When evaluating the potential impact of end of support, Clients should consider the stability of their applications, the feasibility and costs for moving to other solutions, and the risks associated with prolonged downtime for the applications.
Posted on www.netnetweb.com on January 10, 2010 at 10:12pm
This is an SAP Negotiation Alert
If you have an existing agreement or are considering a new agreement with SAP – watch out. New language is emerging that is extremely concerning.
Here is a quick summary:
SAP is including new language into Agreements, Amendments and Appendices which may limit the contractual rights of its customer, disallowing any future termination of maintenance and support services, of any software and users on an ad hoc or line item basis, or termination of any individual appendix. SAP is including new language that suggests the only way it will contemplate any kind of maintenance and support services termination is if it applies to all Appendices and licensed software. Clearly, SAP is addressing the recent market changes and responding to increased threats of competing support alternatives. This “all or nothing” approach seems to be aimed at eliminating a client’s ability to manage any kind of blended support solution.
In addition to this troubling development, SAP’s Enterprise Support Schedule, has some interesting new provisions:
SAP Enterprise Support offered by SAP may be changed annually by SAP at any time upon three months prior written notice. This gives SAP the unilateral right to redefine the service description (including material reductions in support) with no reduction of fees.
After the initial term, the Enterprise Support Fees and any limitations on increases are subject to Licensee’s compliance with the Customer Center of Expertise (CCOE) requirements
Interestingly, SAP is also apparently requiring its customers to “regularly engage” in a service planning process with SAP. SAP may claim that it is trying to get closer to its customers to improve the value of the relationship, but some of our Clients are concerned that this is simply a way to capture intelligence about the account that will be turned into downstream selling opportunities. Regardless, it is telling that SAP expressly states it will have the ability to raise your prices if you are found not to be in compliance, but there is no commitment that SAP will not raise your prices if you remain compliant.
Another mind-blowing apparent value grab is SAPs provision that penalizes its customers who do not establish and maintain a certified CCOE in accordance with SAP’s definition, (including any required recertification). SAP claims that it shall be entitled to increase Licensee’s then current “maintenance percentage factor then in effect” if the Licensee is found to be non-compliant, but does not specify the increase or how the increase will be determined or calculated! SAP further requires its customers to certify their CCOE through an audit, conducted by SAP, verifying compliance with the obligations set forth in the Agreement. For details of the certification and re-certification process, there is a reference to the SAP CCCNet in the SAP Service Marketplace, which presumably may be modified at SAP’s sole discretion at any time. This could be an attempt for one of the largest value grabs in the history of support services. Presumably, if clients are found *by SAP* not to be in compliance with SAP’s definition of the CCOE as modified *by SAP* at any time, then SAP could unilaterally increase the ‘maintenance percentage factor’ to whatever it wanted to. Ha! and you thought a 29.4% increase was outrageous.
SAP also extended the notice period of termination to 90 days. Presumably, customers that fail to provide notice at least 90 days in advance that they intend to cancel Enterprise Support will still be obligated to pay the entire upfront annual maintenance and support fees.
SAP is also requiring that for its customers to be eligible to receive Enterprise Support, that Enterprise Support is the only support and/or maintenance services received by Licensee for all SAP software licensed by Licensee. This means no mixed support environments, or customers will lose their rights to Enterprise Support (no mention of a pro-rata refund of the unused portion of support).
In summary, SAP appears to be continuing the oligopolistic behavior it borrowed from Oracle when it increased maintenance service and support fees by 29.4% (up from 17% to 22% of the net license value) with this move towards an ‘all or nothing’ Enterprise Support model. In addition, SAP has included more “responsibilities and obligations” (SAP’s own words used in their agreements) for their customers to comply with in order for them to receive the more costly Enterprise Support. Further, if SAP’s customers fail to operate their CCOE in strict compliance with SAP’s interpretation of best practices, including opening up their organizations to more inspection from SAP, then there is nothing to prevent SAP from levying additional increases to the maintenance fees immediately, as well as in future years. While SAP may be subject to, and held somewhat in check from public relations scrutiny, from a contractual perspective there is no limit on what SAP could charge customers for Enterprise Support.
Customers beware. This seems to spell out how SAP views its relationships with its customers quite succinctly. This seems to indicate that SAP wants to (i) charge higher costs, (ii) provide fewer options, (iii) enact more restrictions, (iv) require more obligations, (v) levy more future pricing pressures, and (vi) force you to surrender more account control.
With the emergence of competing market opportunities, and the momentum behind decompiling monolithic architectural approaches to a single sourced software supplier solutions for the entire enterprise application stack, one has to wonder if these new *company-centric* positions from SAP will have the desired impact or if the velocity of customer defection to viable alternatives accelerates.
Please contact us if you have any questions regarding any of your technology agreements or relationships.
Filed under: IT Strategic Planning, Microsoft, Negotiations, SaaS, Software, Subscriptions, Total Cost of Ownership | Tags: Microsoft, Microsoft Enterprise Agreement EA ESA Subscription, Software Assurance
In an interesting development which may be useful for many of our Clients, Microsoft has announced the ability to rent its software.
And some great commentary by Mary Jo Foley, here:
This is a new offer, but it’s not really the first ‘rental” deal that Microsoft has offered.
Today, there are several ways to purchase and use Microsoft products:
– “OEM preload” – the typical way that Windows is sold, preloaded by the manufacturer on new PC’s. Microsoft also offers a few other products via OEM, notably the home and small business flavors of Office. This license is a perpetual license for a one-time cost (typically included in the cost of the PC).
– Full package product (“FPP”) or shrinkwrap boxes. Traditional retail packaging, this is a perpetual license for a one-time cost.
– Volume Licensing – via the Open, Select, Enterprise Agreement structures – Microsoft customers can get volume discounts for full, perpetual licenses, and also purchase Software Assurance to cover future upgrades, which then become perpetual rights to the new versions.
– Subscription models – Microsoft offers several “rental” programs via the various contractual structures.
Enterprise Subscription Agreement (most commonly for enterprise customers) or Open Value Subscription for smaller enterprises. These contracts are structured similar to normal volume licensing deals; the main difference is that there is no “perpetual” component to the licensing; when the agreement ends, all rights to the software expire and the customer must remove the code from all the machines covered.
– Various hosted / SaaS options – Microsoft and a large partner community offer online solutions for most of the business products in Microsoft’s portfolio. Recently, Microsoft has made a big push into selling Exchange and SharePoint services via the cloud, under their BPOS (Business Productivity Online Suite) brand umbrella. They have also announced plans to deliver Office and other products under this model. Again, this is a true subscription approach, so no perpetual rights are transferred to the end customer and usage rights terminate with the contract.
– and finally, the new Rental offer, which is interesting in that it allows an owner of a perpetual license to make a one-time purchase, which grants the right to rent the software to other customers.
On first blush, the new Rental rights may be useful in cases where clients need to have temporary usage of a product set on seasonal or project-based needs, where the user count will increase then decrease in a period of less than a year.
Define the term “force majeure” for me. Looking online, there are several:
- it’s French for “superior force”
- act of God: a natural and unavoidable catastrophe that interrupts the expected course of events (WordNet)
- a common clause in contract which essentially frees both parties from liability or obligation when an extraordinary event or circumstance beyond the control of the parties (Wikipedia)
- an unavoidable catastrophe (Wiktionary)
So what’s the common theme? It’s the ability to AVOID a particular set of actions. In other words, force majeure events are those which are unavoidable or unforeseeable. If you only click one link above, do the one for Wikipedia and learn about the three-part test in French and international law for what constitutes a force majure event. UCC Section 2-615, “Excuse by Failure of Presupposed Conditions” and the Restatement of Contracts 2d, Section 261 “Excused Nonperformance” also include multi-part tests.
But we’ve gotten lax in contract drafting in the US and folks have assumed that force majeure clauses (those that allow a party to not perform as a result of one of these types of events) were continually written with actual unavoidable events listed. In fact, almost every force majeure clause I now see contains at least one, if not more, of the following things as force majeure events:
- strikes/labor disputes
- telecommunication difficulties
- supply chain problems
- terrorism and war (sometimes even phrased as “acts of the public enemy”)
- government regulation
Unfortunately, these are not force majeure events. Why? Because most of them can be planned for… and even something like terrorism and war (especially when they’re happening right now), should be planned for. If you can plan for them, they’re foreseeable. And if they’re foreseeable, they’re not unforeseeable. See where I’m going with this? 🙂
So when you strike these items out of the force majure event clause, you’re going to get push back because people don’t want to be responsible for planning in all eventualities. You’re not asking them to do it. Rather, you’re asking that contract performance not be hindered or halted as a result of things that are capable of having a backup plan. Which means that you could, if you were so inclined, draft language which allows for these items to be force majeure only if they were part of a backup plan that still was impeded. In other words, you’ll give these items force majure weight if the party claiming force majeure can show that they had planned for them properly, but still ran into trouble.
Oh, and by the way, force majeure also isn’t one-size-fits-all. Would you EVER list telecommunication difficulties in a contract with your telephone service provider? Additionally, force majeure protections should benefit BOTH parties, even if one party’s sole obligation is to cut a check. Payment can be made quite difficult by floods and hurricanes, just ask the good people in Louisiana, Alabama and Mississippi about business deals during Katrina.
Happy New Year!
I saw an interesting article today that high-tech vehicles were posing problems to some mechanics. The mechanics claim that they can’t afford the thousands of dollars that are necessary for them to obtain the specialized diagnostic tools for each auto manufacturer. The manufacturers are claiming that they’re trying to protect their intellectual property.
Sound familiar? Yup, it’s exactly like the issues Frank Scavo and Ray Wang have written about with regards to third-party software providers being blocked from performing various maintenance/implementation tasks by the contracts and software licenses and services agreements of certain primary vendors.
On the automotive side, it’s apparently gotten to be such an issue that there’s a congressional bill called the Motor Vehicle Owners Right to Repair Act of 2009. The stated purpose of this Bill is to “protect the rights of consumers to diagnose, service, maintain, and repair their motor vehicles”. What’s really interesting are the Bill’s findings, among which say that:
- Motor vehicle owners are entitled to choose which service provider will diagnose, service, maintain, or repair their motor vehicles.
- Promoting competition in price and quality… will benefit consumers.
- Only service technician with the necessary tools and information can access the computers to perform diagnosis, service, maintenance and repair…
And the requirements of the Bill, specifically:
- Duty to Make Tools Available: The manufacturer of a motor vehicle sold, leases or otherwise introduced into commerce in the United States must offer for sale to the motor vehicle owner and to all service providers on a reasonable and non-discriminatory basis, any tool for the diagnosis, service, maintenance, or repair of a motor vehicle, and provide all information that enables aftermarket tool companies to manufacture tools with the same functional characteristics as those tools made available by the manufacturers to authorized dealers.
- Replacement Equipment: The manufacturer of a motor vehicle sold, leased, or otherwise introduced into commerce in the United States must offer for sale to motor vehicle owners, and to all service providers on reasonable and non-discriminatory terms, all equipment for diagnosis, service, maintenance, or repair of a motor vehicle.
The only thing the Bill protects for the manufacturer are things that are actual trade secrets.
Wow. Of course, there are a LOT of people (and more specifically, a lot of trade association and advocacy groups) behind this Bill.
Could you imagine what would happen if this passes and someone realizes that software in cars isn’t that dissimilar to plain old enterprise software? If only there was a trade association group for buyers of enterprise software apps. 😉
But let’s talk about the other side of the issue for a moment. Do consumers have a right to have third-party companies provide service? A right? No. I don’t think there’s a right to be able to have third-party providers. [Keep in mind, when we’re talking about rights, we’re talking about things equal to “life, liberty and the pursuit of happiness…”.]
Absent a right, should third-party providers still be allowed/encouraged? I’m really torn on this. On one hand, I’m all in favor of things that inspire commerce. I like behaviors that create business, allow more people to work… and of course, things that drive down costs and dissipate apparent monopolies. On the other hand, an individual or organization who creates something should be able to protect their idea/invention and not have to give up the secret sauce simply so that other people can benefit. But there seems to be a line somewhere that once you cross it should allow for third-party companies to fill available niches. Maybe it’s where the original vendor is no longer able to provide a quality-level of service. Maybe it’s a situation where the original vendor is charging exorbitant rates. I’m not sure.
Anyone have a solution?