Valued customer or cash cow? Are software vendors going too far?

Software vendors have become more aggressive than ever in enforcing their software licences terms and conditions - and getting their pound of flesh from 'valued' customers.

"The customer is king," according to the old saying.

But in the world of software, customers are invariably treated more like cash cows to be milked until they drop. And, the bigger the software vendor, the more roughly that customers are treated.

That, at least, would appear to be how many software buyers feel.

In recent years, both Oracle and SAP, in particular, have been the subject of a groundswell of customer anger: over software costs, forced-march upgrades, expensive maintenance charges that seem to deliver little in return, and aggressive software licence audits that end up with the customer feeling like they have been unfairly shaken down over the terms of ever-changing, hard-to-comprehend small print.

It is little wonder, therefore, that organisations have increasingly looked to open-source software and, latterly, cloud computing, as an alternative to buying on-premise software from unsympathetic, hard-nosed software vendors.

Yet instead of treating customers like they have a genuine choice, for many CIOs it feels as if software vendors today have become more aggressive than ever as they struggle to make ambitious quarterly numbers in the face of ever more intense competition from the likes of Salesforce.com and Amazon Web Services.

Indeed, Julian Bond, head of ICT at the high-profile British manufacturer of shutters and blinds, Hillarys, says that far from competition from cloud and open source making software vendors easier to deal with, it's actually got harder.

"They've all got fairly publicly stated aims of squeezing more money out of existing customers. I find that as traditional software vendors are being forced, kicking and screaming, to move themselves to a subscription-based model, they are trying to do that while maximising absolutely every penny from their existing corporate customer base at the same time," says Bond.

Richard Cammish, CIO at manufacturer Coats plc, which employs 20,000 staff across more than 70 countries worldwide, is no more complimentary about SAP, in particular. He describes the vendor as "a pain in the backside" to deal with.

Paging Oracle

But Oracle is the name that crops up time and again when it comes to software licensing, auditing and enforcement - and not in a good way. For years, it has been the target of complaints that its licences are complex and lacking in transparency, factors that can be subsequently exploited by software-licence auditing teams.

Indeed, Oracle topped a recent (entirely unscientific) online poll on the Computing website of the worst software vendors to deal with when it comes to software licensing audits, although, to be fair, SAP and Microsoft weren't far behind either. CA Technologies, which earned itself a reputation for ruthlessness when it was being built up by co-founder and long-time CEO Charles Wang, is these days regarded as a relative pussycat.

"Companies like SAP, Oracle, IBM and to a lesser extent Microsoft may find it mildly insulting to be called legacy vendors. But to pick through their licensing model is incredibly complex," says Cammish.

One of the things that infuriates many CIOs is the way in which, over time, the issue of software licences becomes markedly more complicated, with products changing names and, more importantly, software vendors making subtle amendments to the terms and conditions with each upgrade or release. This can have huge implications for customers who thought they were 100 per cent compliant when the vendor sends in their crack software-licence auditing teams.

"It's tricky and it's getting trickier," warns Hillarys' Bond.

"We, like other organisations, have found licensing audits much tougher in recent years. And that's not because our behaviour's changed or because we in any way have tried to flout the legalities of our licensing arrangements... the biggest thing is that they're changing the terms of their licences remarkably quickly.

"IT managers don't tend to sit down to read to the bottom of the Ts and Cs of what Office 2016 does compared to Office 2010 or 2012, for example. And yet, the nuances in terms of what they're pushing and pulling within those can be quite significant.

"I've heard a number of horror stories where organisations not much bigger than ours have walked into million-pound bills, and they don't know where it's come from: 'I've been a good boy and tried to stay within the confines of the licensing agreement, but they've caught me in a pincer movement'," says Bond.

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Valued customer or cash cow? Are software vendors going too far?

Software vendors have become more aggressive than ever in enforcing their software licences terms and conditions - and getting their pound of flesh from 'valued' customers.

Cammish at Coats agrees: "These companies have had products that have been running in organisations, like mine, for a few years and they have renamed products and upgraded products so that when you come to do a licence audit, you struggle to see [what is going on], and the first rule is to stay compliant," he says.

"It's one of the contractual obligations, but it's very difficult to stay compliant if you cannot understand, with a degree of clarity, what products you have running," he says, adding that vendors "make life so darned confusing".

"[We spend a lot time] just trying to understand what their licensing and revenue model is, when we should be focused on implementation and delivering value," he adds.

Yet, says Bond, while an organisation that gets stung with a big bill when it gets caught out in an audit has no choice but to pay up, they'll almost certainly start making plans to serve up a cold dish of revenge later.

"You don't have an option [but to pay up] at that point... You've hurt that long-term relationship. You have taken a very short-term view, maximised it to your advantage, which is great for you but in doing so there's a lot of 'debt' in that relationship that you'll probably no longer be able to uncover," says Bond.

Open source alternatives

However, whereas in the past CIOs had no choice but to grin, bear it and sign another fat cheque, today, cloud computing and open source software provide viable alternatives, even in core infrastructure software.

"In the database sphere, Postgres is an excellent example because for most things it's as good as Oracle," says interim CIO Steve Burrows. "They are both capable of handling extremely large data stores," he adds, although the price and licensing (and the software audits that come with it) makes Postgres a more attractive option for many CIOs.

He continues: "When you look at some of the mid-range and heavyweight open-source products, you're going to ask yourself the question: 'Why would I pay the upfront price and the licensing, not to mention the maintenance?'

"There are strengths and weaknesses of both products - Postgres can do some things that Oracle can't and vice versa. They are both capable of handling extremely large data stores," says Burrows.

Oracle, though, is perfectly happy to use open source when it suits it. In addition to keeping the MySQL open source database project ticking over, it also offers an alternative to (expensive) Citrix and VMware virtualisation software for free.

"You can get for free an enterprise-grade virtualisation system from a globally recognised vendor and you don't have to pay a penny for it. If you want support, you'll have to sign up for a support contract and, frankly, they're very reasonably priced. I've used both Postgres and Oracle VM in the past, building large-scale stacks, and saved an absolute fortune," says Burrows.

Meanwhile, when First Utility brought current CIO Bill Wilkins on board and gave him the task of completely overhauling the organisation's IT, one of his first moves was to talk the board out of spending big money on a suite of software from a big-name vendor, including the purchase of its heavyweight database technology, and opted instead for a home-grown system running on Postgres.

"I had to convince people [the First Utility board and its backers] that there was nothing that First Utility was going to encounter in the next three-to-five years that was atypical of any organisation that was using open source: there were big players out there using open-source technology to far higher levels of scale than First Utility would ever be likely to over the next three-to-five years, so it was a fairly safe bet.

"And I had to remove that fear, uncertainty and doubt from the executive team members and the board team that it was a risky strategy because, commercially, it would be a much better strategy: we would be removing a huge amount of 'corporate taxes' from a relatively small start-up and, therefore, we could invest that money in building out your services and technology function," says Wilkins.

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Valued customer or cash cow? Are software vendors going too far?

Software vendors have become more aggressive than ever in enforcing their software licences terms and conditions - and getting their pound of flesh from 'valued' customers.

Today, although Wilkins is planning a further database migration as the company seeks to go to the next level, none of the big-name database software vendors is in the frame - First Utility is migrating to Cassandra, an open-source NoSQL database, which can deliver radically improved performance.

For the all-important customer relationship management (CRM) function, meanwhile, First Utility took the common route of buying Salesforce.com - probably the company that has done more, over the past 15 years, to normalise the idea of buying software services in the cloud than any other provider.

Changing attitudes

That combination of cloud and open source has completely turned around the way in which the Financial Times approaches software projects, according to Christina Scott, chief product information officer at the publisher.

"In the 'old school way' you'd decide you want to do something, do an RFP [request for proposal], get responses back, and then pick one," says Scott. That all changed at the FT when Scott decided to migrate to the Amazon Web Services (AWS) Redshift database.

"We did something new [when we decided to work] with Amazon Redshift, we said we'd do a proof of concept with them, choose just one or two vendors, prove that something works, and only then contract for the full service. So we've certainly moved away from the big RFP-tendering process," she says.

"We have a very simple technology checklist, a due diligence list, and we basically go through and see where it all fits, depending on what we're looking at. For some things you may have 50 vendors and it's hard to choose, but for others you can drill down quickly depending on what specifics you're looking for."

Likewise, while Coats under CIO Cammish runs SAP as its core enterprise system, but is doing more and more with Microsoft, he points out how easy it was for the company to adopt Zscaler for cloud-based information security.

"If I compare and contrast the complexity of these 'legacy' vendors [like SAP, Oracle and IBM] with somebody like Zscaler, the price card is dead easy to understand; you've got absolute confidence that you've purchased what you need to, you can track usage and it's just a much more simpler, easier model. It makes it easier to do business with.

"To me, the Achilles' heal of these legacy vendors is that they just make life so darn confusing. It's hard work just trying to understand what their licensing and revenue model is when we should be focusing on implementation and delivering value," says Cammish.

In other words, many companies are, increasingly, breaking out of the arm-lock that software vendors once had them in.

Forced march

At Hillarys, the decision to shift from an Oracle database to SAP HANA hid a more awkward conflict. The company's plans to upgrade from its current SAP Business Suite v5 ERP system, implemented in 2006, is largely driven by SAP's decision to discontinue support for this software next year.

However, the shift to SAP S/4 HANA also meant that Hillarys would need to move from the Oracle back-end database, which SAP had mandated when Hillarys first implemented SAP almost 15 years ago, to SAP HANA. In other words, sooner or later, if Hillarys continued running SAP, it would be taken on a "forced march" from Oracle to SAP HANA.

Furthermore, although SAP is strongly persuading its customers to undergo an expensive and fraught database migration, whether they want to or not, and regardless of whether they already have enterprise-wide Oracle database licences, SAP still expects its customer to pay top dollar for the new database software licences that they will require to run the new SAP HANA database.

This seems to have caused a fair amount of resentment among SAP customers.

Bond doesn't think that SAP has become, in Cammish's words, a "legacy" software company - yet - but argues that companies like SAP have just a few years to change their attitudes and to turn themselves around.

In particular, Bond is critical of the maintenance charges that software vendors charge. These are supposed to keep their software up-to-date, but too often feel like a hefty tax companies are forced to pay in return for relatively little.

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Valued customer or cash cow? Are software vendors going too far?

Software vendors have become more aggressive than ever in enforcing their software licences terms and conditions - and getting their pound of flesh from 'valued' customers.

"We may well talk in four or five years' time about SAP being legacy software. I don't think we're there now. I think they've got a year or two to demonstrate whether they can make that change, but they're sitting on the back foot at the moment, in my view.

"Take, for example, customer relationship management (CRM). We have got the latest on-premise SAP CRM package - we are a case study customer for them. But they are not going to develop that package any more.

"They are now developing a cloud-based solution instead. That's fine, but my contention as a customer is that I have bought that CRM functionality for a range of seats for people in my business. And, not only have I bought it, but I'm paying 24 per cent in maintenance fees every year to maintain it.

"SAP has now bought out the new version for that in 'Cloud for Customer', and yet they want us to buy all those new licences? They're not playing fair. It's not fair value. I recognise they've made a new investment, but that's part of what my 24 per cent a year maintenance is doing for us," says Bond.

In other words, the maintenance fees charged by companies like SAP seem to be paying for SAP to develop an entirely new CRM system, running solely in the cloud, and companies like Hillarys, tied into expensive maintenance contracts, feel that they are being asked to pay for the software twice over - there are no special deals for loyal customers.

"If you buy a car every five years, just because you bought it, you don't expect to get a new one. But if I've been paying another quarter [of the purchase price] every year to keep it up to date, I'm expecting a darn-fine trade-in when it comes to moving across to the latest version of it," says Bond.

Cloudy future

With many organisations feeling frustrated with the way that software vendors are treating them, it's little wonder that so many prefer the ease with which they can get up-and-running in the cloud - with no licences, negotiations or other fraught hurdles preventing them from even just dipping their toes.

"We're now moving from 'we want this piece of technology and need to sign a quarter of a million pound cheque to get it in through the door' to 'we like this technology and can have it for a few hundred pounds a month, see how it goes and if it works for us, we can expand our usage of us, and if it doesn't we'll discard it'," says Burrows.

Bond at Hillarys, though, cautions that the numbers - still - may not entirely add up, especially when every last potential cost is accounted for. "My data centre isn't in Canary Wharf, it's in the East Midlands. Land is cheaper and the cost of hiring the people, again, is more reasonable. When I do the maths, I'm still paying a premium for cloud," he says.

Indeed, that was something that Rocco Labellarte, head of technology and change delivery at the Royal Borough of Windsor and Maidenhead, belatedly found after engineering a major shift of the local authority's infrastructure to the cloud.

Speaking at Computing's Data Centre Summit 2015, he revealed that instead of cutting IT costs, they had actually risen, while different skills were also required of IT department staff, too, which required a combination of re-training and new staff.

"We anticipated that we would require fewer IT people and lower costs, but what we have found is that our costs have shifted from capital to revenue - so our revenue costs have gone up, and we need more staff - not to run the wireless boxes because they're sitting somewhere else - but to know how they are being run," he said.

Yet, cloud costs are continuing to decline, and young companies without a legacy IT infrastructure to consider can get up-and-running more cheaply and quickly using cloud - and are unlikely to shift to on-premise systems as they grow.

In other words, software vendors' licensing challenges are only going to become more acute and, unless they start to demonstrate that their valued customers are, indeed, valued, the palpable frustration and anger of many of them means they'll be off to easier-going rivals at the first available opportunity unless they improve, and fast.

Meet Julian Bond and many other top CIOs at Computing's IT Leaders' Summit in December. Free attendance for qualifying CIOs and IT managers. Register here