For most CIOs, the software roadmap is not entirely their own. New research puts a number on how much of it belongs to someone else: large enterprises say they spend an average of 28% of their software budgets on upgrades, migrations and licensing changes they would not have actively chosen.
The finding comes from a survey of 2,018 senior IT decision-makers in the US and UK, conducted by Censuswide for Origina, an independent software maintenance partner. The results are published with Thinkers50 in a report titled The Software Tax: What does it cost, and who benefits? The report uses “Software Tax” as a figure of speech for the recurring burden in the enterprise software model that consumes money, time, talent and resources, and that organizations have little practical ability to refuse. It does not refer to a government levy.
Paying for changes they doubted
The headline numbers are stark. Some 95% of respondents say their organization has paid for a vendor-driven upgrade, migration or licensing change in the past three years that it believed would reduce performance, reliability or business value. More than half (53%) say this has happened more than once.
The most recent such change cost respondents’ organizations an average of $12.87 million, and the damage was not confined to IT. Innovation was the budget respondents most often said was hit, with hiring and security close behind.
The AI connection
The findings land as many CIOs are under pressure to fund AI and data programs. Asked about the last time an AI or data program was slowed, paused or canceled, 34% said vendor-driven costs made a major contribution to that decision, and 56% said they made a moderate one.
A lopsided relationship
The survey suggests why buyers go along with changes they question. Among respondents:
78% agree that their primary vendor, rather than their own organization, sets the timing and terms of change.
76% say they have very little real leverage in negotiations with major vendors.
80% say moving away from a major software vendor would cause significant business disruption.
“When the alternative to an unwanted upgrade is losing support on systems the business runs on, saying yes is often a rational response,” said Tomás O’Leary, CEO and founder of Origina and a co-author of the report. “That’s exactly the problem. The market has left some of the most experienced technology leaders in the world with little room to refuse.”
Marshall Van Alstyne, a professor at Boston University and the report’s other co-author, pointed to the underlying economics. Once a customer makes relationship-specific investments, he said, the vendor gains leverage that no contract can fully anticipate. His advice to CIOs: “negotiate the exit before the entry. You don’t have to leave a vendor to benefit from being able to.”
The cost in people and hardware
The burden falls on talent as well as budgets. Some 84% of respondents say senior engineering talent “always” or “often” spends time on vendor-driven upgrades rather than building future capability.
James McGlennon, former CIO of Liberty Mutual and a member of Origina’s board, said a single upgrade cycle at his company’s scale could occupy some of its strongest technical people for the better part of a year. “That’s not a one-off cost, it’s a recurring drag on capacity,” he said.
Hardware pays a price too. Ninety-one percent of respondents report scrapping functional hardware in the past three years purely to meet a software vendor’s support deadline, losing an average of 1.65 years of useful hardware life.
Appetite for regulation
Respondents also favor changing the rules. More than nine in ten (91%) would support legislation giving enterprise software customers protections comparable to those in long-term residential rental relationships. And 82% support software-support requirements similar to those placed on hardware manufacturers under EU rules on hardware repairability.
Express Computer is one of India's most respected IT media brands and has been in publication for 24 years running. We cover enterprise technology in all its flavours, including processors, storage, networking, wireless, business applications, cloud computing, analytics, green initiatives and anything that can help companies make the most of their ICT investments. Additionally, we also report on the fast emerging realm of eGovernance in India.