Software shakedown

Your market is mature, your competition mostly gone, and new customers are hard to come by. So what better way to do business than to shake down your old customers? After all, they're trapped. You've got them wedged between the rock of their mainframe power needs and the hard place of your escalating software prices.

Welcome to the world of mainframe software vendors, which is dominated today by Computer Associates and Compuware but also includes veterans such as IBM, BMC Software, Candle and Sterling Software.

"If users had a choice, they'd throw the whole bunch of vendors out right now," one angry IT vice president at Nabisco told reporter Jaikumar Vijayan, whose Cover Story this week examines the dark side of enterprise software pricing. Another manager had to threaten a lawsuit to get his vendor to back away from an unjustified license fee increase.

As mainframe hardware costs plummet ever lower -- today's $2,270 per MIP has dropped from 1990's more than $100,000 per MIP -- software costs are all too visible as they run endlessly upward. Adding newer, more powerful hardware can mean a substantive hike in licensing and maintenance fees, even though the software adds little corresponding increase in value.

"It's just hostage rates," said one disgusted data center manager.

Now, it's understandable enough that the software vendors would fight to preserve their profit margins. But to do so at the cost of customer goodwill is ultimately a dead-end business strategy. Some of the companies that sell both mainframe hardware and software -- IBM, Hitachi and Amdahl, for example -- have started offering alternatives, such as usage-based pricing to avoid alienating customers. How much more writing on the wall does the rest of the old guard need to see?

Stories like this one are gripping to read but tough to report, since users are often too worried about retaliation to name names, while vendors aren't inclined to comment on their pricing models in public. But you can help us out by speaking up. Let us know what your company is doing about runaway pricing and licensing concerns.

Start a shakedown of your own.

Copyright © 2000 IDG Communications, Inc.

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