Enterprise Software: Warranty Woes

By Larry Dignan  |  Posted 2004-08-02 Email Print this article Print

Technology executives want software suppliers to offer better warranties, but it's an uphill climb.

Tony Scott, the chief technology officer of the world's largest automaker, General Motors, is never shy about using his company's roughly $3 billion annual spend on hardware and software to bring change to how technology is procured.

The latest inadequacy he intends to rectify: Buying complex pieces of code with little assurance that it will work the way it is supposed to.

"GM couldn't sell a car using the [current] software model," in which the buyer assumes the risk of making sure the product works reliably, says Scott, whose company is a large SAP and Electronic Data Systems customer.

Software vendors typically provide a 90-day limited warranty that promises the application will conform to published specifications. The supplier usually adds that the software may have errors and notes there are no guarantees that an installation will be successful.

That's not good enough, Scott says. Software vendors will have to offer better warranties. "We have a ways to go before we get quality in basic matters of security and integration with operating systems and databases," he says.

Scott would like software vendors to offer a warranty that would cover errors that cause harm to a company's operations. For instance, a vendor that ships an application with a known security problem that brings down an enterprise planning system should be held accountable. Currently, customers don't have much recourse and can't hold the vendor liable for financial damages. Scott would want the software fixed, and to be compensated for the harm to his business.

Technology executives roundly dismiss today's software warranties as reams of legalese that merely tell you the vendor isn't responsible for any problems. For instance, Cisco Systems says in its standard user license and software warranty that "in no event" does it guarantee that its code is error-free or will run "without problems or interruptions." As for security, Cisco says it doesn't warranty that its software "will be free of vulnerability to intrusion or attack."

Meanwhile, money-back guarantees on the software alone are almost meaningless since the price of software is a pittance compared to the cost of staff and consultants needed to implement, say, an enterprise planning suite.

According to a Nucleus Research study of SAP implementations, software costs represented about 18.3 percent of an initial deployment; the rest went to consulting (36 percent), personnel (24.5 percent), training (12.5 percent) and hardware (8.7 percent).

Next Page: What two major software providers, SAP and Microsoft, provide in their warranties.

Business Editor
Larry formerly served as the East Coast news editor and Finance Editor at CNET News.com. Prior to that, he was editor of Ziff Davis Inter@ctive Investor, which was, according to Barron's, a Top-10 financial site in the late 1990s. Larry has covered the technology and financial services industry since 1995, publishing articles in WallStreetWeek.com, Inter@ctive Week, The New York Times, and Financial Planning magazine. He's a graduate of the Columbia School of Journalism.

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