Filed under: contract management, current events, license grant, maintenance, pricing, SaaS
Below is the contents of an internal salesforce.com memo CEO Marc Benioff shared with Vinnie Mirchandani (and posted on his blog: deal architect). I’m pasting it here for simplicity’s sake and because of the power of the message itself.
“For ten years, we’ve been driven by a simple vision: The End of Software. Now it’s time to take on a new challenge: The End of Maintenance.
Let me tell you about a customer that I met on our Cloudforce tour. This customer currently uses Siebel software to run her call center. She pays more than $15 million a year for the privilege of having to implement the updates that Siebel sends her. That does not include backup. Or disaster recovery. And of course, it does not guarantee that she will be using the latest technology. The maintenance agreement only assures her that her outdated software will continue to work. She is paying tolls on a road to nowhere.
We can help her, and many other customers, and deliver much more for a fraction of what they currently pay in maintenance. It’s time to open up a new front in “The End of Software”– one that is long overdue.
It’s time for The End of Maintenance.
Every year, companies spend billions on maintenance fees and get relatively little in return. Maintenance fees cover updates that are mostly patches and fixes, but they stop far short of the kind of innovation every that enterprise needs to survive. Companies pay to keep the past working and they end up doubling down on technology that can never keep up with their needs. The fees that companies pay have actually been rising, from something like 17% a few years ago to numbers more like 22% today. Every four or five years, companies are paying for their software all over again.
It’s time to set these businesses free and make them successful in the Sales Cloud, Service Cloud and on our Force.com platform.
Our new mission begins at a critical time in the economy, when companies are questioning conventional wisdom as they never have before. That, of course, extends to their IT budgets as well. The CIO is in a tough spot right now. Corporate budgets are tightening. And our rivals in the legacy client-server world are using this opportunities to extract more money from their customers by raising maintenance fees. I call this phenomenon “the compression of IT” and it resonates with just about every CIO I speak with these days.
We have a better vision. We sell our customers a service and every customer is able to use the latest. Innovations are included. Upgrades are automatic and invisible. Customers’ intellectual property of customizations and extensions is rigorously preserved, and carried forward without disruption.
The service gets better, not just less buggy. That’s not what people are getting for all those fees that supposedly buy them “maintenance.”
It’s time to set these business people free: to give them the experience of being wildly successful in the Sales Cloud, the Service Cloud, and in their own unique applications that they can build on our Force.com platform. This is the time to do it, because this is when people need it: their IT budgets are tight, their business situations are critical, and their old-world software vendors are taking care of themselves instead of meeting the needs of their customers.
We’ve raised people’s expectations for better alignment of business value with IT cost. We’ve earned our leadership position in enterprise cloud computing. It’s time for us to set people free from paying more and more to get less and less. It’s time for The End of Maintenance.
Aloha,
Marc”
According to this article from Wired, Apple is involved in some very interesting copyright violation cases related to their fairplay copy protection scheme and DMCA takedown notices they provided to folks discussing how to circumvent Apple technologies.
I would pay attention to what the US Copyright Office decides based on their review – and on the results of the lawsuit itself. While I still strongly believe that US intellectual property right laws are able to handle new technologies… I’ve become a little concerned about how the courts have been reacting to various claims (as well as legislative moves like the DMCA).
Filed under: IT Financial Management, Negotiations, Oracle, Risk Mitigation, Service & Support, Software, Total Cost of Ownership
It appears Oracle has increased its due diligence in the area of auditing customers. On the one hand, this exercise may be helpful (as Oracle will profess) in enabling customers to better understand holistically precisely what their entitlements are and to what degree those entitlements are being leveraged. This is useful information that many customers often struggle to reconcile on their own, and could shed some light on where opportunities for downsizing of entitlements might occur.
On the other hand, customers should be cautious. In a down economy, where the volume of deals and overall license spending is lower than desired, auditing is a means by which Oracle may be hoping to find opportunities for incremental licensing events. Especially for customers who either may not have been positioned to actively keep track of utilization trends over time, or who may not be familiar with original agreements and the parameters of utilization in these agreements, Oracle will be seeking to capitalize whereever possible to bring your license entitlements and utilization back into compliance.
Resolving compliance issues is likely to be done through a new licensing event. Unlike a situation where a customer may be giving Oracle an opportunity to earn additional licensing business via a purchase that is not the result of an existing contractual obligation to Oracle, it is more challenging to negotiate a favorable license arrangement to adress compliance matters. In fact, with certain product families, it is likely that the costs associated with the need to add incremental licenses has already been identified. With other product families, Oracle is likely to use its standard list pricing as a starting point, and given that the absence of the licenses constitutes a breach of contract in a compliance situation, they are not under as much pressure to discount. This puts the customer at a disadvantage, not only as it relates to the new license cost, but the associated maintenance costs related with those new licenses too – as the maintenance and support services costs are generally based on the net license value.
Customers would be well advised to invest time in assessing their license entitlements and utilization, and truly ensuring the parameters of their licenses are well accounted for, in advance of Oracle aggressively pursing completion of an audit. If misalignment is identified, and you find that you will require additional licenses to ensure your utilization needs are met into the foreseeble future, it is better to address that with Oracle proactively with bringing a new license opportunity to them. Given the possible stakes, this may be an area where enlisting professional help may be a worthwhile investment to either a) ensure you have no exposure; or b) help you address any potential exposure in a way that is most optimal for your organization.
Filed under: fun
Our good friend Stephen Guth of The Vendor Management Office has been on hiatus recently, studying to take (and probably ace) yet another bar exam. For those of you who have never tried one, I don’t recommend it. Usually 2+ days long, 6-8 hours per day. One half is typically a 200+ multiple-choice question exam called the Multi-State Bar Exam. The other half is typically essays, based on the substantive state laws of whatever state bar you’re trying to pass. Recently graduated law students typically spend about a month in bar-prep courses prior to the exam – trying desperately to learn the substantive law of their chosen state (you don’t have to go to school where you want to pass the exam – so most schools don’t “teach to the test”).
It’s grueling work – and if you’re like Stephen – having already passed in one venue and then doing it all over again in another many years after law school, it’s even more difficult – you simply have forgotten much of what you learned that’s outside your practice area. So Stephen’s disappearance is highly warranted – between work, studying and his personal life, I’m surprised he’s still breathing… or sane. Which might account for this random post that just appeared on his site.
Stephen: if you’re out there and listening – hang in there buddy! You’re gonna’ nail that exam.
I found an interesting site that covers the trial and tribulations of customer service representatives – stories from the frontlines. A few even relate to negotiation (and one on contracts), so I thought I would share:
Why Our Contracts Are a Gazillion Pages Long
Have a great weekend!
When you’re about to enter a contract negotiation, and assuming you’ve not been successful in using your templates, the first step is to review and redline the agreement. This How-To is intended to teach you the obvious (and not-so-obvious) skills of redlining.
- Ordinarily, I suggest a quick once-over. This is a perusal designed to see if the major sections of the contract are present. Using a checklist like the Software License Risk Matrix will help you verify that all of the headlines are covered. Not all contracts will contain the same sections, of course, and just because a contract has a stated Header doesn’t mean that the language in that section actually matches the Header’s description.
- For any “missing” sections of the agreement that you would like to insert, create new sections in an appropriate place (as you read an agreement, you typically have a feel for where certain sections will need to go. You’ll also have to make adjustments based on numbering schemes or sub-numbering schemes to match the original – so watch the blind copy-pasting.
- Now, hopefully you’ve got the contract in Microsoft Word (or other word processing format) to facilitate an easy redline. Enable Word’s “Track Changes” feature via the Tools menu. Advanced users will also note that you can quickly turn Track Changes on and off via the green-light at the bottom of that document’s window next to the “TRK”. If the other side has sent you a document via PDF and refuses or is otherwise unable to send you a Word version, use the free service at www.pdftoword.com run by the great folks at NitroPDF. This service will convert your PDF almost flawlessly and e-mail you a converted Word file.
- Read each section carefully. Start with the definitions and make sure that all defined terms have a definition (many times this isn’t the case). Now march your way through the agreement.
- Where you do not like particular language, the Track Changes feature allows you to “delete” the language – but instead of actually removing the offending words, it changes the color and puts a strike-out line through the deleted language.
- On the flip-side, when you insert language, Track Changes will insert your new words in the same color as the deleted text, only this time is underlined.
- Where possible, suggest new language that you’d prefer to be in the agreement rather than just strike-out the language you find troublesome. This will provide a great basis for a negotiation. If you simply delete language, I would assume that you simply want the language removed and nothing else added. When this is the case, I will sometimes make a note to tell the other negotiator why I made a particular change: “[JeffNote: I don’t believe I should have to indemnify you for this.]” This call-out makes it easier on the other reader to accept or reject your change, as your explanation might be all that’s needed for them to accept your modification.
- Then, when you’re the recipient of a redlined document, your first task is to review the changes to see if any of them are acceptable without discussion. If so, simply right-click on the change and select “Accept Deletion” or “Accept Insertion” from the pop-up menu. HOWEVER, DO NOT SIMPLY REJECT CHANGES! This would create a presumption on your part that you shouldn’t make without talking to the other side first. Rather, leave unacceptable changes in redline format as open for discussion.
- As the second reviewer (and the presumptive owner of the original), you might feel some initial pain at making any changes at all to your template. Remember, however, that you’d do the same thing to someone else’s template. Additionally, while I’m sure you wrote your template with every conceivable situation in mind, there might be a situation you didn’t conceive. In other words, give the redline a chance. Read it with the intent to accept as many changes as you possibly can. This is a negotiation, afterall.
- If you need to suggest language back to the first reviewer, Track Changes anticipates this and will (unless you make changes to the Preferences settings) automatically assign each individual reviewer a different color. If you place your pointer over a particular change, Word will tell you the name (as set in Word’s preferences) of the editor for that change and the date/time of the change. If your name doesn’t appear on changes, make sure that you’ve entered your name in the preferences settings and you’ve also unchecked the box that has Word remove the name of the reviewer as part of its security process.
- So now you have a document that should have fewer redlines than when the first person was done, might have some additional redlines from the document’s original author and the document is now ready for negotiation.
- Set aside plenty of time for negotiation – rushing is to neither party’s benefit. You do not have to make it through the entire contract in a single session.
- Once pleasantries are out of the way, discuss who will be the document owner (I typically volunteer… it keeps me alert and I feel much better about how the changes are completed).
- During the negotiation, systematically review the agreement from the top on down. Continue to make any new additions or deletions in redline. But accept/reject prior changes as agreed during the negotiation. Thus, when done, you’ve got a document that ONLY has points of contention or new language changes still in redline. In rare cases, in a trusting relationship, you might agree to make “blackline” changes. If so, never breach that trust.
- OK, so after a few back and forth discussions, you should have resolved all open issues. Take one more quick review to look for any open issues. Use Track Changes to see if there are any unseen remaining edits (use the “Next Change” button to see if there are any you missed).
- What you’re left with is a blackline document – everything’s in black and white. GREAT JOB!
- If you’ve got to do a redline by hand, here are a few additional suggestions: a) Don’t. Seriously. Scan and use PDFtoWord. b) But if you have to, learn to write very small in the margins with tiny arrows indicating where new language would go. c) Actually strike through (with a single line) each word you don’t like. d) Don’t waste time handwriting in entire new sections. Just note what new ones are necessary – add new language electronically later. e) If you must, create a separate document and create an amendment document where you describe each deletion and/or insertion. Again, this method is HIGHLY outdated, but some organizations just can’t seem to get away from it.
Once you’re done, I sometimes also recommend using a tool called DeltaView (or even Word’s own Document Compare feature) to compare the original against the finished product. This helps you check all of the redlines that were actually agreed upon and gives you a level of comfort that neither party tried to sneak in a change the other party didn’t accept. However, unless I have reason to believe that the other party isn’t trustworthy, I typically have been diligent enough through each turn of the document to not require this final step.
All that’s left now is execution and managing post-contract obligations. But that’s another day.
Filed under: Microsoft, Risk Mitigation | Tags: Software Assurance, Support, Vista, XP
Clarification:
Users will still be able to get free “Product-specific information that is available by using the online Microsoft Knowledge Base” and “Product-specific information that is available by using the Support site at Microsoft Help and Support to find answers to technical questions”
Details here:
http://support.microsoft.com/gp/lifepolicy
Filed under: IT Financial Management, IT Strategic Planning, Microsoft, Subscriptions, Total Cost of Ownership | Tags: Microsoft Enterprise Agreement EA ESA Subscription
bullseye
Microsoft Enterprise Subscription Agreements (or ESA’s) as their name suggests are Subscriptions to Microsoft Software. “Enterprise” means the client agrees to cover all of the desktop “qualifying” pc’s in the organization with the same bundle of software, typically Windows upgrade/SA, Office Pro Plus/SA, and Core CAL / SA. This is commonly referred to as a ‘full platform’ ESA.
In the case of the ESA, the client pays an annual fee (typically in a three year deal) to maintain useage rights for the products in the subscription. When the subscription ends, the client no longer has any useage rights for any of the products in the subscription and must remove the software from all the machines.
Microsoft includes “buyout” terms in the ESA contracts for when / if the client eventually decides to exit the ESA. This gives the client the ability to purchase the underlying perpetual license. At that time, the client can decide whether or not to cover the purchased license with software assurance.
Typically the cost of the ESA subscription + eventual buyout adds up to be higher than if the client had simply purchased licenses via other means. This, in my opinion, is the biggest “downside” of the ESA: the cost to exit is usually higher than the cost to purchase and/or maintain, making the real-world TCO higher than conventional Enterprise Agreements (EA’s) or a more optimized approach.
ESA’s are a good fit in a very limited number of cases:
1. Clients that have made a conscious, long-term infrastructure decision to aggressively invest and stay leading–edge on Microsoft products but need to avoid capital costs and would prefer to expense the investments.
2. Clients who need to get / stay current for the next few years but are likely to significantly reduce the size of their business by organic decline (not divestitures), or who experience business cycles of less than 3 years where the infrastructure significantly grows and shrinks.
We frequently see cases where a client needs to get compliant or otherwise upgrade large portions of their infrastructure to the latest Microsoft versions. In these cases Microsoft typically proposes an EA. If the cost is too high for the client, sometimes Microsoft will offer an ESA as an alternative, since the per-year and initial costs are lower. But, if a client simply needs to reduce licensing costs (capital or expense), there are other more effective methods that offer improved beneftis over this approach.
This type of survey would actually never work in the IT vendor world (versus vendors or versus customers) for two reasons: 1. Almost all customer contracts contain confidentiality provisions which would restrict disclosure; and 2. Almost all vendors would simply shut off access to the service or support (or the license remotely) if the customer didn’t pay.
But I would be interested, nonetheless, to know who the really bad customers are out there.
In an interview with Inc magazine the other day, I was discussing the effects of the current economic situation on contract negotiation potential. More specifically, everyone seems to believe that the current downswing is cause for not only some great deals, but also for the potential to create some re-negotiation possibilities. In other words, the various authors of these pieces are looking for confirmation that now is a great time to buy. Well, my advice on that issue is pretty simple and I’ll point you all towards the article when it comes out. 😉
I’m more concerned at the moment with the opportunity for re-negotiation because this opportunity does actually exist. But it’s an opportunity that ALWAYS exists. The current economic situation is merely bubbling the issue to the surface.
Now, I’ve literally just spent the last half-hour writing and re-writing an attempt to eloqently and gently explain how negotiations are supposed to work and how they’ve not really worked over the last few years due to bullies (both on the vendor and customer sides of the transactions). The truth, however, is that there isn’t a nice way to explain it. The negotiation situation has been bad and it continues to be bad – even after the current downturn has made everyone more acutely aware that bad deals are worse when the economy turns sour. So I’m just going to be really blunt.
Folks: do good deals. Work well with each other to make sure that each party’s true needs (and a few of each party’s wants) are met during the deal. Look deeply into the financials of the deal, as well as how they’re calculated. Don’t guess, don’t assume, don’t overestimate. Use real numbers, actual counts and a solid basis for each transaction. Get rid of puffery, boasting, bloating and non-essentials. If you only THINK or BELIEVE something is going to come to pass, don’t base the deal on it. Rather, find a way to add it in as a POTENTIAL opportunity – a possible future transaction. But don’t commit to an uncertain future.
In more Plain English™, buy what you need, sell what you have. If you don’t need it or don’t have it, don’t do the deal. Don’t use pretend numbers to support the transaction or the promise of potential to entice you into something that won’t work for you in the current state. And don’t expect either party to return to the table when the economy goes bad or things don’t work out as planned for you. Your problem isn’t THEIR problem. (Perhaps you’ve heard this as “Poor planning on your part doesn’t constitute an emergency on my part.”) And, for the people who are thinking it, this is not a situation for force majeure. Economic fluctuations are understood and always possible.
Again, do good deals. Apply the Five Fundamental Skills for Effective Negotiation. If you need/want help, get it. Oh, and contrary to what is happening with certain large industry players at the moment, don’t expect someone else to bail you out because you didn’t plan. If you haven’t learned the lesson so far, let’s put it in Plain English™, too: The economy swings both ways. Unexpectedly. More often than we’d like. Regardless of your political leanings, fiscal and risk conservativism is always appropriate.
NET(net), Inc. 