What's going on with software support? Quite a bit, actually. Recently, my company has been working closely with some major players in the industry. Some are large software publishers; some are systems companies that have a growing support business. Late last year I even went on a multi-city tour teaching the basics of services marketing to smaller software businesses. Since the August editorial calendar for this magazine calls out software support as a focus, this is a good time to share what companies are telling us.

Software Support Revenue and Margin Trends
Software support revenues are growing at 10 to 12 percent per year—faster in some industry segments. Margins are highly variable, however. For many companies, desktop support is losing money. Gross margins are only four to eight percent at some of the major vendors we surveyed recently, which says that these services lose money after the application of overhead. In the NT software space, margins are typically better, but still gross margins reported to us ranged from 15 to 20 percent, so they are breaking even, at best. Proprietary software does better by far, with gross margins in the 30 to 50 percent range and even higher (60 to 78 percent) in some vertical markets. This tells us where the money is. It kind of makes you wonder why anyone would go after the desktop support market if they didn't have to, doesn't it?

Support Contract Prices
Many people ask me about pricing annual support contracts. My first point of advice is to not publish your prices as a percentage of software license fees. This is easy, and product salespeople like it because it is simple, but it puts you too much at the mercy of product pricing fluctuations. With that caveat, I will now proceed to discuss annual support contract pricing using percent of software list as a way to compare prices. I analyze prices mathematically by extracting the percentages even when they are not published or presented that way. It helps me to make sense of actual pricing levels and to communicate with you about it. So it is good for comparison and discussion, but not so good as a way to publish a price list.
     For software that sells above $1,000, we frequently find three levels of support as depicted in Figure 1—basic, standard and premium. These are descriptive, not marketing terms. Sometimes they are called bronze, silver and gold. I have seen platinum used as well, and recently I received a solicitation for a titanium credit card, so I expect that precious metals will continue to be used. In our example, basic would include software updates and probably upgrades, as well as various forms of automated support such as access to problem/solution databases, CD-ROMs, frequently asked questions (FAQs) via fax or the Internet and the ability to e-mail questions. It would not include any telephone support. That would be found in the next level, standard, which would also include all the ingredients found in basic support. Basic and standard are typically business hours of coverage. Premium support would extend this to 7-day, 24-hour coverage with immediate response and an assigned team to receive support calls. Typical pricing for this array of three levels would be six percent of product list for basic, 12 percent for standard, and 24 to 25 percent for premium. For lower priced desktop software, the basic level is often free, leaving two other levels (precious metals are not usually used in this end of the market). Those price points tend to start at around $100 to $149 for the lowest level. Premium programs are likely to be priced at $189 to $249 or higher. At this low price, there is no particular relationship between contract and software prices.

Per-Incident, Per-Minute and CallPack Prices
Per-incident support prices have pretty well moved from $25 to $35 on the desktop, probably because everyone was losing money. Per-minute prices for 900- numbers are running from $1.99 to $3.99, with the average at $2.49.
Call Packs are getting more common, particularly for NT. These are often sold in lots of 75 with prices averaging from $81 to $386 per incident. As far as I can tell, the jury is still out with regard to user acceptance of CallPacks, but vendors seem to like them, so there are lots of new offerings in this style.

Last Words
So what is the significance of these trends and offerings? Well, software support is growing nicely, but profitability requires some care. Support is receiving an increasing amount of sophisticated marketing, with offerings and prices changing rapidly. I strongly believe that software support is an important evolutionary step for service providers moving into consulting and other professional services. We still see some industry segments, most notably medical equipment, which provide support at no charge. This needs to change, and will change soon. Similarly, there are still a few software publishers that offer free support. If you haven't jumped on the bandwagon yet, hop on, before the rest of the world passes you by.

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