Thursday, August 01, 2013

Lowering the Cost of Software Ownership

Enterprise Software such as Oracle, Exchange, SAP etc., have a long life cycle spanning decades and during that period, companies spend more money to maintain the software than what they have paid to buy the product.

Software maintenance costs include: Annual Support Fees, Periodic upgrades, personnel costs, and operational costs that includes servers, data storage, network bandwidth and power etc.

During good times, when the business is growing, companies are on an expansion spree and don't mind spending money on software. But during tough economic times, companies start questioning the maintenance costs and look to minimize those costs. Some customers refuse to upgrade or suspend annual maintenance contracts or look for a lower cost alternatives.

Today, 80% of the IT budget is being used to keep the current operations going on - i.e., "Keeping the lights ON" and since everyone is looking to lower the cost of operations, Many companies try to negotiate a lower annual maintenance fees and bargain for free upgrades.

In order to counter such customer backlash, Product Managers have to constantly innovate and develop the product to lower the cost of ownership to customers. In order to entice customers to upgrade to newer version, new upgrades of the product must lower the cost of ownership.

As a Product manager, there are several software innovations that can lower the cost of ownership:

1. Simplifying & Automate the installation of patches, upgrades and new installs.
2. Automating software support issues.
3. Improving product quality & stability & security.
4. Simplifying the product administration process
5. Offer the product as a SaaS model.
6. Simplify product licensing.
7. Simplify product trouble shooting.
8. Simplify product integration with other software.
9. Simplify product usage, so as to lower or eliminate the cost of employee training costs.

These enhancements must be built into newer versions of the product - so that customers have financial incentive to buy new versions and save money on operational costs.

Cloud technologies: SaaS, PaaS, IaaS etc can be leveraged to lower costs of ownership - by blending the core on-site product offering with a cloud offering, such that customers can use the cloud to meet their peak demand workloads, while use the on-site deployments for base work loads.

Many of these costs can be reduced by enhancing the software and then build/modify business models that lowers the costs. For example, support costs can be lowered by off shoring product support, and the savings can be passed on to customers. Another way to lower cost to customers will be to offer "On-Demand" support services instead of a flat annual fees.

Closing Thoughts 

Product managers must constantly understand the costs involved in using the software and constantly review software product enhancements to lower costs to customers. Companies should develop new business models to help customers during tough economic times.

Lowering cost of ownership will increase customer loyalty and increase profitability for software vendors.