Finding software cost savings by squeezing existing annual maintenance and subscription fees

This cost category represents about 17% of US tech budgets. Maintenance fees for legacy software once dominated this category. However, cloud solutions — both multi-tenant software-as-a-service (SaaS) and single-instance hosted software — make up a growing portion of this category. In a few cases, the pricing model for these cloud solutions will automatically lead to lower costs when pricing metrics like number of users, transactions volume, company spending, or revenues drop. But unfortunately, all the major Software vendors that play in this space (think Microsoft, Salesforce, Oracle, SAP etc) have contracts that include a hard baseline of licenses/costs and no option to reduce costs below that baseline during the contract term even if actual usage has fallen.

Any business planning to sign a new contract with any of these vendors should be ultra careful and thing very carefully about the license baseline and also the duration contract term that they sign up for. A mistake here in planning and forecasting likely license usage during the term could be very costly when the contract has started and the costs are locked in. For clients facing contract renewals, then now is the time to negotiate in flexibility to allow a reduction in baseline usage and associated costs as and when required – or at least once a year. That way at least companies will end up only paying for what they use/need and avoid the crazy situation many companies find themselves in today where the contracted costs are far above the actual license usage.

Many companies are struggling through this pandemic. Some if not all staff are furloughed and revenues are down or even flat lining, Businesses are therefore desperate to hold on to whatever cash they have in order to get through this challenging period. Yet for many software vendors, such archaic software contract constructions continue to fill their bank accounts. This might please their stockholders, but it doesn’t help their clients who are struggling and while they are willing to pay for what they use, they find they are often tied into software contracts that mean they also have to pay for what they don’t use too.

With Covid-19 changing all of our lives in so many ways, now is the time for CIOs and CPOs to refuse to sign any new or renewal software contracts that have no flexibility to reduce spend during the contracted term in line with actual usage.