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Foiled! How to beat software vendors' sneaky price increases

Robert L. Scheier | Jan. 14, 2014
Between complex licenses and the cloud, Microsoft, Oracle, and SAP have lots of ways to hike up prices. Here's how to fight back

Microsoft declined to be interviewed, but its PR firm says Microsoft bases pricing on "market conditions, increasing product value, customer deployment scenarios, and other factors."

Microsoft is not alone in playing the hidden-price-hike game. Businesses that don't pay attention to Oracle's "very specific" terms around licensing software for testing and backup "will be exposed to Oracle audits," according to a September 2013 post on the Wikibon advisory site by David Vellante based on interviews with Oracle customers and consultants. This shows "the importance of simplifying agreements with Oracle and eliminating unnecessary terms and conditions." Oracle declined to comment for this story.

Because maintenance fees are calculated as a percentage (usually between 17 and 22 percent) of a customer's software license fees, some vendors try to raise long-term maintenance revenue by artificially bundling as many products as possible into a licensing deal, says David Blake, CEO of sourcing advisory firm Upper Edge. At the very least, he advises using "the next purchase as an opportunity to negotiate a cap on maintenance increases going forward" or at least stop paying maintenance on software you're not using.

Virtualization — running multiple virtual servers on a single physical server — can also result in nasty surprise price hikes if the vendor requires a separate license for each virtual server.

SAP customers face particularly large and unpredictable price hikes courtesy of its Indirect Access license fees for anyone who uses data generated by SAP, even if they don't use SAP software itself. That could mean major new costs for the many organizations that use SAP as the information-sharing backbone for multiple non-SAP applications.

"We've been involved in about eight compliance claims tied to Indirect Access, and the fees are huge," says Blake. Those involve not only license but maintenance fees. A company that has licensed SAP to 1,000 users for 15 years could be told, he says, "You owe SAP back maintenance for 15 years," at 22 percent of its $2 million license fee, or $6.6 million.

Trying to understand Indirect Access drove one client "absolutely bananas," recalls Muscarella. That client's CEO asked SAP about his potential exposure but was told estimating those costs would require examining every one of the applications that interfaced with SAP. That, to the client, sounded like "a paid shopping trip" for SAP to look for new licensing opportunities, Muscarella says.

Blake recommends that SAP customers "look at their application environment, their landscape, and where they have everything interfaced. From that, determine what the potential magnitude of the impact could be." Then, he says, consider other SAP products they might need "and use that as a leverage opportunity to negotiate" down the Indirect Access fees.

 

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