Archive for the ‘Software Negotiations’ Category

Software Warranties – Make Some Hay

Monday, July 6th, 2009

Makin' HayProduct Warranties in General – When we think of product warranties, we tend to think of things like an automobile warranty. You buy a new car, and the manufacturer warrants that it will fix manufacturing defects for four years or 48,000 miles, whichever comes first, at no charge to you. We all know what the warranty means, what the typical limitations are (e.g., normal wear and tear), and most of us have personal experience with making an auto warranty claim.

Standard Software Warranty – When it comes to software, however, the notion of a warranty is less clear to most. If you have ever read a software license, you know its warranty provision is long and wordy, many paragraphs appear in all cap’s (presumably to call attention to their special importance), and there is actually very little the vendor warrants. Normally a vendor will warrant only that its software “will perform substantially in accordance with its Documentation.” The remainder of the long warranty provision is devoted to establishing numerous exceptions and disclaimers to the already stingy grant of warranty.

Origin of the Standard Software Warranty – This type of software warranty provision was born at the beginning of our “software era,” when it was common for vendors to sell software that was truly “still in development.” Also, the platforms running software at the time were unstable. Under these circumstances, software vendors found it necessary to limit their exposure to warranty claims and consequential damages (“our software is not perfect, it may or may not do what you want it to do, and in all events, we’re not liable if our software causes your system to crash and you lose data, productivity and profits”).

Things Have Changed – Obviously, things are much different now. Within any software market segment today there are lots of competent vendors, and the increased competition (some call it “commoditization” of the software industry) has pretty much eliminated poor state of development at time of sale (Microsoft Vista aside). Technology platforms are also more robust and stable. All of these positive developments would suggest that software vendors could loosen up a bit and start offering more and better warranties for their products. Yet, the standard software warranty has not changed a bit.

Software Vendors Have Not Changed – Although software vendors could (comfortably) offer better warranties these days, they have no real incentive to do so. As long as the industry sticks with the same archaic and vacuous warranty provision, there is really no incentive for a given software vendor to offer anything more. The fact is, if you want more, you have to ask for it. And when you ask for more, be prepared to negotiate for it.

Change is Up to You – I have two bits of advice for you. First, stop thinking of software warranty provisions as being off-limits and non-negotiable. Just like every other contract provision, software warranty provisions are negotiable.

Second, start thinking of software warranties in broader terms. There are many aspects of your software purchases that are appropriate for your vendors to warrant, but they are usually overlooked by most buyers.

For example, consider integration issues. If you have been led to believe a software package is “fully integrated” with the ubiquitous SoftCo Communicator application—whether from reading a sales brochure, listening to sales pitches, or whatever—and this integration is important to you, then ask your software vendor to warrant its integration with this other product. More specifically, ask the vendor to warrant integration with your particular version and configuration of SoftCo Communicator.

As another example, consider sales materials in general. Do you want your software vendor to acknowledge that you relied upon its sales materials in making your buying decision, and to warrant that the sales materials are accurate and do not contain any misrepresentations? Should the sales materials be incorporated into your License Agreement?

What about use cases and demos? Are there aspects of either that stood out to your project team? Could and should these aspects be converted to warranties?

These are but a few examples. There are literally dozens of buyer-favorable warranty elements that should attach to any software purchase. You simply have to think about what is important to you—what will lower your risk, give you more and stronger rights, and in general, give you greater comfort.

Remedies – Remember, too, that for every special warranty element you seek, think about an appropriate remedy for its breach. Software vendors will often attempt to limit their liability to buy-back of their software (which is often enough), but think about going for more in special cases. For example, if your software vendor will be extending or customizing its software for you to some degree, you should think about recovery of service fees incurred up to the point where you hit the brick wall (breach of warranty is discovered).

Expected Outcomes – Whether and to what extent you get your enhanced warranty requests reduced to writing will be largely up to you and your negotiating ability. When a particular request is met with strong resistance from your vendor, there is usually a good reason. You did not get your SoftCo Communicator integration warranty, but you know why. The state of integration was overstated, and worse still, overstated in ways that are especially important to you. You did not get the warranty, but you now have better information about an important aspect of your buying decision—information that might not have come to light had you not taken an expansive approach to software warranties.

Tags:, , , , , , , , , , , , ,
Posted in Software Licensing, Software Negotiations | No Comments »

Software Asset Management – Hard Alone But Afraid To Go Outside

Wednesday, June 17th, 2009

crewWHERE ARE YOU ON THE SOFTWARE ASSET MANAGEMENT CONTINUUM?

Empty or Full – When it comes to Software Asset Management (SAM), organizations find themselves somewhere between two extremes: doing next to nothing to manage their software license and maintenance expense, and aggressively managing the expense. During the current recession, many organizations have gotten serious about SAM because it can produce some immediate and substantial cost savings. Those who have done nothing historically are making their first foray into SAM, and those who have done some SAM historically are looking at doing more.

Options – Organizations have two basic options for SAM. They can either run a SAM program solely with internal resources, or they can hire a third-party SAM provider. Running a SAM program solely with internal resources is a challenge for most organizations, but hiring a SAM provider is not always the welcome alternative. CXOs fear that the SAM provider they hire will uncover substantial savings (the very goal of the engagement), which may lead some within the organization to believe, after the fact, that the CXO has been asleep at the wheel—that the CXO herself or himself should have produced the same savings, and long ago (an unintended consequence of the engagement). But this fear is largely unfounded.

WHY IS SAM DIFFICULT TO PULL OFF WITH IN-HOUSE RESOURCES ALONE?

Essence of SAM – The most effective SAM programs involve a multi- and inter-disciplinary approach requiring IT management, administrative, business lead, business process, accounting (including tax), and licensing (intellectual property) elements of expertise. For an optimal SAM program, an organization cannot bring to bear just one, presumed-dominant element of expertise or an incomplete set of elements.

Silos – Within most organizations, these requisite elements of SAM expertise are housed within separate silos. Sometimes a required element is missing entirely (e.g., the licensing expertise). Further, in most organizations folks tend to operate mainly within their respective silos, with little cross-disciplinary interaction. In fact, even when preferred or necessary, it is usually very difficult to get one silo to work effectively with another. Ninety percent of the time this is okay, but SAM is one example of the 10% of the time when it is not okay (not optimal).

Dynamic Process – An effective SAM process cannot be accomplished incrementally or in counterpart (e.g., Silo A does its piece and hands off to Silo B, and so on). The process is very much dynamic and interdependent, requiring interaction among otherwise disparate sources of organizational knowledge and expertise.

WHY ARE CXOs FEARFUL OF SAM PROVIDERS?

Misplaced Sense of Blame – Given the (accepted) status quo across corporate America—silos operating independently with little cross-talk—it would be a mistake to characterize a SAM exercise as “fixing a problem.” “Problem” suggests that fault or blame can be ascribed to someone, and this is what gives CXOs anxiety in the SAM context. It doesn’t matter whether a SAM provider is talking to a CFO or a CIO. Either might feel responsible for not finding the savings that the SAM provider found, and neither would want their CEO to form the impression after the fact that they have been asleep at the wheel. So, either might be reluctant to hire the SAM provider. Because of ostensible blame, any CXO might be reluctant to hire the SAM provider. The blame does not fall squarely on the CXO’s shoulders, but neither would the CXO be conclusively exonerated. In this netherworld of blame, the CXO’s default position is possible blame, and so the SAM provider does not get hired.

Fear Is Unfounded – Here is the critical distinction that CXOs should bear in mind when they are thinking about hiring a SAM provider. Because SAM is not the responsibility of any one silo (and should not be because no one silo could accomplish SAM by itself), the head of any one silo should not be put under an umbrella of suspicion after a SAM exercise is completed. SAM requires a multi-silo effort that is difficult to pull off in any organization, and it requires elements of expertise that might not exist within any silo. If anyone is “to blame” after an effective SAM exercise, it would be the heads of ALL silos for not working together in the past on SAM. But again, silos not working together is the accepted norm, so even blaming all silo heads is not very useful (beyond the slight emotional benefit it may give a CEO).

I realize that “should not” be put under an umbrella of suspicion is not the same as “will not” be put under an umbrella of suspicion. But bear with me here.

Test – To test my “blameless” hypothesis, think about this situation. If you were a large, software-intensive organization, and you wanted to hire a full-time SAM expert (assuming you could find a single individual with the requisite skills), where would you place that person within your organization? To whom would this person report? Accounting? IT? Purchasing? Administration? The head of the main revenue-generating business unit? The CEO? Settling upon the ultimate reporting structure would be difficult, and most organizations would probably opt for multiple reporting paths leading ultimately up to the CEO.

I think this example illustrates the multi- and inter-disciplinary nature of SAM, and by extension, the blamelessness of any single silo head for the historical lack of a meaningful SAM “facility” within an organization.

Test 2 – CapCo wanted to replace its 20 year-old, home-cooked HRIS. It needed only 6 PeopleSoft modules to replicate existing functionality, but it bought 6 extra modules at a steep discount (the decision of the VP of HR). Five years later, the extra six modules still have not been deployed, but CapCo has been paying maintenance and support for those licensed modules. Who’s to blame for this unnecessary spending? IT? VP of HR? Accounting? Purchasing?

I would say it’s hard to fairly blame anyone. The VP of HR may have made a good decision at the time. IT was too busy to get the other modules up and running, and HR never expressed a need. Purchasing kept paying the maintenance fees on the extra modules because the licensures were in effect (probably having no idea the modules were not being used).

GETTING PAST THE FEAR FACTOR

Your goal is to take advantage of a rare opportunity (you pay your SAM provider nothing unless it produces savings for you) and cover your butt at the same time (not getting blamed for not producing the same savings yourself).

Here’s how you achieve your goal. By the way, your SAM provider will be happy to work with you on these items.

  1. Emphasize to your boss and constituents early and often that your provider offers a multi- and inter-disciplinary approach to SAM. Within any organization, Accounting couldn’t pull off an effective SAM exercise alone any more than IT could pull it off alone.
  2. Assure your boss and constituents that, because it requires a multi- and inter-disciplinary effort, most organizations do not have an effective SAM program (silos, little cross-talk, missing expertise, etc.). “We’re not alone,” and without saying it directly, you imply that “You’re not to blame.” “We’re the norm and not the exception, and there are some valid reasons why the norm exists.”
  3. Explain to your boss and constituents that your SAM provider will bring specialized expertise to the table (filling any gaps in the organization’s expertise), and it will serve as a cohesive force, bringing the organization’s disparate sources of knowledge and expertise together to get the job done. It will provide the (heretofore missing) catalyst that will join the Red Silo and the Green Silo at the hip, at least temporarily.
  4. Emphasize to your boss and constituents that, at the end of the process, your SAM provider will recognize the contributions of your various silos. Without the silo dwellers, your SAM provider would not have been able to get the job done. And without your SAM provider, the silo dwellers would not have been able to get the job done. Everyone is a winner, and no one is to blame for not having achieved this success with internal resources alone.

Item 4 is a way to convert “should not be under an umbrella of suspicion” to “will not be under an umbrella of suspicion.” The chain reaction could not have occurred without the catalyst (your SAM provider). In other words, you want to give your boss and constituents the assurance at the outset that the process itself (in sort of a self-revealing way)—as well as the final report or executive summary—will make it abundantly clear to onlookers that the process simply would never have occurred within your organization in the normal course (at least not with the same level of success) because it is so far removed from the status quo. And no one is to blame for that.

Tags:, , , , , , , , , , , , , , , , , , , ,
Posted in Software Buyer Habits, Software Licensing, Software Negotiations, Technology Procurement | 2 Comments »

Reducing Software Maintenance Expense – Plant a Seed Approach

Sunday, June 7th, 2009

plant-a-seedSERIES: Software Mainenance Costs – Pop The Bubble – Part 3

View Part 1 or Part 2.

PLANT A SEED APPROACH

Like the Quick and Dirty Approach, the Plant a Seed Approach is for those with minimal time and resources available to orchestrate a full-blown software maintenance re-negotiation process, but it can also be useful for those who will undertake a more comprehensive approach down the road. This approach by itself is usually not optimal for the average software portfolio owner, but it’s better than doing nothing. It’s not as good as the Quick and Dirty approach in that it does not produce immediate (within days) cost savings, but it’s better than the Quick and Dirty approach because it leaves more doors open.

The Basic Premise – The basic premise of the Plant a Seed Approach is to create the impression in the minds of your software vendors that you are looking to adjust your software license structures, reduce fees (both license and maintenance), and in the broadest terms, extract more value from your software portfolio.

How to Pull It Off – Contact the sales rep’ for each of your deployed software vendors. You can make contact by phone, e-mail, or both. Explain to each rep’ that you have been tasked with the stuff in the basic premise above (adjust software license structures, etc.). Then you invite each sale rep’ to join in your effort by providing some necessary information and offering up any creative solutions that come to mind. Indicate that you don’t need an immediate response because you want your rep’s to think about your request carefully. Ask for a response over the next two weeks, and set up a reminder to contact each rep’ after two weeks’ time if they haven’t yet responded.

Questions to Ask – Ask each rep’ to respond to the following questions:

    Will you be releasing any major updates or upgrades in the next three months?

    Do you have any license structures currently available, or soon to be available, that might be more appropriate for my company’s needs?

    Have you taken other customers through a similar exercise, and if so, what were the outcomes?

You may want to add some additional questions, but remember to keep them “open-ended” (not amenable to “yes” or “no” answers). Your goal is to create dialogue, not cut it short.

Why to Use This Approach – Although this may seem like the ultimate Lazy-Bones-Jones approach to reducing your maintenance expense (because it is), there are bits of genius to the approach that might not be obvious at first blush.

  • Fresh Approach – Your rep’s may be captivated by the novelty of your approach. They receive lots of calls from customers who use more aggressive spend-management tactics, and often those encounters are very confrontational. You have the same endgame in mind as these other customers, but your rep’s will likely appreciate your decidedly different approach.
  • Partnering – In their heart of hearts, most people like to help others. They really do. You are asking your sales rep’s to help you help your company, and most of them will rise to the occasion. Do you remember positive and negative motivational drive states from Psych 101? Well, here you are working to create a positive drive state.
  • Expanding Your Options – Instead of following some dogmatic approach that you’ll apply across all of your deployed software vendors (e.g., “must reduce maintenance expense by 40%”), you are asking your vendors for options. They may present options that you never would have imagined, and one or more of them may produce a better result than your dogmatic approach. Don’t forget that you can always apply your dogmatic approach later, if necessary.
  • Not Limiting Your Options – Even though it takes very little time or effort, this approach can produce some good results. Basically, you have everything to gain and nothing to lose. Some folks use a version of this approach as a prelude to a more comprehensive approach to be undertaken at a later date, using the information gathered to advantage down the road. Perhaps most important, this approach does not limit your options. You are free to accept or reject any bones thrown out by your vendors during the process. If you gather enough decent bones during the process, you may not need to proceed further with another approach.

What to Expect – After two weeks have passed, a given vendor will respond somewhere between these two extremes:

  • “I took a close look at your account, and I had a long discussion with my boss. Right now there is not a whole lot we can do to help with your effort. However, we’re always open to discussion, and if you have some specific ideas in mind, I’d be happy to work with you.”
  • “I took a close look at your account, including your update history and support use numbers. I would propose that we make the following changes to your account: switch from the Platinum level of support to the Tin level, exchange your non-tiered seat licenses to our new Flexi-Seat license program, [and so on].”

For each vendor response, you will have to decide whether the initial proposal is enough for you, or whether you want to go for more. It’s all up to you. If you want to go for more, you can do it now or wait until some later date (e.g., as part of some fuller re-negotiation exercise).

So, plant a seed and see what grows!

Tags:, , , , , , , , , , , , , , , , , ,
Posted in Software Buyer Habits, Software Licensing, Software Negotiations, Technology Procurement | No Comments »

Reducing Software Maintenance Expense – Quick and Dirty Approach

Sunday, June 7th, 2009

phoneSERIES: Software Mainenance Costs – Pop The Bubble – Part 2

View Part 1. View Part 3.

QUICK AND DIRTY APPROACH

This is not an optimal approach, nor a recommended approach, but it’s definitely better than sitting on your hands and doing nothing. If you haven’t the time or resources available to take a more comprehensive approach, and you don’t want to hire a third party for assistance, this is probably your default option. Remember, each day that passes without your re-negotiating your maintenance expense obligations means wasted dollars. Doing something, even a crude something, is usually better than doing nothing.

STEP ONE – Open up your dusty folder containing your license agreements.

STEP TWO – Skim through invoices for each license agreement and order the licenses based on maintenance cost outlay, most expensive to least expensive.

STEP THREE – Find your sales rep’s contact information for the first license and contact the sales rep’ by phone.

STEP FOUR – While on the phone with your sales rep’, explain your boss’ recent directive to you. You must cut all software maintenance expenses to the bone. Keep it short and simple.

STEP FIVE – Remain silent and let your sales rep’ make the next move.

STEP SIX – Repeat Steps Three through Five for each of your other licenses.

Vendor Come-Backs – In the typical scenario, this will be your first contact with your sales rep’ in several months or even years. Your call will almost certainly catch the rep’ by surprise, and your very direct statement of your purpose for calling will probably put the rep’ on the defensive. Typical come-backs from a rep’ in this context include:

    Buying More Time (To Think)
    “Well, I’ll have to access your account information and see what I can do. Can I call you back later today?”

    “I’d be happy to talk to you about that, but I have a staff meeting in 10 minutes. Can I call you back?”

    Appeal To Higher Authority
    “I don’t have the authority to change your fee structure. I will have to talk to my boss and get back to you.”

    “We’re just a reseller, and we don’t have the authority to change your license terms.”

    “I’ll have to talk to the business lead and get back to you.”

    Fishing
    “What sort of reduction are you looking for?”

    “Are you not happy with our maintenance or support?”

What To Do Next – What you do next depends on your stomach for negotiations and your negotiations skills. If negotiations make you squeamish, or you’re just not a good negotiator, you may want to let your rep’ take the lead. Answer the “fishing” questions politely, and move your rep’ toward action. Avoid disclosing the actual percentage reduction you are seeking by saying that you need to “cut expenses to the bone,” or “we need a substantial reduction.” For dead-end (“shut-out”) responses like “have no authority to . . .”, ask for the contact information for the person who has such authority, contact that person, and start a new Step Four. However you do it, get your rep’ or your new contact person to make the next move; that is, offer up some reduction in your maintenance expense. You’ll then have your starting point for additional downward movement. A first offer is rarely a final offer.

If you are generally comfortable with negotiations and at least somewhat skilled, you may want to drive things a bit further on your own. Express your urgent need to get something done (blame your boss), cite to your company’s limited use of support services and the fact that you haven’t installed an update in over three years (if both are true), mention the fee reductions your other software vendors are providing (if you’ve already made some headway with your other vendors), and so on. In short, state your position for lower fees and negotiate.

Outcomes – As crude as this approach is, chances are good that it will produce at least some expense reduction with most of your vendors. Again, it’s not an optimal approach, but it’s usally better than doing nothing.

Cautions – Remember, when it comes to re-negotiating software maintenance fees, you don’t get an unlimited number of kicks at the cat. In fact, all other things being equal, you should count on getting only one kick at the cat during any annual period (perhaps even longer). What this means for you:

    Don’t Use This Quick and Dirty Approach If . . . – Don’t use this less-than-optimal approach to re-negotiation if you plan to exectute a more considered approach in the future. Focus instead on developing and executing your other approach now. Stop talking about it and get it done.

    Any Approach – Regardless of what approach you use to re-negotiate maintenance fees, be fair. Don’t lie, don’t be a bully, and maintain respect. In most cases, you’ll need to maintain a working relationship with your software vendors and their sales rep’s, and over-the-top negotiation tactics will usually damage your credibility and sabotage your short- and long-term and objectives.

    Don’t Go to the Well Too Often – After you’ve hammered a few times on your deployed software vendors for reduced maintenance fees, you will have reached a saddle point at which your fees are probably commensurate with your use of support, updates, etc. In other words, you’re paying fair value for what you are receiving. Stop bugging your vendors at this point. Unless your circumstances have changed, don’t go to the well again. Usually, at this stage of the game, your next option is to drop maintenance altogether.

Take me to Part Three: Reducing Maintenance Costs – Plant a Seed Approach

Tags:, , , , , , , , , , , , , , , , , ,
Posted in Software Licensing, Software Negotiations, Technology Procurement | No Comments »

RFP Response Templates

Saturday, June 6th, 2009

VendorSelect

I get lots of questions from information technology vendors and consultants regarding how best to respond to an RFI or RFP. Many are looking for a standardized RFI/RFP response template that will allow them to reduce response preparation efforts and respond to a greater number of solicitations over time.

Templates Available – To my knowledge, there are basically two types of RFX response “templates” available. The first type is merely a “shell” document that does little more than give you places to put your various items of response boilerplate. You then have to author variable content each and every time you respond to a new RFX. Not very useful. And, intstead of buying one of these templates, you could probably create one on your own in fairly short order.

The second type is less a template per se, and more like a Content Managment System (CMS) for RFX responses. The CMS approach takes more effort to set up, but it can be very useful and deliver some true efficiencies over time. For example, you could populate my eRFX tool, VendorSelect, with various text passages, text snippets, flow charts, diagrams, biographies, spreadsheets, boilerplate items, etc., and then have them available each and every time you respond to a new RFX. You can even borrow passages or other content you created for a previous response (carry it forward to your current response). The really cool thing is that you can even load a project owner’s (solicitor’s) RFX document into the tool. That let’s you pick and choose from among your stored content, and create your response to the RFX following the format of the project owner’s RFX document (which is what most project owners require). If your project owner won’t accept an electronic response, you can download and print your finished work product, and then ship it off the the project owner in paper form.

This is what I mean by CMS versus template. You’re not creating a template per se, but rather a CMS that could contain any number of templates, as well as, more importantly, content that you want to use and re-use over time. And you don’t have to use TechVendorSelect as the platform for your CMS. If your organization already has an eRFX tool, you might be able to set it up as your CMS for your RFX responses. The differences between your own eRFX tool and TechVendorSelect might include things like fewer file types supported and fewer content import and export options (including ease of use issues). However, the biggest shortcoming of other eRFX tools, when you try to use them as I describe here, is “persistence” (the ability store and retrieve information and data outside of a specific project). Most other eRFX tools will have very few persistence capabilities, if any.

RFX Document Is Your Response Template – Remember, regardless of whether you use a template or a CMS approach, the RFX document issued by a project owner (solicitor) provides the true template for your response. A good RFX will clearly state requested information in an intelligible and organized manner, often in an outline format with sections and various subsections. The outline in which information is requested is your outline for providing the requested information. If you can import the project owner’s RFX document into your template or CMS, great. Your life is that much easier.

Standardized or “Canned” Responses – You can help yourself a good deal by preparing standard responses to the information requested in most any RFX. For example, the “Tell Us About Your Company” and “Profile of Key Employees” provisions. Further, you can develop a set of RFX response Assumptions and Disclaimers (boilerplate items) that will apply in most any RFX response you prepare.

The caveat for using canned responses is that they must always be relevant, current and fully responsive. If a project ower asks for some simple information like, “State the number of projects you completed in the last 365 days,” it would not be a good idea to cut-and-paste your full-blown “About Us” response which, somewhere toward the end, provides the competed-project information. It would be worse still if your canned response, although elegant and otherwise informative, never even mentions completed projects. Also, make sure your canned responses contain current information about your company, its personnel, and your products and services. In other words, your canned responses must be updated from time to time.

Being Penalized – Remember, when you provide information in response to an RFX, your failure to respond to the true call of a question, or your failure to respond fully, will count against you. If the project owners’ evaluators find a number of incomplete or irrelevant responses, whether due to error on your part or the improper (lazy) use of canned responses, the evaluators will form negative impressions. Either your company is not serious about its bid because it couldn’t take the time to prepare a decent response, or even if you are serious about your bid (as may be evidenced by other portions of your response), your lack of attention to detail and error proofing will give the project owner concern.

Review Process – Regardless of whether you use standardized responses or complete each RFX response from scratch, be sure to review and proof your completed responses carefully. Takes time, yes, but it can often make the difference between passing or not passing a project owner’s initial screening process. If you only have time for a 75% effort to respond to an RFX, you should think about whether to respond at all. Maybe you could spend your time more profitably doing something else.

  Subscribe in a reader

Tags:, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,
Posted in General, Main Content, Software Negotiations, Technology Procurement | 4 Comments »

Software Maintenance Costs – Pop the Bubble

Wednesday, May 27th, 2009

Pop the Maintenance BubbleThe Situation – Because of the recession, companies have become more vigilant about their operating expenses. IT budgets in particular are under the microscope, and software maintenance and support expenses are in center view.

It’s unfortunate that it took a global recession to get companies to take a closer look at the expense of their software deployments. Better now than later (or never), but the thought of so much money wasted (under-utilized) is disturbing. No complaints from the software vendors, of course, but after actually analyzing their software expenses, many software buyers are feeling embarassed and even angry.

Image representing Oracle Corporation as depic...
Image via CrunchBase
The concept of software maintenance and support fees will go down in history as one of the greatest commercial ploys of all time. Along with cheap printers whose replacement ink is almost as expensive by weight as gold, and the old “rinse and repeat” instruction on shampoo bottles, the concept of software maintenance and support is sheer genius. That much I will grant software vendors.

There comes a point, however, at which tolerance of an industry norm is no longer acceptable. In the case of the software industry, I think we have reached that point, and it has taken the form of abusive, if not unconscionable, pricing for maintenance and support.

Image representing SAP as depicted in CrunchBase
Image via CrunchBase
In a recent article she wrote for the Wall Street Journal, Jessica Hodgson claims that Oracle enjoys a hefty 85% profit margin on its maintenance and support fees. In my experience, Oracle is the worst offender in the category of outsized maintenance expense, and SAP runs in second place year after year. But most other software vendors are nearly as bad (abusive).

What You Can Do – Good news, bad news. The good news is that there are many things you can do–many approaches you can take–to reduce your ongoing software maintenance and support expenses. The bad news is that I can’t list them all here in this single post, at least not with sufficient detail to help you in a meaningful way. So, look for follow-up posts in which I will go through various techniques, one by one, with some real-world experience and examples thrown in. I can help you pop the maintenance and support bubble and start saving some real cash.

Take me to Part Two: Reducing Maintenance Costs – Quick and Dirty Approach

Reblog this post [with Zemanta]

Tags:, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,
Posted in Software Buyer Habits, Software Licensing, Software Negotiations, Technology Procurement | No Comments »

Is Your Software Vendor Like Your Cable Company?

Monday, January 26th, 2009

cable-guyDoes your software vendor or reseller keep raising fees year after year? Do you feel less like a long-term, loyal customer and more like an abused customer?

If so, you’re not alone. In a normal year, I get lots of questions about controlling mature-deployment costs for major app’s and shrinkwrap software products. These are long-term customers, using app’s their organizations depend on and value. But they’re looking to roll back the hands of time to the earlier days of their relationships with their software vendors and resellers, back to the days of attractive pricing that they under-appreciated at the time. Since about November 2008, these inquiries have increased dramatically. So, I thought I should offer up some tips for everyone to consider.

Timing and Initial Price – I realize it’s not what you want to hear, but the best time to control costs for a software acquisition is at the time of acquistion. However you accomplish it, you have to get the best possible initial price that you can. Arm yourself with market knowledge, pit reseller against reseller, use a reverse auction process–whatever it takes. If your benchmark is 30% off of list, and you apply this benchmark across all of your new software acquisitions to the exclusion of other price negotiation strategies, you’re leaving good money on the table. Initial cost is important to everyone, and everyone likes to think they got a good deal on everything they buy. But in terms of software purchases, initial cost is especially important because, regardless of what good cost-containment measures you might negotiate into your license, nearly all will be tied to your base pricing.

Terms and Conditions – If you want to control the long-term license and service fees for any software purchase, you need to add appropriate terms and conditions to your license agreement at the time of purchase. It’s much more difficult (and sometimes impossible) to get these terms and conditions later. What Total Cost of Ownership (TCO) terms and conditions should you add? This probably deserves a separate post or two, but you should not ignore the following:

License Structure – Most software buyers will negotiate a particular license structure (seat, user, block, tiered user, etc.) that is best for them at the time of purchase, and leave it at that. What you should do instead is provide for alternative license structures, provide associated pricing for each now, and eliminate any penalties associated with switching from one structure to the other down the road. Then tie the alternative license structures to your other cost-containment provisions.

Most Favored Nations Clause – Use a meaningful Most Favored Nations Clause (MFNC), not the one your software vendor is willing to provide if you think to ask. A meaningulf MFNC must be interlinked with the other provisions of your license, and it must be auditable to be enforceable. It’s possible to weave in language that deals with the fact that new customers typically receive better pricing that older, loyal customers (the Cable Company phenomenon).

Price Escalation Clauses – Again, don’t stop with the standard CPI or other cap your vendor will provide–if you think to ask. Any meaningful Price Escalation Clause (PEC) will state that license and other fees will not increase by X% year over year. But this alone is not enough. Your goal is to create ceilings for price increases, not floors (typical PECs function as floors; next year’s price is automatically base plus X%). With the price increase ceiling concept, you leave each successive price increase open to negotiation, but in no event will it be more than X%.

What if I didn’t get all this good stuff at the time of my initial software acquisition? – Well, I would say you are the norm and not the exception. But all hope is not lost. Remember, everything is negotiable. And remember, too, that “negotiable” includes “re-negotiable”.

If you are looking to re-negotiate existing licenses with your software vendors and resellers, there are many approaches you can take. What approach you choose depends on your particular starting point. But for any situation, you should probably conduct a Software Asset Management (SAM) exercise before you launch into your re-negotiation process. A good SAM exercise will help you determine where you’re at presently with with your software deployments and corresponding licensures, and it should help you determine where you want to go for the future. A good SAM effort will help you determine the objectives of your re-negotiation process and how best to achieve them. For example, you may find that your organization’s preference is to keep SoftCo’s Tarantula module, but you could live without it. Use this and other information about your current use and licensure of SoftCo’s products to your advantage.

Lastly, if you will undertake a re-negotiation process, that will be a good time to get (attempt to get) all of the good stuff mentioned above (buyer-favorable license terms and conditions). You don’t want to go through the whole re-negotiation process and get some good price compression resluts, but find yourself wanting to roll back the hands of time again in 3-5 years.

  Subscribe in a reader

Tags:, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,
Posted in Software Negotiations | No Comments »

How Does Your Organization Buy Software? (Part 1)

Tuesday, January 20th, 2009

Tuna AuctionRegardless of size, most organizations fall into one of two categories when it comes to acquiring new software.

Techies Only – One common approach is to allow technologists (whether internal project team, outside consultant, or some combination of both) to do all of the planning, sourcing, negotiation and contracting for the new acquisition.

Techies Plus Procurement (Purchasing) – The other common approach is for technologists to work side-by-side with the organization’s Procurement (Purchasing) function. Technologists provide the necessary technical input, and Procurement tends to focus on sourcing, pricing, and contractual terms and conditions.

Use of Legal Counsel – Under either approach, the organization might involve legal counsel (in-house or outside counsel) to review finalized contracts prior to their execution, or the organization may not use any legal review. When legal counsel is involved, the attorney’s experience with technology transactions can vary widely. And even when experienced technology counsel is available, rarely is the attorney brought into the negotiation process, the point at which the attorney’s exptertise has the greatest potential to positively affect the outcome of the transaction for the software buyer.

One thing that’s remarkable to me about these approaches to buying software is their inflexibility and persistence. Once an organization adopts one or the other approach, it tends to stay with it indefinitely.

In subsequent posts within this category, I will discuss the pros and cons associated with each of these approaches. I’ll also suggest incremental improvements that any organization can adopt in order to reduce the short- and long-term expense and risk associated with software acquisitions.

Tags:, , , , , , , , , , , , , , , , , , , ,
Posted in Software Buyer Habits, Software Licensing, Software Negotiations, Technology Procurement | No Comments »