Overview

A software product competes with "any and all" product in the market in its own hemisphere - constantly trying to offer more features, updates to its users. Successful software products create their own challenges - demand for new features, latest technology, pressure to minimize upgrade problems and reduce prices. Companies sustaining software products must upgrade software faster, minimize bugs with each release, support customers at all levels, and maintain satisfaction levels. Post-market existence comprises the majority of the lifecycle of a software product and must be scientifically maintained in order to manifest the product's full capability and return on investment. So what's the buzz word here? It is "sustenance". Let's first try and understand a little about what is sustenance?

In 2006, IDC's prediction for software maintenance revenue, $96.56 billion, was very close to the actual revenue, which reached $96.62 billion. This means that maintenance revenue grew a healthy 11.8% from 2005 to 2006.

Definition

Sustenance: is an agreement between the licensee and software developer through which the developer continues to improve the packaged software product by repairing known faults and errors or enhancing and updating the product. It may also include technical support.

Definitions of specific maintenance activities are as follows:

• Update: Interim release adding features or functionality to an existing program
• Upgrade: Is a subsequent major release of an existing program
• Repair/Patch: Rectifying bugs or faults to ensure that it works as it is supposed to
• Technical Support: Provide assistance for end-users via telephone/online

Future Outlook

IDC expects software maintenance revenue to increase at an 8.9% compound annual growth rate (CAGR) to reach $147.9 billion by 2011. By end of 2011, software maintenance revenue is expected to touch a whopping $ 147,963 mn, accounting for a 44.9% share of the total software life cycle.

This significant growth from the maintenance/sustenance is based on certain assumptions drawn up by IDC. Increase in hardware performance, maintenance costs, licensing technologies, volume licensing, etc.

Some of the big ticket reasons with very high probability of churning revenues during the forecast period are

• Traditional software vendors for whom a large percentage of their revenues comes from mature markets, guaranteeing a large maintenance base.
• Volume licensing: Enterprise agreements requiring high volume customers to buy maintenance services.
• High customer retention: Service providers will focus on making maintenance offerings more attractive to ensure high customer retention.

As per Giga Research, a wholly owned subsidiary of Forrester Research, Inc., North American and European companies should not consider China a viable location for software development and maintenance support. The market is too immature, and the problems associated with this immaturity - a lack of English language skills, the legal and regulatory environment and lack of intellectual property laws - make China too risky today. For Japanese and Korean companies, China is a much more viable option primarily due to the language affinity and the close proximity to China.

Companies should look for value-based pricing rather than the lowest possible price. The nascent trend of companies using reverse auction bidding to select offshore vendors is a dangerous one - it could result in a low prices, but also low value and low customer satisfaction.