Third-Party Software Support: Pros and Cons

Posted 2013-05-02

By Scott Rosenberg

Third-party support providers often promise enterprise software support for a lot less than vendors such as Oracle, Microsoft and SAP charge annually. This can be compelling because software update and license support (SULS) annual fees typically range between 18 and 22 percent of the licensing fee. But you should consider the hidden and not-so-hidden risks in switching to a third-party support structure, as well as benefits that can be achieved in well-defined circumstances.

Here are four main questions you should consider before making a decision:

1. Can third-party support fully replace vendor support programs?

In a word, no. When you go off the vendor’s enterprise SULS “reservation” for a third-party program, a number of conditions change:

·  The status of your software is effectively frozen. No further updates will be provided by the vendor, nor will you be entitled to any, including those required for regulatory compliance, security and other critical events.

·  License compliance must be maintained—an important consideration for subsequent hardware upgrades or environment changes.

·  Extended support offerings are no longer available to you.

·  You will no longer have access to technical assistance forums.

·  Advantages from changes in program bundling are no longer available.

·  Resuming vendor support can be expensive. For instance, a software vendor may charge reinstatement fees of up to 150% of the standard maintenance fees.

2. Will we really save 50 percent, or will we pay more in the long run?

Yes, you will save 50 percent … of the initial annual fee. Whether you pay more in the long run depends on your circumstances. If your company is growing, merging or upgrading hardware, the need to remain in licensing and regulatory compliance may lead you right back to the vendor’s SULS—and hefty reinstatement fees. The same applies if you must have access to software updates for any number of reasons.

3. What situations do merit third-party support consideration?

According to Forrester Research, there are at least two circumstances that warrant a close look at discontinuing vendor support in favor of third parties:

·  Upgrades are not important to you.  If you have a customized version of the software that may be a few releases behind, third-party support makes a great deal of sense.

·  If you believe your software deployment is set for several years with no need for updates, third-party support is a good option to help you when you run into minor bugs in the system.

We would add a third circumstance: third-party support as an augmentation to vendor support. For example, various Oracle partners can provide long-term engagements for hosting, outsourced database administration and performance tuning, as well as one-time or short-term events, such as migrations, upgrades, and temporary or emergency staff augmentation. This type of support—backed by the vendor—does not provide initial-fee cost reductions, but, depending on your circumstances, it might save your company time and money.

If you have decided to go ahead with some form of third-party enterprise software support, consider the following question.

4. How can I minimize the risk of using third-party support?

The short answer is … contractual details, details, details! More specifically, make sure that your service contract clearly:

·  Defines who is responsible for doing what, when and at what cost. For example, do costs increase if the problem escalates? Are you expected to provide the service vendor with office support on-site? And what about technical bugs the vendor can’t fix?

·   Stipulates when and how fees are assessed. Nobody likes cost surprises or litigation, so make sure the contract defines hardware and software resources, what actions will result in what charges, and how the payment process works.

·   Prioritizes and states precisely what should happen in the event of predictable events, such as common technical bugs. Is the bug a vital situation, fairly significant or just routine? Based on the bug and the priority level, how is the service vendor expected to respond?

·   Names exactly who the primary support contact will be at the service vendor, and ideally stipulates that this person is to coordinate all service events and act as the sole, or primary, liaison with your organization.

The Bottom Line

The cost of software maintenance is an unavoidable cost of doing business today. Third-party service vendors cannot fully replace a software vendor’s SULS because they have no legal rights to the source code—a situation recently upheld in the courts at great cost to third-party service customers.

There are circumstances in which replacing software vendor SULS with third-party service contracts makes sense and can reduce an organization’s software maintenance costs significantly, but be sure to negotiate a contract that clearly defines responsibilities, fees, priorities, predictable situations and actions, as well as a primary liaison. There are also situations in which third-party support can save time and money as an augmentation to your software vendor SULS. 

Most importantly, the best time to minimize a software vendor's SULS fees is during the negotiation of new or revised licensing agreements. If you carefully select the optimal software packages for your enterprise and negotiate overall costs with professional savvy from the outset, your maintenance costs should not exceed the value of smoothly running, fully compliant and up-to-date software.

Scott Rosenberg is CEO and founder of Miro Consulting, in Woodbridge, N.J., which helps companies analyze and negotiate enterprise software contracts, specifically Microsoft and Oracle licensing. He is also an active member of the International Association of IT Asset Managers and is a certified software asset manager.