay a smaller increase.
We solved this by tying the maintenance fees to the CURRENT price of the software each anniversary, not the INITIAL contract amount. If the price of our software did not increase then maintenance does not increase either. If the price changed, then maintenance changed too. A few customers would also negotiate "not to exceed" percentages in their contracts to protect themselves from excessive bumps - this is fair too.
Finally, your revenues should be split between new sales and maintenance fees. Maintenance should be a profit center, sure - but you should not count on it for the bulk of your income. Your business must grow by gaining new customers - and that will make the need for double-digit maintenance increases unnecessary.
I think you have seriously misinterpreted the article. The author is not complaining about paying maintenance. He's complaining about DOUBLE DIGIT INCREASES in maintenance. There's no reason maintenance costs should increase triple inflation, particularly in a down economy, and when the software gets worse, which one of his products seems to be doing. They don't want to even upgrade because it causes problems, so why are they paying maintenance at all? That would piss me off too.
I have an actual example of this problem that I'm dealing with now, so I'll give it to you, but I'll keep it anonymous to protect the guilty.
The system I work on was built with a 3rd party product in Visual C++ version 5.0 about 10 years ago.
At the time this 3rd party product was best in breed. The original author's company supported and improved the product through Visual C++ version 6.0. Shortly after VC6.0 came out, he sold the product to another company and went onto better things.
Since that time the product has been sold to at least 3 new companies, through outright sales and acquisitions. The product has not had a new feature in over 6 years. The product requires a $2000/developer license to upgrade to a new version of Visual Studio. Our last upgrade was from 6 to 2005, and we had to pay the full license for the team.
When we installed VS 2005 SP1, the product broke and we went to support, and they told us THIS WAS A NEW VERSION, and wanted another $2k/developer. We argued that one, and they backed down, and gave us a fix, but it cost us a month of one developers time.
Now they want another $2k/developer to move to 2008, with no new features, and I'm sure plenty of new bugs.
To top things off, a couple months ago they sent a letter from their lawyers that they wanted us to show we were in compliance with our current licenses.
Competitive products that are modern, with more modern features now run about $400/developer, but I can't get away from this product because it means a partial rewrite of our system.
Is this what you call fair maintenance pricing? Are they earning this money? I don't think so, and I'm trying to get away from them as soon as possible.
If you charge maintenance, and your customers get value from your maintenance, then good for you. If you charge maintenance just to extract more money from your customers like this 3rd party does to us, you are just pissing off customers and are in a death spiral.
<q>I know good customers who have their own IT department and help desk tend to get preferential pricing, since they don't ask for or need much. Maybe the original blogger should look at that?</q> posted by CC.
I can offer some comparitive experience from the property development world. Often, if the property development company is large enough, it will often choose in preference to use it's resources (it's land bank, construction company, time and expertise) to make building stock available to a couple of really large tenants. Rather than providing lots of smaller building stock to a mass market.
Why is that? Simple. It is like CC, post above. The larger the tenant who signs the lease for the building, the less hassle you tend to get. The larger tenants tend to have much better resources to deal with their own problems. By comparison, there is a really, really mass market out there in smaller units, which turn over faster. But the tenants in those cases cause no end of trouble. Many of them are often new to business and operations of facilities, and need to get spoon fed, and hand held all the way.
So there are some interesting parallels in the non-software world also. I would find my example above, of property development, non-intuitive. In that, I would have expected it to be the other way around. Shows how much I knew back when I first got into the property development game. Since then too, of course, I have had much discussion with companies who went after the mass market. You need a completely different strategy and ethos, to be sucessful there. You need to think from the beginning, as someone who is looking to have a relationship with their development over a period of decades.
As opposed to the other approach, where the instinct is to involve oneself with the project, only for the duration of the construction phase. For instance, energy and heating systems are often 'thrown in' fast, because they are cheap to install and commission. Yet the eventual users end up paying a fortune over the course of their occupancy. Needless to say, this ends up producing developments, which aren't favoured by sustainable, long term, mixed, healthy and vibrant communities. Communities who even contribute towards the value of their own property, by doing maintenace and helping the manage the various systems involved in the facility.
I am always interested in parallels between software and real estate development. Ever since I started to read guys like Fred Brooks, Stewart Brand, Christopher Alexander and many others.
Brian O' Hanlon
I will leave these two links to Daniel Kahneman and Amos Tversky:
I think Kahneman and Tversky have a least two major, widely read papers, which I am sure I was able to find fairly easy through search.
Sorry to cut in here again Bob...
<q>... Driving a car sure beats walking. But car dealers wouldn't get away with ratcheting up their leases 10% every year.</q>
Posted by John McGuinness
It is a mistake to confuse the IT specialist company, who provides your intermediate IT and technical support - with the makers of the original kit - the hardware/software. In the automobile situation, it is not car dealers and car loan providers who are actually making the product and control the markets. There is a huge degree of effort, planning and resources that go into deciding what model of car to design for the the 'average family user' 5 years down the road. Sometimes the car manufacturers get this totally wrong. Sometimes the car manufacturer who can design new models at a slow pace, 5 years say, needs much longer production runs of the same model,... And is badly beaten by a competitor who can have shorter production runs and compress design stages into 2 years say.
The Machine That Changed the World : The Story of Lean Production
by James P. Womack, Daniel T. Jones, Daniel Roos
Indeed, I have had many a lively discussion about Lean software development, as a result of reading the above book. This was one of the blogs which programmers I know, found of use:
Wow, what a little firestorm this brought about. I did not know things would be so frenzied here on the board, nor did I know I was wading a morass of people that do not create themselves, but rather are the licensees that use the products that only exist because of creators like me. Sound arrogant? Only to those that have been in the drivers seat and do not like the idea of intellectual property creators actually having an equal seat at the bargaining table. Well guess what here I am! Get over it.
Re Fake Programmer taking me to task for dismissing the costs to the target firm acquiring use of my property .
Actually, I am trying to NOT downplay the costs to the user. THAT is why I included some of those items! I did not mean to imply that user implementation costs would be minimal. I was trying to agree that there is a real, and an intangible, cost to the organization to bring my property into the firma and thereafter to use it. Of course this cost has to be factored into the NPV equation. Like DUH! That there should be a NPV assessment of cost and value is one of my points, as is another point, namely that I am damned tired of those that want to use the fruits of <b>my</b> mind to constantly make profit for themselves, yet do now want to engage in any meaningful discussion of exchanging value for value and understand that perhaps they should consider constantly pay me a profit too as they are constantly using my property to make profit for themselves; or pay me an up front fee that takes into account the value I bring.
As to the real costs, I do agree, for example, if there is 60k/year of personnel cost reduction, but then $20k in regulatory compliance cost or electronic archive costs, or whatever, then the net gain to them would go down to $40k. Thus the value- to-value trade would reduce to <i>"What do you want to pay me in order to have the use of my property so that you can make that 40k/year?? You, the user firm, get 40k/year benefit so what amount per year do I, the guy that brought this solution to the market, get out of the deal?"</i>
I see that there is a disconnect in some (not all) readers minds, in that they have missed my constant reference to <b>"property"</b>, indicating that the licensed software is MY property which I will allow use of in return for an equitable exchange - and by equitable I mean that I alone get to determine what I want to accept - just as they alone get to determine what they want to pay.
Along these lines, do the folks pooh-poohing the idea of trading value-for-value think that such a trade is NOT what they themselves are doing in their own personal income desires. Do they mean to tell me that the reason they want $75-200/hr for programming/development work is because they have not "entrenched themselves" in my development shop and that they just pick that number out of the air and that they do NOT assess that they are valuable (and entrenched), and that therefore I need to pay them for what they are bringing to my table.
As to the other postings about the fee increases. Yes, I too agree, that there is a big risk that is taken by raising prices "too much too fast" - especially when you have not reached an understanding with the other side in advance and especially when they are done out of the blue. I also know that there is a big risk when software developers like me insist on getting paid as equals in the transaction and not as whores turning tricks for small minds in big offices.
Back to these nasty fees, as the original TechRepublic article author stated, their maintenance contract had expired and the provider had allowed them to stay on the old plan for 2? years. Yeah, they have had 2 freaking years to plan ahead, but no, and now they grouse about how the owner of the property wants to raise the "rent". However, on the flip side, at some point, people do feel ripped off even if they are at fault. I have experiences this in other businesses that I have run, where the debtor takes it as a personal affront that I have asked him to pay the debt that he owes me. Human nature I know, but it sure corrupts the transaction. Still concerning the original article, IMO that the increase is seen as being a "rip off", is in large part due to the fact that their budget has been cut. Hummm... lets see now, my value to your company (the amount of savings I give you) is determined by whether you have money in your budget???.
You know, when I go to the store and get a candy bar and eat it, I get satisfaction out of it. Indeed, THAT (satisfaction and not a candy bar) is what I am buying, and I when I want more satisfaction, I dig into my wallet and go back for more. I do not expect the store to give me another candy bar. If they give more satisfaction, then they want some more $...and I should pay it.
In closing, I stand by my statements in my original post. Stop Whining. If you do not like what I charge go get another package, you are under NO obligation to keep me around - and neither am I under an obligation to let you dictate to me what price I am going to accept for my allowing you to use my property, for I too, can walk away. Indeed, if it is all so valueless and easy, then do it yourself and after you have spent $35 million to save yourself that $60k/year, you can feel all good that you have 'taught me a lesson".
I also stand by my point that what the IT people think of as a "maintenance contract" is for sure actually in part for fixing stuff, but is also to compensate me ( a creator) on the back side because you were too cheap to pay me on the front side.
Re Dood Mcdoogle's comment :
<q>The blog has nothing to do with paying software maintenance and only complains about raising software maintenance costs significantly each year..</q>
Like heck it is not about paying software maintenance. What is the cost being raised on??? Software maintenance! And, it is doing a lot more than complaining. Terms like "entrenched" when talking about how vendors become entrenched, and thus conjuring up the idea of software providers holding companies "hostage", without discussing the "entrenchment of profit" that the software solution has brought her are disingenuous and imply that the customer's money is the only value that is brought to the table. The author is not "complaining" and I guarantee that at the water cooler, she is hacked off.
Concerning Martin's comment:
<q>The fact is, if you treat your customers like shit, they'll start looking for the quickest way to dump you." </q>
Sounds fine to me. I guess one of the entire points of my piece is that if customers treat ME, a guy that is making them $60k/yr like shit instead of treating me as a valuable player in the business ecosystem and as a guy that is helping them make money, then I too, start looking for a way to dump THEM – especially when I can license my property to their competition that understands value for value exchange. .... and guess what? I will probably license to them for half of what I am licensing you. Why? Figure it out.
And yes my fellow readers, I have been on the other end of the transaction, and I too was hacked off at these evil developers, but age can do funny things to people, it can help them sort out the reality of things, and for me I understand that I was hacked because I did not yet understand that it was their property, and that they too could walk away - which indeed they did.
you seem to me like a guy who would appreciate a utility kind of model, for distribution of software?
The strongest point you make, consistently, Bill, is that of establishing a 'relationship' with the client. It would appear to me, that with the utility model of software, that relationship must exist by definition. The same way as it does with your electricty supplier, your communications mobile/fixed line network supplier, you water supplier and so on.
Again, just to illustrate another example from the real world problems associated with property and its development. This was sent to me lately, by someone in the mass transportation business.
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In contradiction with the Financial Times piece, many opinions state that land prices start rising as soon as a new railway is indicated by a blue line on a map, let alone when permissions are given (planning and finance) or when the construction actually starts many years before passengers can actually ride the trains.
Many public transit systems, even under favourable conditions, can not pay their way from fares alone. There is every reason, in the interests of the public, why the transport organisations should receive its appropriate share of the land values increases that it helps to create. But the Financial Times piece linked, is not drawing our attention to ways that this land value increase can be collected on all sites annually - but maybe she has not yet discovered Ricardo's theory of rent.
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