Filed under: IT Strategic Planning, Microsoft, Negotiations, SaaS, Subscriptions, Total Cost of Ownership
Continuing its direction toward rental-based agreements, Microsoft has recently been ptiching EAP’s and EAI’s to some of its customers.
Simply, these agreements are the “balloon payment, low interest mortgage loan” of the licensing world. They look great right up until the time the balloon payment comes…
Visit http://www.netnetweb.com/blog/entry/new_microsoft_agreements_eap_enrollment_for_application_platform_and_e/ to read the full article.
Filed under: IT Financial Management, IT Strategic Planning, Negotiations, Outsourcing, Risk Mitigation, Service & Support | Tags: Pareto Optimal, sustainability
Major technology providers are beating street estimates lately as technology spending is seemingly on the mend.
As spending picks up and market conditions change, will Clients and suppliers be able to develop and maintain sustainable agreements that offer best in class pricing, flexible terms and conditions, and serve as a guide on how to do good, long term business together?
The major tenants of IT Sustainability are timeliness and they are published for anyone to see right here http://tinyurl.com/yd7ckf5.
If you are making an investment in IT, find out how you can get maximum value and keep it by clicking the link above.
The Sustainability of your IT investments and relationship is our mission.
Full Article Availble at:
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.
Filed under: IT Financial Management, Microsoft, Negotiations, Software, Total Cost of Ownership
Microsoft’s Select and Enterprise Agreements have long provided for a 30-day grace period at the expiration of the Agreement, for customers to decide whether (or not) to renew Software Assurance.
However: In the latest version of Microsoft’s Agreements, the 30-day grace period was eliminated. This now means that Software Assurance must be renewed before the expiration of the enrollment or customers may be required to purchase new licenses to remain in compliance with their Agreements.
The apparent goal of this change is to shift the balance of negotiations power to Microsoft at the time of renewal. Clients should be in a position to make final decisions 90-days prior to Agreement expiration, and the time required for a Client to fully review its Microsoft investments averages 90 days.
As a result, NET(net) now recommends an engagement start date of no less than six months prior to Agreement expiration for Clients to perform an initial assessment of their Microsoft Agreements and/or renewals.
In addition, the Change of Channel Partner (COCP) form for your Large Account Re-Seller (LAR) is also changing. The time between the date a customer signs the COCP and the day the COCP takes effect will increase from 30 to 90 days. This is another good reason why Clients want to be prepared to implement all changes 90-days in advance of Agreement expiration and/or renewal.
With the COCP change, we now recommend that EA customers review their LAR relationships annually, and if dissatisfied, there will be ample time to either remedy the LAR relationship or to change LARs before the next annual True-Up.
NET(net) will help Clients perform Microsoft Investment Optimizations and/or annual LAR evaluations, at least six months prior to Agreement expiration to ensure Clients have enough runway to achieve their Microsoft Investment goals and objectives.
Note- many Clients have annual true-ups in June, so January is a great time to get started.Stay tuned to this blog for more information on how you can make the most of your technology investments.
Filed under: Negotiations | Tags: Bargaining Table, BATNA, Carrots, Cisco, Claiming Value, Cooperate, Creating Value, Defect, EMC, HP, IBM, Microsoft, Negotiate, Oracle, SAP, Sticks, Supplier Lock-in, Win-Lose, Win-win, ZOPA
In negotiations, whether we realize it or not, our cooperation increases the size of the pie for everyone (creates value) and our defection defines our slice of it (claims value).
We often develop imaginative ways to create value through the promise of mutual gains and introduce these ‘carrots’ into our negotiation strategy at the appropriate point as to maximize their impact and benefit. As it relates to cooperation and the use of carrots, most of us consider ourselves fairly effective with this approach.
What happens when the other party isn’t cooperating, however? Are we as effective at bringing them back to the bargaining table? Are we as capable of putting the deal back on the tracks?
Quite simply, what happens when they say no when we really want them to say yes? How do we move them to our way of thinking? That is the art of negotiation. The art of letting *them* have *your* way.
Former Secretary of State James Baker once famously said (and I’m paraphrasing here), Diplomacy is the art of saying nice doggie long enough until you can find a big rock with which to smash it in the head. If there is no rock, negotiation is pointless… How many of us negotiate without a rock? I can’t tell you the number of times I’ve had a client say we’re just going to tell our supplier we want to buy their stuff, but we need a better price. I nod politely and ask, “or what”? Puzzled, they ask, what do you mean “or what”? I explain, and what if they say no? What if they say this is the best possible discount they are able to offer you? What will you do then?
You see, the “or what” is the rub. Gee Mr. Supplier, we’d like you to give us a better discount. If you’re not prepared to answer the “or what”, you are just Oliver Twist asking for more. Seemingly, we are much less prepared to correct behaviors that are counter-productive to our goals and objectives. The use of ‘sticks’ in a negotiation is every bit as important as carrots, and in many cases, much more so. When one party cooperates and the other party defects, the defecting party claims value. When both parties defect, not only is no value created, no value is claimed either. It stands to reason then, that you can prevent the defecting party from claiming value by defecting. Sometimes the best way, perhaps the only way to bring a defecting party back to the bargaining table is to defect yourself.
Easier said than done? Defection in a negotiation is often viewed with a negative connotation, and is also often confused with the end objective. Some view it as confrontational or even as threatening. Regardless of how it’s viewed, a defection strategy is often justified. Defecting from a negotiation can be extremely effective in situations where a supplier is reaching or over playing their hand.
In one case, NET(net) was working with a client who had two viable solutions for a business need, and the preferred supplier overplayed their preference status to the tune of a 40% premium price over the competition. The client told the preferred supplier that the current price made it impossible for them to be selected, but the supplier refused to lower their price, believing that the client was bluffing. Instead of haggling, the client sent a polite thanks but no thanks letter, and went into unilateral negotiations with the alternative supplier with the full intent to get a deal done. The preferred supplier returned the next business day with a market leading price and improved terms and conditions. This led us to coin the negotiation axiom, “sometimes the fastest way to a yes is to say no”. This client didn’t bluff. They had every intention to do the deal with the alternative supplier and the preferred supplier knew it. It’s not gaming or brinkmanship; it’s defection. To be effective, it has to be credible, it has to be timed right, and it has to be sequenced appropriately. When it’s done right, it works.
While we are mostly inclined to be cooperative and we all work hard to find ways to increase the value and mutual gains for all parties involved in a negotiation, the use of sticks on a quid-pro-quo basis is an extremely effective way to control the bargaining table. Defections from negotiations are sometimes the best and perhaps the only way to break the cycle of supplier lock-in and the incumbency effect of entitlement rights. See future blog posts on these and other topics.
Filed under: Data Center, IT Financial Management, IT Strategic Planning, Microsoft, Negotiations, Oracle, Outsourcing, Risk Mitigation, SaaS, Software, Subscriptions, Total Cost of Ownership
Microsoft is aggressively discounting its hosted / SaaS solutions in order to gain market share, and I suspect, to sway customers from the EA / Select / perpetual license model, onto the rental / cloud / SaaS model.
Microsoft cuts prices on BPOS, to issue refunds –
Microsoft seeks to lure Salesforce, Oracle users with six months free of CRM Online
Microsoft chops prices of its hosted enterprise cloud offerings
But you’ll note that’s only on the hosted offerings.
Also of note, Microsoft’s huge new billion $ datacenters in Chicago and Dublin are now open for business. With more coming soon.
On the traditional licensing front, Microsoft just announced price increases for SQL Server.
So, clearly, MSFT is betting big chunks of cash on swaying customers to its hosted services, and as a consequence the traditional licensing models are becoming slightly less attractive. I would advise Microsoft customers to consider the true costs and benefits of moving from a traditional licensing approach, to a model such as BPOS. As in most things regarding Microsoft’s sales practices, there are hidden factors that may not come to light unless you ask the right questions.