It’s as common as icicles hanging from a Canadian fence this month: the cool reception that HP 3000 customers are giving to fees paid to third-party software firms during system upgrades.

As the HP 3000 marketplace makes its rebound, customers who have long left their systems in place are moving to upgrade. Square in the path of many plans are unexpected software charges, levied simply because the new system is more powerful than its predecessor. The fees are common elements in two of the 3000’s strongest markets, healthcare and manufacturing, as well as in distribution packages.

Software suppliers in the HP 3000 community routinely charge such fees to relicense products customers have licensed for smaller systems. Few firms have sparked the level of protests heard when customers using Cognos 4GL and reporting products describe their upgrades.

Customers running high-end 3000s report that upgrade fees for a Cognos tools such as Quiz or Powerhouse can exceed $120,000, charges to be paid on top of the hardware and operating system licensing for HP 3000. While Cognos customers have been the most vocal on Internet newsgroups and at user meetings, they are not alone in experiencing sticker shock during an upgrade. They are the most numerous, however, a group of 3000 customers who express dismay and surprise while they try to expand their HP 3000 installations to meet business growth.

Riverside Distributors is a Iowa Falls, Iowa-based distributor of Christian products, including Bibles, books, jewelry, videos, music and clothing. More than 35,000 items are shipped from the company’s warehouse, using an application suite built around third-party software products. When MIS director Scott O’Brien planned an upgrade of the HP 3000, he learned that his two third-party software suppliers would charge him fees totaling 77 percent of his hardware upgrade costs.

O’Brien, like a growing number of 3000 customers, wants user-based licensing to help keep costs more equitable.

“This is a technology tax I do not desire to pay,” O’Brien said of the tier-based upgrades. “Charge me for the additional users when I add them — but don’t charge me just because I want to get my work done faster and service my users better.”

Upgrade charges now jeopardize the planned performance improvements HP offers to its 3000 customers, he added. “With HP’s commitment to increasing the performance of the 3000 line 30 percent per year over the next few years, companies that like using the HP 3000 are caught on this technology tax escalator with no easy way off,” he said.

It’s not difficult to find 3000 customers who have had the same experience O’Brien describes. Shawn Gordon, a developer working at a California healthcare company, said his firm looked at a six-figure Cognos upgrade fee and blinked, choosing to rewrite in COBOL and add other programs to improve productivity.

“First they wanted $100,000 to transfer our developer license from a 996 to a 969,” Gordon said. “Then suddenly our support jumped from $5,000 to $30,000. After much screaming and brow-beating, we got it down to $50,000 and $5,000 respectively, still total blood money. So as part of our Y2K remediation and reengineering, we are rewriting everything in COBOL, FrontMan, and DataNOW!. It was almost cheaper to buy the two new products than to pay the PowerHouse annual support. Now we have fast, well- written code that will survive for decades to come.”

3000 customers are making such a choice when faced with bills for upgrading. HP 3000 consultant Cecile Chi reported that one of her customers, upgrading to HP 3000 RISC hardware from a Series 70, found extensive rewriting to be cheaper than a six-figure upgrade bill from Cognos for Quiz.

“Faced with an imminent Y2K problem and concern about running the company on unsupported hardware and software, the decision was finally made to upgrade to a RISC processor,” she said. “The solution to the outrageously-priced report writer was to dump it, even though that meant identifying, deciphering, and rewriting about 16 years’ worth of reports.

“This is not the first client I’ve had that finally had enough,” Chi added. “Another company had the whole [Cognos] package, transaction processor and screen formatter as well as the report writer. It was their only language, but they dumped it rather than pay the upgrade cost, and rewrote everything. Some managers do look beyond the current quarter and realize that it won’t take more than a year or two to recover the cost of replacing exorbitantly-priced tools, and start showing savings.”

Justifying upgrade fees

High-dollar fees for upgrades don’t match the spirit of the new HP 3000 pricing model, one announced in August that reduced HP’s number of system tiers from seven to three. Fewer tiers mean fewer opportunities to charge software upgrade fees — but few software providers who charge by tiers have adopted the new HP tier strategy. HP hoped to encourage software suppliers to revise prices when they introduced the new tier structure, designed to make the 3000 a more attractive value.

“We think there’s an opportunity for the customers to jawbone the various tool providers and application providers,” said HP product planning manager Dave Snow. “We believe we’re trying to lead the way here and encourage ISVs and tool providers to take the same approach.”

Cognos vice president Ed Shepherdson admitted the company’s licensing structure is a holdover from a 3000 market that wasn’t growing.

“We’ve had to react to the quick growth in the HP market,” he said. “HP has stirred up a lot of excellent opportunities. We’re coming out of a platform that’s been dormant for a number of years. We’re hit with this boom, we’re reacting to it and we want to try and get on that HP bandwagon. I think there’s a lot of opportunity there.”

Officially, Cognos doesn’t have a per-user run-time licensing structure, although such licenses do exist in its customer base. The changing 3000 market is prompting revision in the Cognos pricing.

“We are looking at tipping the balance in favor of run-time licensing,” Shepherdson said. “Our forte was the development environment, and now [the 3000 market is] more of a run-time environment. The run-time environment will allow our existing customers to expand their existing applications. We need to balance it off with opportunity to build on the development side.”

Shepherdson said customers and prospects can get Cognos upgrade pricing information if they ask during the sales process. “Most of the time I’m not sure the upgrade structure is laid out or asked about,” he said. “But from our side, we’ll say, ‘Here’s the structure: we are tier-based and here are the issues as you move forward.’ ”

Cognos pricing supports 30 tiers for HP 3000 customers, as opposed to the three tiers now on HP’s price lists. The complexity of the tiers is what determines the amount of upgrade fees charged, something Shepherdson said is being looked at for the coming fiscal year.

“We need to look at it now to see how we can embrace this, to bring [our pricing down] to a similar tiered structure,” Shepherdson said. “We have been looking at our pricing mechanism and upgrade policies and tiers to make sure we align with HP. Our fiscal year ends in February. We’ll probably kick off the new [fiscal] year with some structure like that.”

Now that HP has reduced the cost of its 3000 hardware and operating systems, “there’s an tendency to expect that same level of discounting will come through on the software,” Shepherdson said. “When the hardware becomes attractive to upgrade, the software costs become a bigger factor in the overall purchase plan.”

Some parts of the HP customer base pay for upgrading Cognos software without knowing about it. Amisys customers use a healthcare application built largely upon Powerhouse code, so upgrades in this customer base include payments to Cognos. The fees go to Amisys as part of its upgrade structure, rather than as a separate payment to Cognos.

HP 3000s being upgraded to run MANMAN for manufacturing operations will face an upgrade fee for Quiz, the Cognos report writer which MANMAN VARs commonly sold with the software. Many aren’t aware of the Cognos upgrade licensing policies.

“They weren’t told a lot when they purchased Quiz,” Shepherdson said of these 3000 customers, “and some of that is where they’re experiencing sticker shock.” He added that Cognos is offering a program for MANMAN sites to get them back on Quiz support by paying only one year in advance — instead of the standard Cognos one year back, one year forward program.

Avoiding the shock

MIS managers and software suppliers advise that customers know as much as possible about costs through the life of ownership, before committing to a package. Some software vendors make this simpler by charging a one-time fee for software, regardless of future upgrades. Adager and Robelle, two of the longest-standing 3000 software suppliers, work with flat-rate structures, meaning no tiers apply and no upgrade fees are ever charged.

“People get upset whenever they’re surprised,” said Adager’s Rene Woc. “Obviously everyone wants to pay as little as possible. I think the main thing is knowing what they are up against in the future when they move. No one likes to go to their managers again and say, ‘I screwed up.’ ”

Such simplified license structures without upgrade fees can look less attractive to smaller shops. “Some people might say the lower-end [customers] are overpaying,” Woc said. “You can always twist the arguments, like any political debate. A good way of looking at it is going back to the days when there was no tier-based pricing to see what the prices were then — and then seeing whether today’s lower-end [tier license fees] have a lower price than that, or if that’s where the prices start.”

3000 administrators moving through their first upgrade in many years need to survey all software suppliers while budgeting for the process. Meanwhile, customers are beginning to look at HP’s simpler tier structure as the new standard for pricing — and waiting for third-party companies to adopt the same value model.