The high cost of support < Real Story Group Blog. ByAlan Pelz-Sharpe
In many end-user organizations, software support fees can make up the bulk of the yearly IT budget.
This is hardly surprising when vendors typically like to calculate support contracts on the basis of ~20% of list pricing per annum, in perpetuity. So for example on a $1m software deal (list price) you will typically pay around $200k per year in ongoing fees. Even if you negotiate the initial licensing costs down to $500k, you may still pay $200k per year in support fees, if the vendor calculates this against list.
Twenty percent of list price is a lot of money, and just as these fees can make up the bulk of a firm’s yearly IT expenditure, so too do they make up the bulk of many software vendors revenues. Since support is also very lucrative, anticipated future streams also represent a critical part of vendors’ stock valuations.
Hence whilst vendors will usually negotiate on up-front license costs — in some cases to the point where they are virtually giving the licenses away for free — they will be very reluctant to move on the support fees.