Admin Alert: The Four Faces of Software Vendors During a Hardware Upgrade
April 13, 2011 Joe Hertvik
For an upcoming hardware upgrade, I recently contacted all of our third-party software vendors to determine if they were going to increase our fees for running their software on a different machine. My mission was to determine: 1) Whether each vendor would charge us for changing hardware; and 2) Would there be an increase in their yearly software maintenance fees? The results were intriguing and an interesting window on the i/OS software world.
The Other Costs of a Hardware Upgrade
Hardware upgrades aren’t just about a new box. You also must ensure that your existing software will run on that box. For many packages, you’ll require new license keys or registrations to continue maintenance. Many of these items involve cash, because polling and paying software vendors is part of the hardware upgrade process.
For software transfer fees and maintenance uplifts, there are four different archetypes that vendors assume during the hardware upgrade process.
Knowing these roles can help you understand where each vendor is coming from, with the goal being to keep additional fees fair and honest for both you and the vendor. Let’s look at each archetype and lay out a basic strategy for dealing with them. Note that I have purposely omitted vendor names and other identifying characteristics. These observations speak of what a vendor might do during a hardware upgrade. They are not a critique of any particular vendor’s policy.
Persona #1: The Toll Booth
Toll booth vendors believe in the my-software-is-more-valuable-when-running-on-more-powerful-hardware theory. As one vendor unbelievably explained to me years ago, “When you run our software on a bigger machine, you get more value from the product and we believe that we’re providing a tangible benefit to your company.” Then he sent me an invoice that had to be paid before I’d get a new license key. He also increased my software maintenance. This is classic toll booth behavior.
Be aware that tool booth vendors don’t only charge extra for machine upgrades. You may also hit a toll booth when adding a processor to an existing machine. (Remember: more power equals more benefit.) Be sure to poll your vendors before adding any additional capacity.
Recognize that the toll booth has one big card in its pocket (your license key) and that you will have to pay a toll to get it. Also understand that some vendors will provide discounts for hardware upgrades, and there may be some latitude in their pricing. Negotiate with your toll booths to reduce transfer and maintenance fees. Try to give them a compelling reason to reduce (but not eliminate) the uplifts. If you work for a company that has other divisions that use iSeries, System i, or Power i boxes, compare notes about their software fees to see if you’re getting a fair deal. Strive to get the vendor on your side, as they may not like the extra charges, either. Be polite.
Persona #2: The Rectifier
Rectifiers view upgrades as the perfect time to resolve any software issues the vendor wanted to handle years ago. Are your current maintenance rates grandfathered in under an old plan? The rectifier will use a new machine to move you to newer (sometimes costlier) rates. Did you buy your software under a machine license but the vendor has since moved to user-based licensing? This may be the perfect time to change your licensing and charge you a transfer fee.
Use the same strategies that you would use for toll booths. Work patiently and politely with the Rectifier to see if they can reduce your rates.
Persona #3: The Do-Overs
Do-Overs don’t charge license transfer fees or yearly maintenance. They don’t care when you add processors to a machine. The Do-Over licenses software by the machine. When you change machines, the Do-Over will merely ask you to re-buy the software.
Negotiate the best rate you can, but re-buying software every time you change hardware can be neutral or even work in your favor. You may not have to re-buy the software if you’re only upgrading a box without changing its serial number. Many i/OS vendors price their yearly software maintenance charges at 20 percent of the purchase price so that you are essentially re-buying your software every five years. If you keep or upgrade your machine so that it retains the same serial number for five-plus years, you could even come out ahead in a re-buy situation.
Persona #4: The Never-Minds
The Never-Minds won’t increase software maintenance when you add new processors nor will they levy a software transfer fee. Rather, they will keep with the standard terms of your contract and nothing will change when you move to a new machine. Incredibly, some Never-Minds don’t even use software keys so you only have to restore the software to a new machine to use it.
Be sure to thank your Never-Minds. Also be aware that a Never-Mind may have already moved to a subscription model if your software is based on user-based licensing, which renders a license transfer fee moot. Review the number of covered users and see if you can save money by reducing that number.
Where Moving To a New Machine Can Help You
Not as common as it once was, some vendors still price their yearly software maintenance by processor group (P-group). For these vendors, the higher the P-group number the more they charge for maintenance. Let’s say you are exchanging an existing Power 5 550 machine (P20 group) for a new Power 7 720 machine (P10 group). In this case, you would be getting more power at a lower P-group classification. If your vendor is using P-group pricing, you would see a reduction in software maintenance fees.
Many vendors have abandoned P-group pricing because of Moore’s Law, which causes P-group downgrades to occur all the time. These vendors have moved to different pricing strategies, sometimes based on Commercial Processing Workload (CPW) numbers, which always go up when buying more powerful hardware.
Standing Still Can Increase Yearly Software Maintenance Fees
Many software contracts contain fee escalation clauses. Vendors can and will up your maintenance fees by a certain percentage each year, with increases that can be as high as 5 percent. So even if you don’t upgrade your hardware, you may still be faced with maintenance fee increases.
Be Aware, But Not Frightened
In fairness, there is no good way for software vendors to handle licensing and yearly software maintenance fees. If the vendor doesn’t key its programs to a specific machine, people can illegally port them to other computers. If the vendor doesn’t charge yearly software maintenance, they run the danger of supporting lots of users without generating any cash flow. Software companies need reasonable cash flow or else they won’t be able to create new releases, fix bugs, and provide technical support.
So some of these charges may not be out of line with what the vendor needs to stay in business. With this article, I’m hoping that by identifying how software vendors handle hardware changes, you can use that knowledge to ensure that any additional charges are fair and equitable.