Large enterprises report spending an average of 28% of their software budgets on upgrades, migrations and licensing changes they would not have chosen, a survey shows.
In total, 95% of information technology (IT) leaders surveyed said their organization had paid in the past three years for a vendor-driven upgrade it believed would reduce performance, reliability or business value. The latest such change cost an average of $12.87 million.
“When the alternative to an unwanted upgrade is losing support on systems the business runs on, saying yes is often a rational response. That’s exactly the problem,” said Tomás O’Leary, founder and chief executive of Origina.
“The market has left some of the most experienced technology leaders in the world with little room to refuse, and that cost shows up in budgets, in engineering time and in innovation that never gets funded. We want to make that cost visible so customers can start to take back control of it,” he said.
Origina, a Dublin-based independent software maintenance provider, commissioned the research and published it in a report with Thinkers50.
Censuswide surveyed 2,018 chief information officers (CIOs) and senior IT decision-makers in the US and UK in May at organizations with revenues of at least $1 billion or 10,000 or more employees.
Most said they have little room to push back:
78% said their main vendor sets the timing and terms of change
76% said they have very little real leverage in negotiations
80% said leaving a major vendor would cause significant disruption
Respondents most often named innovation as the budget hit by these costs, with hiring and security close behind.
Asked about the last time an artificial intelligence (AI) or data program was slowed, paused or canceled, 34% said vendor-driven costs had made a major contribution and 56% a moderate one.
Some 91% said they had scrapped functional hardware in the past three years purely to meet a vendor’s support deadline, losing an average of 1.65 years of useful life. Meanwhile, 84% said senior engineers always or often spend time on vendor 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 the insurer’s scale could occupy some of its strongest technical people for most of a year, a cost that recurs every year.
More than nine in 10 respondents (91%) would back legislation giving software customers protections like those of long-term residential tenants.
Marshall Van Alstyne, a Boston University professor who co-wrote the report with O’Leary, said customers who make relationship-specific investments hand vendors leverage no contract can fully anticipate. He said CIOs should negotiate the exit before the entry, because the ability to leave has value even if they don't leave.
The report sets out steps to reduce lock-in, from modular software architecture to contracts that settle foreseeable decisions before customers commit.