A Response to the article "Software maintenance pricing - Fair or out of control?"
http://blogs.techrepublic.com.com/tech-manager/?p=956&tag=rbxccnbtr1
where the author is whining and complaining about the yearly fees that the software companies were charging for her use of their property.
Here is the lead in to the article.....
"Like it or not, software and hardware maintenance is a way of life in IT. Although IT organizations make every attempt to free up enough dollars to continue moving the business forward, sometimes entrenched vendors demand an increasing part of the budget pie. My department is currently facing two large maintenance increases of 10% and 15%, respectively. With a 0% increase in my budget this year, these increases mean that something else has to go....."
Gee, if this isn't loaded with anti software-developer overtones ....
My Response -
Ok - I am one of those evil software developers. Here is the story from the other side of the fence. In sum, Stop Your Whining. The reason you are paying on the back side, under the guise of "maintenance", is because you are generally too cheap to pay on the front side.
Your state at the front of your piece " ....Maintenance. Keeping the old running. Any way you put it, maintenance contracts are money spent maintaining existing systems......"
A few corrections are in order -
#1 - No, maintenance is NOT keeping the old "running" - it is money you pay me over the course of time so that I will allow you to continue to use MY property and get benefit from it, because you wanted to beat me down in the initial negotiations and would not enter into a license agreement until you felt good about getting my property at serfs wages in the initial payment. (See #2 below)
#2 - No, maintenance contracts are NOT money spent on maintaining existing systems. They are a device that I have to use to allow you to feel that you have gotten my property at serfs wages, and still allow me to recover that economic value I want for allowing you to use my property. You walk away feeling that you are paying for "software repair people", while I know that this money is actually to NPV what I want to make my property available, and because I know that this is the only way I can get your particular brand of trading partner to enter into a deal. If you need me to call value-extraction "maintenance" in order for you to feel good about paying me what I want so as to allow you to use MY intellectual property, then so be it. We will call it "maintenance" and I will include "bug fixes" along the way, but the main use of it is to extract the true value of the software.
#3 - Here is how all this happens ... I see an opportunity in your industry that I think needs a software solution. I fund all the R&D up-front out of my own pocket. Maybe my product will "make', maybe it will not. After 5 years of hell at my end, and 5 years of expense, and 5 years of risk, I have a package that with 5 people can do in 3 minutes what it used to take 300 people at your company all day to do.
So, essentially, without my creation, you are wasting a "day-expense" for 295 people. Digressing a bit and then to return, note well the term "My Creation" meaning that it came out of the "I", not out of the "You" or out of "The Collective"; and note well also the term "Creation", properly inferring that it is something that did not exist before the "I", and exists now only because of the animation of MY mind - and not out of any animation of yours.
Returning now to the main track, let's say that your average personnel cost is about $200/day/person and then adding the hassle factor for all the whining and complaining and wanting of Christmas turkeys, etc etc that your 300 people do, you are easily at over (200x300) $60,000 in expense (per year) to do this task. So, the question is "What is it worth to you to not have to pay this expense?; or, put in a different form which the economist will recognize as a different proposition, "What money are you willing to give me, in exchange for which I will give you access to what I have created and which can save you that $60,000/year?"
Now, with perfect software, the economic answer to the monetary exchange formulation of the question is that you should be willing to pay a little bit less than $60,000/ year for my solution. For example, if each year you give me a stack of cash totaling $59,000, then each year you will not have to pay those 295 people and their $60,000 expense. Thus each year you will have $1,000 more than what you would have had had you not made the transaction.
But, of course, the software solution has cost/friction to it. For example, every once in a while your users will need training, every once in a while the software will not be able to do something that you want it to do. You will need somebody that knows how to install the software. You will have hassle factors at using this system as opposed to the other one. But, adding all these carrying costs, and assigning them their rightful portion of the cost of ownership, you still come out with the same formulation of it being economically viable as long as the total cost ($ paid to me + implementation/hassle cost to you) is less than that which you are spending now. Essentially, the question to answer is if you are making more money after the dust settles than you were making before. If the answer is Yes, then the deal is economically viable and should proceed.
Now, here is the part where things get sticky, for the question is now this - "Are you emotionally willing to agree that as an economic question that something a little less than $60,000k/year should be the top end (the walk away from the deal) of yearly fee you could spend and still make money?" To those among us that understand the concept of trading value-for-value, the answer will be "Emotion has nothing to do with it, and Hell Yeah, lets make the deal because I care nothing about what YOU make out of the deal and look instead to what I make out if it."
To those that have been suckled at the breast of the collective however - that collective whose touchstone is the substitution of "feeling" for thinking; that collective that creates nothing out of their own minds, but instead are second-handers utilizing the fruits of that which came from use of the intellect of the creators, the humble author already knows that your answer will be. That answer will be "NO".
For the value-for-value traders, things will simply be an economic transaction. You look at the monetary outlay on your side and look and the monetary gain on your side. The point is that you look only to YOUR side. Thus it is that it is of absolutely NO consequence to you what it took for me to develop the software; whether my family is starving or not; whether I took a lot of risk, or took no risk, to develop the offering; or whether I am making a lot, or a little, money out of the deal, etc.. All you are interested in is the net monetary gain to your business. Emotion and looking to MY side of the dinner table play no part in the transaction.
Now, for the collectivists out there, the purchase assessment is totally different and goes way beyond this. Yes, I will agree that there is the economic assessment that you do in a similar fashion to the value-for-value trader, but then you go beyond this and, not being content with what you are taking away from the table, you start thinking about what YOU think is appropriate for ME to take away from the table. Thus it is that your little minds will start trying to figure out what my costs of development were, how my lifestyle compares and constants with yours, how many employees I have, whether I send my kids to private school, whether you can afford to send yours to private school, etc etc. All this directed essentially to you wanting to make sure that I do not take away what you feel is "too much" - because "too much" is always determined against what you have or don't have.
Now, this is an odd way to do business, for what you are trying to do is not only make sure that you get a net economic value, but also that your get to constrain the value that I receive, not because constraining that value results in more value to you, but simply because you start thinking about what is fair for ME to have. Not to put too fine a point on things, you become emotionally invested in what I take away from the deal.
One of the things that frequently happens is that you look at the cost that I want as payment for releasing MY property for your use, and then you look, for example, at YOUR salary, which is say $150,000. Then, instead of keeping you eyes on YOUR dinner plate (how much savings you will be getting), you start looking at MY side of the table to see how much money you think I am going to "make" out of the deal and whether you think it is more that you "maks" and whether YOU feel comfortable about it.
So, instead of looking at things and assessing that in 3 years YOU will have saved your company $180,000 at a total cost of a bit less than that, and that the result to your company will be a net gain, you will make a quick assessment that in 3 years you will have paid ME a little less than $180,000. You will then fester and concentrate on THIS (that I am getting $180,000 in 3 years), as opposed to concentrating on the fact that by paying ME that $180,000 in 3 years, that you are better off than if you had not done so.
At this point, you will get jealous and angry and begin to engage in populist thinking about how it is unfair that I take "so much money" and, to justify this incorrect thinking about the other guys side of the dinner table, you will characterize the money I make as a "windfall".
At this point the deal is essentially dead because now in your mind it becomes about YOU teaching ME a lesson, and about YOU feeling emotionally "good". (This is the philosophy of the collectivist .... that everything belongs to everybody and that any creator has to be punished so as to bring them down to the level of the non-creators) Remember now however, if indeed you want to engage in emotionally driven thinking about my side of the plate, it was MY brain that saw the solution to YOUR problem in the first place - a solution that YOU did not see, and if you could see it, could not, or did not, effectuate on your own. In addition, it was MY risk, not yours, that is all tied up in the offering - which is going to save YOU $60,000/YEAR in personnel expense and leave you better off that you were before.
So then, this is the emotionally driven mind-set of the collectivist as he is negotiating the deal (looking to the other guy's "payoff"), and this is where occurs the attempted bullying and beatdown directed against the software creator.
Thus it is that instead of negotiating with me as a value-added ecosystem partner - a partner that can help you make money - you treat me as a VENDOR, which appellation allowing you to think of me, not as an equal that has my private property to trade for your private property, but as somebody that you need to "take down a few notches" so as to make yourself feel better about the fact that you did not, or could not, create that which I can and did create. (What a hell of a way to do business - letting your emotions get in the way of an economically viable business deal).
So then where does this leave us. Where it leaves us is that, being a dispassionate businessman, (aside from writing articles such as this) I recognize that there are other ways to extract value, albeit in a delayed fashion; and so then, since you treat me as a VENDOR, I will then treat YOU as a CUSTOMER; and I will give you your deal, but in response to your cheap attitude, just as you are trying to cut your costs by paying me less, I will try to cut my costs by giving you less.
To do this, I will not do as much production testing on the main platform as I would have otherwise done, and I will also give you the software at an initial price point so as to make you feel that you have screwed me, but, I will also execute a "maintenance contract" with you. Now YOU think that this "maintenance contract" is to fix crap that is in the software, or to in your words " ... maintain existing systems..." but THAT is NOT what it is for . What it is really for is to compensate me for my brain and to get me a NPV equivalent to the payment I want to get for releasing MY intellectual property for you to use to save yourself $60,000/year with. Sure, I will stand ready to fix a bug or two and give you some upgrades along the way, but a large part of the maintence fee is to allow me to extract the true value of what it is that I bring to the table. (Note here the use of the present tense "bring" not "brought", for ever time you use MY property YOU are making value and I am bringing value to YOUR table .. as well as mine.
Unfortunately the impediment to the economic deal is in large part your jealousy that I am making money out of the deal, as opposed to your happiness at looking at how much money YOU are making out of the deal. Yes, I understand that this is human nature, especially in this time of ascension of the collectivist and populist mentality, but the fact is that to the extent we encounter on the other side of the table, emotionally and "lets make sure he does not make what we determine is a windfall" driven people, we creators are not as induced to create that which has not existed before. Additionally, in retaliation to your desire to trade on a basis of something other that a value-for-value exchange, we structure other creative ways to extract value-for-value.
In closing, every once in a while I come across a value-for-value ecosystem trading partner that "gets it" and makes a payment based on his assessment of his economic benefit, as opposed to his assessment of mine, and for these people I work MY ass off because they reflect my line of thinking that trading value-for-value is honorable, instead of thinking that they can trade me (my brain) like I was a commodity that they can get anyplace else.
Moral of the story - Look to your side of the transaction and what you will be making out of the deal, not the other guy's side and what he will be making.
Another way to put this - When you are buying a house, it is rude and improper to ask what the other guy paid for it.
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