E-MailSoftware Upgrade Fees or Protection Tax?
"The current prevailing mechanism of software pricing is doomed," asserts the Cutter Business Technology Council in a new Council Opinion written by Cutter Consortium Fellows, Tom DeMarco, Dr. Robert D. Austin, Christine Davis, Lynne Ellyn, Tim Lister and Ed Yourdon.
The original price you pay for software is only part of the revenue stream that supports software vendors. A more significant piece comes from the upgrade fees you pay on a recurring basis. "While upgrading a given product from version 1.0 to 1.1 may feel like a worthwhile investment, being obliged to pay good money to upgrade from version 10.3.4 to 10.3.5 looks more like a protection racket. In the long run, the market will not allow this kind of abuse to continue," says DeMarco.
"It is perfectly feasible to build software for total backward compatibility. Full backward compatibility could be a system requirement of each new version of anything. It could be, but it isn't. And you can guess why. There is an unwritten rule in effect between the makers of applications software and the makers of operating systems: you scratch my back, and I'll scratch yours.
"The pressure to upgrade is a mechanism to guarantee continued earnings for the company that sold you a piece of software. The going price of new software products is not enough to ensure long-term survival to the vendors. And the vendors are not clever enough to keep inventing new products to bring in revenue. The upgrade cycle has become their cash cow. But it can't last," says Tom DeMarco.
DeMarco suggests that so far the market has shown a great reluctance to be switched from software ownership to software rental. But that in the long term, this will be a better arrangement for all, and at minimum, it will save organizations a lot of time spent spinning their wheels on pointless upgrades.
Rob Austin concurs, "In a world fully transitioned to iterative making, we will pay for things iteratively. We'll pay for software in proportion to the value it adds each time, as measured in some mutually agreed manner. This will, in effect, be a services model. Companies that keep trying to use network effects to extract monopoly prices will look less and less attractive compared to companies offering to accept services fees more synchronized with actual value. Monopolists will fight this, but they'll lose. Predicting timing is always tricky, but this is an idea whose time is coming, sooner or later."
Lynne Ellyn, Cutter Fellow and CIO of DTE Energy concludes, "The 'protection tax' that is paid by IT departments for software support is an adjunct of the crazy complex interdependencies of operating systems, middleware, applications, and database technologies. It is tempting to imagine that the software vendors are plotting against their customers by forcing expensive upgrades and even collaborating with other vendors to force multiple product upgrades when one product must be upgraded. Certainly, vendors have exploited the situation, but I don't believe that software vendors colluded to create the situation. In fact, I believe that the problem is nearly as frustrating to the software vendors as it is to the customers. The problem is an unintended consequence of the dynamic nature of business and the equally dynamic software that is developed for solving business needs."
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