Enterprise software vendor R&D investments declining

Enterprise software vendors such as SAP, Oracle, Lawson, and others often argue that their maintenance revenues are essential in funding their R&D efforts. These ensure that their products are kept current with new technologies and customer investments in their systems are preserved.

But Jason Carter just blew a hole in that argument. He calculates a new metric: R&D spending as a percentage of maintenance revenue. His calculations show that for SAP, Oracle, Lawson, and Epicor, R&D spending as a ratio to maintenance revenue has actually declined since 2001. (He also reports on Sage, but the results are confusing because of how Sage reports its financials.)

Jason can tell you the whole story. Read his post, The Broken Promise of Software Maintenance Fees.

Further thought: The vendors' argument in defense of maintenance revenue makes no sense.

• First, they argue that their maintenance revenue is needed to fund their new development. But Jason's findings show that R&D as a percentage of maintenance revenues are declining. So much for that rationale.
  
  
• Second, it is without a doubt that recurring maintenance revenues are the way that Oracle and SAP, among others, have been funding their acquisition programs. But most of the functionality acquired by SAP and Oracle is not available freely to existing customers. For example, SAP does not make Business Objects products freely available to SAP customers. So customers pay twice: first to fund the vendors' acquisition programs, and then again if they want to use those acquired products.

Vinnie's thoughts on this subject.

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