"Going naked," as Scavo calls it, works in very specific scenarios. "When we know we are moving off the platform at the useful end of life of the software, it might make sense not to renew the contract," Yale's Mayes says. But for the most part, the risk is higher than the cost, akin to driving around without auto insurance.
"The question is, how critical is it? If the system is down and you can't get it started, can you go back to the vendor? Or can you get someone else there right away?" Duncan Jones, a senior analyst with Forrester Research, probes. "If the knowledge base of known bugs and patches is out there, it can work. If not…"
Matt Aslett, enterprise software analyst at the 451 Group, describes the risk bluntly: "It would take a brave company to run an ERP [or CRM] application without official support given the criticality and complexity of ERP apps."
Few companies would consider enduring that kind of risk with a mission-critical application. Instead, they would be more likely to consider two popular options to lower enterprise software costs: SaaS (software as a service) or open source. Instead of slogging it on the upgrade treadmill, jump off and try something new.
With SaaS, support costs are similar, but maintenance costs plummet, since the vendor hosts the application. With open source, the business model generally relies on for-pay support, but with a robust enough community, adroit customers may be able to get away with minimal support and rely on the assistance of peers. So far, however, few large companies have made the leap to SaaS or open source enterprise applications.
When subscribing to SaaS applications from the likes of NetSuite, Salesforce.com, SalesNet, or Workday -- or even Oracle or Microsoft SaaS apps -- the host handles upgrades. Be aware, however, that per-seat subscription prices track pretty closely with the conventional licensing, maintenance, and support costs of on-premise software. You get quicker time to market and avoid up-front licensing costs, but factor it all out, and you may not save much, particularly if you add subscription fees to extra-cost options.
[ Is SaaS is a better deal than conventional enterprise software? Read: "Calculating the real cost of SaaS" ]
Open source enterprise applications -- including SugarCRM, Compiere, xTuple, and OpenERP -- are moving into larger organizations, says Ned Lilly, CEO and president of xTuple, the open source ERP provider formerly known as OpenMFG. "We have more and more enterprise CIOs staring down an SAP or Oracle contract renewal, and asking themselves 'why not open source'?" Lilly explains. "Frankly, this is happening a little faster than we'd anticipated."
Perhaps, but for the time being, open source enterprise software appeals primarily to SMBs. "The greater the complexity, the less open source [enterprise applications] provide a viable solution for the enterprise," says Gerry Brown, senior analyst at Bloor Research. Indeed, proprietary or open, customers still need those tax, legal, and regulatory updates, and it's more cost-effective to sign an extensive support contract than to employ an army of experts.
Regardless of whether you're going open source, buying support for a packaged application from Oracle or SAP, or subscribing to SaaS, the trick, according to Tom Pacileo, executive consultant at Compass Consulting, is developing an upgrade road map and balancing the technology so that companies don't overbuy support and not actually need all of what they pay for.
That may be easier said than done. Rimini Street's CEO Ravin claims that up to 70 percent of revenue from support and maintenance contracts actually goes toward software development, so customers wind paying in advance for programs that they may not want or may never get. Plus, companies need the latest versions of applications to take advantage of the most exciting new technology developments, such as SOA and virtualization.
"Businesses don't have the luxury of letting support run out," Yankee's DiDio says. "They get you one way or the other: Pay up front or cross your fingers and pray."