July 12, 2017
Tomás O'Leary

Although IT budgets have been increasingly over the past few years, CIOs are expected to make that cash stretch further than ever before. The biggest challenge lies in “keeping the lights on” and funding the strategic developments that will drive business transformation.

Corporate data continues to grow at a phenomenal rate – as does the infrastructure required to host it all. Hardware investments, staffing and consultancy, software licensing and maintenance contracts all eat into the IT budget before spending can begin on strategic developments. Which means that the majority of the allocated annual cash is spent on maintaining position, rather than pushing the business forward.The reality is that no matter how much more money is allocated each year, the vast majority of IT spend will be on maintaining existing assets. As a result, the CIO needs to cut running costs wherever possible to increase the amount available for new projects.


The spiralling costs of IBM® software

When it comes to software, ongoing vendor support and maintenance contracts are a significant drain on IT finances. With annual maintenance traditionally in the region of 20% of the initial licence purchase price, your business will have more than doubled its spend on a particular application within five years. The longer you keep the application in use and supported by the vendor, the more expensive the total cost of ownership becomes.

So if an application cost you £100,000 to purchase (excluding set-up & installation costs), and the annual maintenance fee was set at 20% (plus 10% p.a. increase) following your first year warranty period, you pay IBM® £22,000 in year 2, £24,200 in year 3 and so on. By the end of year five, the application has cost £202,102 – half on the initial purchase, the other on support. And you will keep paying the 20% plus “inflation” every year until IBM® refuse to support your application any more.

Then it gets worse. You must either bite the bullet and pay for an upgrade, or request an additional contract from IBM® called “Extended Support” which can cost up to x5 the “normal” support fee which in Year 5 was £29,282. That’s an additional £146,410 for the 6th year of ownership!

This scenario is repeated for every single one of your IBM® applications covered by a vendor maintenance contract.


Third party support and maintenance, helping to reduce ongoing TCO

Your ongoing support and maintenance contracts are an important revenue stream for IBM® – one of the reasons the annual fee is so high. Good for them, not so good for you.

Third party maintenance services provide a cost effective alternative. Offering a similar level of service and support, third party maintenance contracts are typically 50% less than the IBM® equivalent and, when you take into account the “Extended Support” costs mentioned earlier, up to 90% less. Entering into a maintenance agreement with a third party provider can more than halve the annual support bill and reduce the ongoing total cost of ownership of a particular IBM® application.

Third party support contracts are best suited to extending the lifespan of stable, post-warranty applications. The traditional vendor-defined upgrade cycle attracts significant additional costs (licensing, maintenance renewals, installation and consultancy) and increases the risk of disruption to live systems.

When you define and manage your own upgrade cycles, you can avoid risk and further lower your application costs. Using a non-IBM® support partner restores complete control of your application infrastructure and you retain all upgrade rights to versions available as of the last date of your IBM® contract, and on into the future.


One final consideration

Although third party maintenance agreements offer significant benefits, they cannot be used to entirely replace a bespoke support agreement with IBM®. If your organisation's holds any kind of bespoke development agreement, a third party will be unable to replicate those services.

hat said, partnering with a non-IBM® provider on the fringes of your IBM® assets gives you additional leverage when the agreement next comes up for renewal. Or that you may be able to separate some elements of support to help reduce the overall software maintenance bill without compromising services offered by IBM®.

Third party maintenance contracts are an important tool in helping to manage operating costs and free up budget for investment in strategic projects that help move your IT infrastructure forward. To learn more about these potential savings, please get in touch.

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