A Peek Behind the Curtain at an IBM Software Contract

Finance and CIO  •   7 mins read

Once a company invests in the IBM products that will form its digital infrastructure for the next decade, it’s a logical next step to get support for them too.

An IBM software contract gives your business access to expert assistance in the event of a technical problem – so long as the product hasn’t hit End of Support (EOS). The assistance largely takes the form of receiving patches and fixes for vulnerabilities or bugs, as well as access to new version upgrades while your perpetual license is active.  

At the same time, you pay handsomely for all of it – and IBM enjoys a sizable recurring revenue stream from it. With its software maintenance contracts becoming a valuable source of revenue amidst its push into the cloud market, the line between whether these relationships benefit the customer or IBM’s bottom-line more is becoming a bit blurry.

So, we thought we’d take out the glasses and peel back the curtain to see if those IBM software contracts are really worth being on center stage.

HOW IBM'S SOFTWARE CONTRACTS BENEFIT IBM

IBM has a duty to its shareholders (not unlike your own company) to generate as many sales as it can. Its software maintenance contract plays an important role in helping the company drive new sales, which take the form of upgrades.

The software maintenance contract is effectively a 20 percent tax levied on customers for the right to upgrade their assets. In cases where a product hits EOS, businesses could be only getting half of the value they’ve subscribed for. Once the application reaches End of Life (EOL), companies still pay for the software support despite the fact they can’t log calls or submit tickets for it.

Getting customers to upgrade to newer versions benefits IBM too. Software license requirements, for instance, can change from version to version. Where the business may have been in compliance in previous version, they may have to buy extra licenses in newer versions. It’s a scenario that, if overlooked, could surface as another cost in a license audit – which would provide IBM with another source of revenue from its software contracts.

Of course, upgrading directly to the newest version isn’t always the easiest or most affordable option for customers. There’s a chance a company may have to pay a trade-up charge on EOS products to get to the newest version. Add that on top of the fact that the upgrade project itself could be in the millions and it’s easy to see that an IBM software contract is more costly than it initially appears.

At the end of the day, IBM will always try to persuade its customers to upgrade – either directly or indirectly. While older versions may be stable, their sheer existence forces IBM to allocate resources to maintaining them, whether it be keeping skilled IBM experts in-house or simply having to devote attention to a wider range of applications. By forcing upgrades on customers and phasing out older solutions, IBM is able to consolidate its technical talent and narrow down its focus to just a few versions of applications.

With a financial stake now clearly set, it’s easy to see why IBM wants to ensure your business remains engaged in the upgrade cycle. Perhaps that’s why IBM will withdraw support for older versions of software whether they continue to function effectively or not. Of course, each new release should include additional features and functionality – offering some incentive to adhere to IBM’s upgrade cycle – but the impact of those upgrades and whether they’re worth it can be minor and subjective.

The reality is that an IBM software contract cedes control of your software strategy to IBM – and its priorities are slightly different to your company’s. Where one side relies on forced obsolescence and support services priced at a premium to stay in the black, the other can go into the red because of it.

HOW IBM SOFTWARE CONTRACTS IMPACT YOUR BUSINESS

Application stability is the top objective for any CTO. The always-on business requires around-the-clock access to IBM products, so the goal is squarely focused on developing a digital estate that is robust and resistant to outages.  

That’s to say, once the solutions are integrated and running then there must be a very strong business case for upgrading. Otherwise, the trade-off is difficult to justify.

Allowing IBM to dictate the terms of upgrading means giving away substantial control – and potentially the stability of your digital infrastructure too. Forced upgrades place IBM’s need for profit ahead of your company’s operational priorities.

When it comes to legacy systems or those that are not required for line-of-business operations, the need for an upgrade is even more questionable. These IBM® products are stable, reliable and don’t require new features to maintain their value.  

In fact, one of the only justifications for upgrading would be to get support. Because even though a company may pay for software maintenance, there’s no guarantee they’ll be able to log calls and obtain new fixes – it must be on a supported version of that software too.  

All of that is to say that to maintain a reliable, fully functioning digital estate, executives may find that IBM often forces their hand into upgrading just to obtain support.

BREAKING FREE FROM THE IBM SOFTWARE CONTRACT CYCLE

Now we find ourselves caught between a rock and a hard place. It’s obvious that your company can’t leave its applications unsupported. At the same time, it can’t afford to enter into an IBM software contract that forces unwanted upgrade cycles.

So, what’s the only way out of it? Well, maybe it’s to take a look at your IBM software support and see if there’s a better option out there.

One option would be a third-party software support provider like Origina. It allows businesses to extend the longevity of software, avoid unnecessary costs and steer clear of needless risk. Benefits include:

  1. Significant cost reduction: Where the business is currently paying an annually rising fee of 20 percent or more of the original purchase price, third-party support providers like Origina halve that cost. In addition, Origina doesn’t adopt the same commercial principles as IBM by increasing the yearly support costs by 5 percent, as we instead reduce them annually by 7.5 percent.
  2. The freedom to upgrade on your terms: If your legacy applications continue to serve your business needs, your business can maintain that asset for as long as it wants. Factoring in the reduced maintenance costs will help drop the total cost of ownership for legacy software considerably over the life of the contract. Given your IBM® Passport Advantage licenses are perpetual, you’re automatically entitled to the latest commercially available versions right up until your S&S expiry date. You retain the freedom to upgrade to these newer versions after your IBM® S&S has lapsed, putting you in charge of your upgrade strategy. If the business plan changes and you need to upgrade to that newer version coming down the line, you can reinstate your support with IBM® to obtain newer releases and still make commercial savings once it’s not done within a three-year period from your S&S expiry date.
  3. Develop new features: One significant benefit to employing ex-IBM development engineers is the knowledge and experience as to how the software products are constructed. For many Origina customers, the requirement to create new features for their deployed version of the IBM software product is crucial. Origina has created feature enhancements for many of the IBM products we support to prolong the investment our customers make with these software products and ultimately extend their longevity in providing critical business services.
  4. Maintain equal – or better – software support: Origina’s unique operating model gives you direct access to your dedicated IBM® experts 24x7 for each software product under support. These assigned resources remain in place for the support term, resulting in a much more efficient and responsive service in dealing with your IBM product support issues.
  5. Building a best-of-breed IT infrastructure: A well-functioning digital estate that meets the ongoing needs of your business relies on having control of as many of your platforms as possible. That means being able to define when and if upgrades are actually necessary to meet your operational targets – not being forced into an IBM-defined upgrade cycle.

Want to learn how much your company could save by switching to IBM third-party support? Schedule your free Feasibility Assessment today.

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