AMC Debate: The Vendor's Take

SOME term it as the perennial golden goose. Some call it that holy cash cow that vendors keep milking. Either ways, for enterprise software vendors, maintenance and support fee on each software license, that often spans around 20 per cent to 25 per cent of the net license price per year, is all about that cornucopia of margins, which as per some estimates could be as much as 50 per cent of most application vendors' total revenues.

As per some analysts, it is as much as 60 per cent to 80 per cent profitability just on maintenance alone by year four or five of the software contract, as a Forrester analyst commented in a news report some time back.

Now what do vendors have to say about this ongoing, traditional, and very very profitable format, which, for CIOs is nothing short of an annual headache and a periodical hole in the pocket?

Yogesh Agarwal, CP, Command Central product group, Symantec tags AMCs as very legitimate. This is because once the product has been done, it has to be enhanced continuously and upgraded with the changing dynamics.

“Versions , technologies change after a few years,” he says citing how the security or storage terra firma has changed from tapes to disks to rays etc.

“It is through AMCs that one gets entitled to bring new capabilities and the same base software gets adapted and refreshed. It’s justified because there is a lot of investment that goes into that kind of R&D and up gradation development.”

Asheesh Raina, principal analyst, Gartner, agrees with this argument.

There are definitely resources that go into maintaining software to some extent, according to him. “Each company has its escalation matrix. Also, for one enterprise, extra resources and maintaining a mission-critical software is crucial, but for some one else this could turn an unnecessary burden.” That’s where discrepancy in outlook and appetite for AMC costs comes in, he feels.

As he sees it, anything around five to eight per cent in case of hardware and 20 per cent in case of software, depending upon complexity, implementation or integration complexity etc is completely justified.

When asked about how AMCs are a highlight among CIO concerns and affect their IT investment appetite and what's SAP's view on restructuring of the license-and maintenance pricing model in context of that, here’s what the ERP major had from its side of the table.

“SAP Enterprise Support is a holistic support offering designed to help companies take full advantage of the integration of SAP and non-SAP solutions, minimize risk, enable the acceleration of innovation and address solution lifecycle management. The offering combines Run SAP methodology, end-to-end solution operation standards, mission-critical support and our global support backbone to enable our customers with the tools and methods for achieving business innovation while reducing risk and total cost of operations.  It contains features like 24/7 Support Advisory, Service Level Agreements and SAP Solution Manager, enterprise edition.”

SAP is confident that SAP Enterprise Support delivers unparalleled value to all customers as it represents a significant step from reactive problem solving to proactive management and improvement of a customer IT landscape, including end-to-end solution operations for the entire application lifecycle. Through SAP Enterprise Support, SAP is not only the role model for the evolution of software support, but stands alone among the competition in providing transparency into how the value of our support can be measured for our customers.

As to the many CIO concerns raised around the justification of exorbitant AMC rates, SAP says that in November 2008, SAP and SAP User Group Executive Network (SUGEN) formed a task force to quantify the value of Enterprise Support.  This task force was charged with the establishment of Key Performance Indicators (KPIs) that can be used to measure value and benchmark SAP Enterprise Support. Benchmarking provides the opportunity to quantify improvements over time for customers by exercising the benchmark on a regular basis and benchmarking will give SUGEN members the opportunity to better understand their individual situation relative to peers and other companies.

“SAP has also agreed to deliver on specific KPIs defined by SUGEN before we adjust future pricing for our Enterprise Support services.” It added.

So does that solve the debate?

What’s your take on the argument on both the sides? Comment here, while you read out another solution-oriented take on the tussle in our next story.