By Stephanie N. Mehta
November 5, 2009

Undoing the dupe: A way out of your Big Software contracts

By Roger Burkhardt, CEO, Ingres

(Last month Burkhardt wrote about how Big Software companies lock customers into restrictive software licensing agreements and continue to raise prices, even during tough economic times. Here Burkhardt offers some tips for effectively renegotiating contracts with your current Big Software suppliers.)

For decades now many of us in corporations have been paying loads of money to work with Big Software companies like Oracle (ORCL), Microsoft (MSFT), IBM (IBM) and SAP (SAP). Our information technology employees are familiar with these software vendors and their technologies (and their proprietary licensing models) and may even identify their careers with them. So, while we may suspect we are being overcharged, and could spend millions less running our IT departments, we have remained comfortably, and expensively, locked-in.

But we want to be back in charge. And we deserve to be; we’re the customers that line the pockets of all Big Software companies. Without us, who would buy all that software?

But we question whether it is even possible to break away from this perverse reality where software leviathans dictate both economic terms and the technology road maps that are critical to our business.

Is there a way to move towards an alternative model, where IT costs are variable and aligned with actual business needs? Yes, but we just don’t like change. And perhaps we lack 100 percent confidence in the ability of new, alternatives to perform the mission-critical processes that must run our companies 24×7, reliably and securely.

I understand these requirements well. In my former role, I was responsible for the New York Stock Exchange’s technology, and the continuous availability of our trading systems was paramount. My team showed me a better way to deliver that reliability by using innovative Open Source software and open standards. This gave me the tools to combat the hardball negotiating tactics of Big Software and to substantially drive down costs.

Over the last decade, alternative IT models have matured across a broad range of software technologies and a growing number of customer success stories demonstrate that it is eminently feasible for well-lead IT organizations to move to this better model. And in doing so, gain substantial cost savings and rapid innovation benefits of a New Economics of IT.

You don’t need to continue signing over your business’ bottom line to Big Software companies that keep you locked-in to contracts with no end to escalating costs.

A way out

If you’re ready to embrace change and begin looking at more cost efficient and innovative ways to run your IT infrastructure, here are five tips to help you extract yourself from expensive Big Software contracts that are holding your company hostage:

1. Introduce real competition to the software license cartel. We know that introducing real competition for any product or service is the key to avoiding expensive and inflexible contracts.  The key in software is to introduce competition from companies with a disruptive and competitive business model. Consolidation in the proprietary software industry has created an oligopoly of proprietary players which demonstrate their power by raising prices in the middle of a recession. In fact, the software leviathans such as IBM, Microsoft and Oracle compete with each other about as vigorously as OPEC members and we need new business models to provide real competition.

The proven alternatives are Open Source software from companies such as Ingres and Red Hat (rht) and Software-as-a-Service (SaaS) offerings from players like (CRM). Both models provide low and variable costs and create real competition to the proprietary software model. By adopting these models for at least 10-15% of your software you can negotiate better prices on the other 85%.

2. Understand and adopt the new software business models.. Open Source software has no license fee and support is provided under an annual software subscription that is substantially less than the annual maintenance fee charged in the proprietary model. The subscription includes product usage rights, support services, access to new features and goes up or down year to year depending on your actual business usage. This subscription model is used by both Open Source and SaaS providers and aligns costs directly with the value the software provides in actual use. Another benefit: the end of Big Software shelfware. Consider donating your remaining unused software to not-for-profit organizations that could surely use it.

3. Strategically avoid technology lock-in. For competition to work, you need to be able to switch vendors over time and this requires an IT strategy that mandates open standards and so won’t lock your company into a particular vendor. This is true of proprietary software and Open Source and SaaS alike. Remember, having a low cost and variable cost model isn’t sufficient in itself; over time you may still want to switch technologies to support new business strategies. The good news is that mature open standards are available for the full range of software technologies and they bridge both proprietary and Open Source worlds. For example, half of all programmers use the open Java language and Ingres customers are running critical financial systems written in Java that process billions of dollars a day on a completely open source infrastructure.

4. Demonstrate an open competitive environment. In order to drive down your software costs, you need to adopt mature alternatives for a significant portion of your software and use this leverage to negotiate better terms overall. Proven alternatives to Big Software are available at virtually all levels of IT – from the operating system up to the application layers. You won’t eliminate proprietary software overnight – you are often dealing with multi-year contracts after all – but by eliminating 10% to 15 %, you will save up to 95 % in those areas and will be empowered to negotiate substantial cost reductions for the remaining 85% of your environment.

5. Re-read your software contracts and plan your escape from Big Software. Check the fine-print of your Big Software contracts to make sure there is a cap on the maintenance costs after the license deal ends. If not, ask for one well in advance of the renewal date and if you don’t get it (surprise!), re-double your efforts to build your negotiating leverage by bringing in open subscription-based software technologies for 10-15% of your portfolio.

Software subscription models make it easy to prove the value of software before you make significant investments. They reduce the total cost of ownership by eliminating expensive license fees and a whole range of subsequent “gotchas”. It’s simply a better, smarter way to buy, one that finally puts the customer back in charge.

No duping involved.

Burkhardt is president and CEO of Ingres. He previously spent six years as CTO and executive vice president of the New York Stock Exchange, where he and his team transformed  the NYSE to a fully electronic model.

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