You won't know you've been mugged until it is too late

So here's the picture. You are a large software supplier poring over your sales forecasts. Computer industry growth is pegged...

So here's the picture. You are a large software supplier poring over your sales forecasts. Computer industry growth is pegged below 8% and margins are tight. In a tough year, which becomes tougher as every day passes, there is a real concern that your next set of results could be even worse than the last and your shareholders are becoming twitchy.

Do you tighten your belt, leave prices as they are and hope that you are not seeing the first evidence of a recession? Or do you try and find more imaginative ways of squeezing your customers; perhaps tweaking the maintenance contract or maybe even joining the rush towards a subscription-based (ASP) licensing model for your software?

Of course, nobody would ever suggest that "squeezing" would occur in any respectable software company, but in July, strangely enough, many of Lotus Development's Passport Advantage volume licensing programme clients woke up one morning to find that maintenance was likely to cost a great deal more by the end of August.

Now, I am told, this only looked more expensive because Lotus was very generously repackaging its support - I am simplifying the argument here - but the customer, much like facing an increase in the cost of a TV licence, didn't really have much say in the matter.

There was a time when support was free, or at least was included in the price of the software. But then every leading supplier discovered how lucrative "premium" support could be.

However, after a decade or so, enterprise customers could more or less look after their software themselves, and maintenance was more of an upgrade process. Support started to resemble the extended warranty that salesmen try to sell you with your new television and, if you can't encourage the customer to buy support as an option, then you very generously bundle maintenance with the product. Of course, there may be a small surcharge of 30%, accompanied by a friendly smile and an apologetic shrug of the salesman's shoulders, "overheads and administration charges, you know".

What concerns me today, is that managing your IT investment requires at least a small amount of predictability. You can factor in a sensible level of uncertainty where the costs of licensing or maintenance are involved, but what you perceive as reasonable or sensible may no longer have any validity in the eyes of a software giant on another continent.

You may have bought the licences, but big software suppliers, just like the Government, still need to raise revenues from reluctant customers.

The writing has been on the wall for everyone to read this year, whether the message happens to come from Lotus Development or Microsoft. The giants of this industry are poised to pick you up by your feet and shake the loose change out of your pockets. They will do this so very politely and with such a reasonable argument that few businesses will recognise they have been mugged until it is too late.

Simon Moores is chairman of the Research Group
www.drmoores.com/

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