On the High Cost of Enterprise Software

Enterprise Software Should Not Cost an Arm and a Leg

I believe that enterprise software is too costly and, indeed, it would seem that many others agree with me or we wouldn’t see the explosion of open source software being adopted industry-wide these days. Now don’t get me wrong, I am not saying that open source software is free to run – of course there are maintenance and management costs. But if commercial enterprise software provided needed functionality and was reasonably-priced then we wouldn’t really need open source, now would we?

Before the open source zealots start jumping down my throat, yes, I acknowledge that open source is more than just cost. The creativity and group-development aspects also led to its strong adoption rate… but I am getting off topic… so let’s go back to the high cost of enterprise software – that is, the software that runs the computing infrastructure of medium to large businesses.

It is not uncommon for companies to spend multiple millions of dollars on licenses and support contracts for enterprise software packages. This comprises not only operating systems, but database systems, business intelligence and analytics, transaction processing systems, web servers, portals, system management tools, ERP systems, and so on.

Yes, there is intrinsic value in enterprise software. Properly utilized and deployed it can help to better run your business, deliver value, and sometimes even offer competitive advantage. But what is a fair value for enterprise software?

That is a more difficult question to answer.

But let’s look at something simple, like a performance monitor. Nice software, helps you find problems, probably costs anywhere from tens of thousand dollars to over a million depending on the size of the machines you are running it on. Sometimes the software used to monitor is more expensive than what it is being used to monitor! Why does it cost that much? Well, because companies have been willing to pay that much. Not because the software has to cost that much to develop. I mean, how many lines of code are in that monitor? Probably less than Microsoft Excel and I can get that for a hundred bucks or so. And I can almost guarantee that Excel has a larger development and support team than whatever monitor you choose to mention.

So the pricing is skewed not based on what it costs to develop, but what the market will bear. That is fine, after all we live in a free market economy (depending on where you live, I guess). But I don’t believe that the free market will continue to support such expensive software. And the open source movement is kind of bearing that out. Nevertheless, there are still companies that prefer to purchase commercial software rather than to rely on open source software, at least for some things.

As I think about enterprise software a bit further… In many cases, enterprise software vendors have migrated away from selling new software licenses to selling maintenance and support. For some companies, more than half of their revenue comes from maintenance and support instead of selling new software. This is especially true for some mainframe software vendors.

Viewed another way, you could be excused for thinking that some of these companies are doing little more than asking their customers to pay for the continued right to use the software because their is little maintenance going on. Sounds like a nice little racket… you know what I’m talking about? So you pay several million for the software and then hundreds of thousands, maybe millions more for the continued right to use it and get fixes.

Another problem with enterprise software is feature bloat. Enterprise software can be so expensive because vendors want to price it as if all of its feature will be used by the enterprise. But usually only a few features are needed and used on a regular basis. Part of the problem, though, is that those few features can be (and usually are) different for each organization. One way vendors deal with this is to offer many separately-priced features enabled by key, but that is complicated for the user (as well as the software vendor).

So what is the answer? Gee, I wish I knew… if you have any ideas, please share them in the comments section… I’ve got some ideas and thoughts and perhaps I’ll share them with you all in a later blog post. But I think I’ve babbled on enough for today…

About craig@craigsmullins.com

I'm a strategist, researcher, and consultant with nearly three decades of experience in all facets of database systems development.
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One Response to On the High Cost of Enterprise Software

  1. Dave Nance says:

    I’m not sure about solution either, but it does get a bit extreme. A company I was at several years ago, we were going to upgrade our mainframe for additional MIPS. The hardware cost for the upgrade was 150K. The software license costs were close to 6.8 million. Instead of purchasing the hardware and paying the up cost on the licenses, we outsourced our mainframe from another vendor and paid based on blocks of CPU hours consumed.

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