Why VMS Annual Fees are UnfairBy: John Honovich, Published on Jul 12, 2012
VMS annual fees are generally unfair and harmful to users. This is a growing problem as more surveillance users migrate to software only systems that regularly use them. In this note, we explain the problems involved so you can prepare yourself.
In addition to an up-front software license fee, many VMS providers charge an annual fee, typically between 15 and 20% of the up-front license, providing access to software upgrades. For example, a user with a 100 camera system might pay $20,000 up front and then ~$3,000 each year thereafter. Without paying the annual fees, you will not receive any updates.
For background and integrator's perceptions on them, see our VMS annual license survey results.
The two most common justifications VMS vendors make for these fees are:
- Software Costs Money: Developing new software costs substantial amounts of money so the VMS vendors need a way to get paid for the new features and improvements they roll out.
- IT does it: VMS vendors regularly cite how common this is with enterprise IT systems. The implications are (1) this is a regular business practice and (2) if you do not accept it, you are a Neanderthal security guy.
With these noted, let's examine the problems we find.
Annual vs. Incremental
Typically, VMS vendors only allow software upgrades via annual licenses. You generally cannot just buy an upgrade from one version to another (e.g., from 3 to 4) when you want. You have to buy the annual license each year which may not include any specific upgrade you want. For instance, with Windows OS, you might buy XP in 2005 and then not pay Microsoft anything for OS licensing until 2010 when you purchased an upgrade to Windows 7. With VMSes, you would typically pay each year (2005, 2006, 2007, 2008, etc.) regardless of what upgrades you were getting.
Don't Know What You Are Getting
VMS annual licensing is typically paid upfront for the following 12 months (or longer). While the VMS vendor may give an overview of the roadmap, even they typically are not certain what or when they will release more than 6 months in the future. As such, the buyer takes the risk that the software upgrades will not be useful or not even come.
Penalties for Missing
Perhaps the trickiest part of annual licensing fees is that you have to pay them each and every year or you face significant penalties. For instance, let's say you bought a VMS in 2008 and paid annual fees in 2009 and 2010 but you failed to pay in 2011. Now, in 2012, you would either need to buy all new licenses or back pay the year you missed (often plus additional fees).
Because of this structure, you typically need to pay every year, regardless of what you are getting for the particular year or never pay and only upgrade your system every 5 years (or more) when you do a major overhaul.
All or Nothing
VMS vendors generally bundle all new features into a single package, rarely allowing users to purchase upgrades for specific functions. For instance, let's say you only need to add a new camera that is not supported in your existing VMS version. Generally, you would have to buy the whole annual license even if the other X number of features were not relevant to you. As such, it can be wasteful.
Obscured / Surprise
VMS vendors typically obscure or downplay annual licenses as they recognize that these back end costs are substantial and can be a big negative in purchasing. Morevoer, these licenses are not common with traditional DVR systems so many surveillance purchasers do not expect them. The combination creates for some unpleasant surprises.
VMS vendors can change their terms at will, substantially increasing a customer's cost. For instance, recently, Milestone quietly changed two key terms in their annual license program that significantly increases the need to pay annually.
- Camera Support restrictions: Milestone used to allow upgrades for camera support even without an annual license. This is now restricted to the current and following major software versions.
- Greater penalty for not paying annual fees: Previously, if you did not pay their annual fee, you could upgrade to the current version and get a 50% credit for your past purchases. Now, this is dropped to 30%.
While VMS vendors like Milestone will emphasize that open platforms allow for switching VMSes (here's how), they also realize that it is painful and costly to do so.
The combinations of rigid structure and often unforeseen costs frequently results in nasty negotiations between VMS vendors and their customers. While not promoted, VMS vendors regularly offer major discounts to their annual license fees to overcome these issues.
Bad Business Practices
While these tactics may not be unethical, they are certainly bad business practice. It is a classic ‘win-lose' proposition that leaves many buyers feeling taken advantage of.
Obviously, customers realize that they need to pay more for new features, just not via the common tactics VMS vendor's employee. They can increase good will and customer satisfaction by doing so in ways that are more straightforward. Here are two ways:
- Version Upgrade - Allow customers to pay to upgrade from one major version to the next, regardless of the year or annual payment status.
- Feature Upgrade - Allow customers to buy only certain feature sets that they need, most importantly new/added camera support.