* Everything Is Optional. "In the world of licensed on-premises software, the application upgrades are optional, at least until release support deadlines become a factor," Hamerman writes. "The optional nature of upgrades means that neither IT apps professionals nor business stakeholders plan and budget for them on a regular basis; therefore the upgrade costs are usually not factored in as part of the ongoing costs of ownership."
* Upgrade Costs Are Hard to Estimate. Most often, enterprise software upgrades are massive IT projects which necessitate external IT help and skillsets. "Estimating the cost of an upgrade involves a number of variables, including the level of customization, whether prior releases were skipped, the extent of new functionality to be deployed, the stability of the new release, and the impact on integration with other systems," Hamerman writes. "Elaborate planning and justification are usually required by the finance department and IT leadership to fund major upgrade projects."
For the software vendors, upgrades are as vital as new license deals. Hamerman notes that well-known vendors (such as Oracle, SAP, Microsoft and Lawson) "require customers to upgrade within five to seven years to avoid loss of support or increased support costs via extended maintenance programs," he states. "From a vendor perspective, a customer that upgrades is a more profitable customer, pure and simple."
So how are vendors' upgrade marketing pushes faring today? According to Forrester research, 5% to 10% of enterprise software vendors' customers move to the latest release; 40% to 50% of customers stay on the release prior to the latest one; and 40% to 50% remain on older releases--including 10% to 20% of the customer base who stay on releases that are no longer fully supported by the vendor.
Looking at SAP, in particular, Hamerman states that half of its customer base has fallen behind on upgrades.
For customers who remain on older releases, Hamerman notes, the propensity to upgrade becomes less imperative with each succeeding new release. "They lack the resources to invest in the upgrade project," he writes. "High levels of customization make an upgrade impractical, and upgrades become more difficult when releases are skipped, due to schema and architectural changes."