Tuesday’s Tip: Five Cloud/SaaS Contract Negotiation Tips For 2012

Published on January 10, 2012 by R "Ray" Wang

Business Leaders Often Poorly Prepared For Cloud/SaaS Contract Negotiations

Business leaders often take great care in building their Cloud and SaaS strategy, only to have many of the benefits of flexibility and agility hampered by overlooking details in their cloud contracts.   In conversations with over 200 cloud customers in 2011, key reasons include:

  • A common belief that SaaS and Cloud contracts are simple
  • Lack of software contract negotiations and procurement experience
  • Failure to review previous departmental contracts now in renewal mode
  • Limited access to SaaS and Cloud contract expertise

Avoid These Common Mistakes In Cloud Contracts

While SaaS/Cloud contracts are considerably less complicated, buyers should remember that even Cloud/SaaS software contracts still require some careful planning.  Lessons learned from over 1200 software contract negotiations highlight five common mistakes made in cloud contracts.

  1. Blindly including support costs with the contract. While Cloud/SaaS contracts automatically bundle maintenance and updates into the subscriptions, customers often do not realize that they do not have to buy support.  In fact, vendors are not allowed to require customers to buy support with subscription.  Avoid going for the highest level support upon initial contract signing.  This option can always be added at a later date.
  2. Failure to negotiate flex up provisions. Most contracts begin with a small number of users in a departmental setting.  However as usage grow, most enterprises just add additional users without securing upfront discounts potentially leaving 1000’s of dollars on the table.  In contracts, remember to secure discounts for 2x, 3x, and 4x, your initial usage.
  3. Forgetting to negotiate flex down. As with securing discounts for adding usage, the true test of elasticity occurs when companies flex down usage.  Negotiate the ability to reduce usage by 10%, 20%, and 30% without incurring penalties.
  4. Paying upfront without a discount. While many Cloud/SaaS vendors prefer annual agreements and annual payment upfront, savvy Cloud/SaaS buyers prefer to pay in more frequent cycles such as monthly and quarterly.  Should a Cloud/SaaS provider seek upfront payment, negotiate a discount commensurate to your hurdle rate.
  5. Not trading refrenceability for success. Customers often jump at the ability to serve as a referenceable client without ensuring that the software has been deployed.  Agree to serve as a reference only after the software has been deployed.  One common strategy, trade referenceability for prioritization of key features into the next release.

As Cloud/SaaS contracts emerge as the norm, buyers should keep abreast of other changes.  Stay tuned for the 2012 Cloud/SaaS Customer Bill of Rights to be published Q1 2012.

Your POV.

Need help with your software contract?  Contact us throughout the vendor selection process.  We can help with a quick contract review or even the complete vendor selection.  Let us know your experiences.  Add your comments to the blog or reach me via email: R (at) ConstellationRG (dot) com or R (at) SoftwareInsider (dot) com.

How can we assist?

Buyers, do you need help with your apps strategy and vendor management strategy?  Trying to figure out how to infuse innovation into your tech strategy? Ready to put the expertise of over 1200 software contract negotiations to work?  Give us a call!

Please let us know if you need help with your next gen apps strategy efforts. Here’s how we can help:

  • Providing contract negotiations and software licensing support
  • Evaluating SaaS/Cloud options
  • Assessing apps strategies (e.g. single instance, two-tier ERP, upgrade, custom dev, packaged deployments”
  • Designing innovation into end to end processes and systems
  • Comparing SaaS/Cloud integration strategies
  • Assisting with legacy ERP migration
  • Engaging in an SCRM strategy
  • Planning upgrades and migration
  • Performing vendor selection

Related Resources And Links

20100419 Tuesday’s Tip: Dealing With Pesky Software Licensing Audits

20090714 Research Summary: An Enterprise Software Licensee’s Bill of Rights, V2

20101214 Tuesday’s Tip: Dealing With Vendor Offers To Cancel Shelfware And Replace With New Licenses

20100308 Monday’s Musings: Decoupling Support From Maintenance – What Apps Vendors Can Learn From Microsoft Dynamics

20100222 Monday’s Musings: Why Users Should Preserve Their Third Party Maintenance Rights

20100104 News Analysis: SAP Revives Two-Tier Maintenance Options

20090210 Tuesday’s Tip: Software Licensing and Pricing – Do Not Give Away Your Third Party Maintenance And Access Rights

20090709 Tuesday’s Tip: Do Not Bundle Your Support and Maintenance Contracts!

20091222 Tuesday’s Tip: 10 Cloud And SaaS Apps Strategies For 2010

20091208 Tuesday’s Tip: 2010 Apps Strategies Should Start With Business Value

20091102 Best Practices: Lessons Learned In What SMB’s Want From Their ERP Provider

20091006 Tuesday’s Tip: Why Free Software Ain’t Really Free

20090504 News Analysis: Oracle Waives Fees On Extended Support Offerings

20080909 Trends: What Customers Want From Maintenance And Support

20080215 Software Licensing and Pricing: Stop the Anti-Competitive Maintenance Fee Madness

20090405 Monday’s Musings: Total Account Value, True Cost of Ownership, And Software Vendor Business Models

20090324 Tuesday’s Tips: Five Simple Steps To Reduce Your Software Maintenance Costs

20090223 Monday’s Musings: Five Programs Some Vendors Have Implemented To Help Clients In An Economic Recession

20091012 Research Report: Customer Bill of Rights – Software-as-a Service

20090910 Tuesday’s Tip: Note To Self – Start Renegotiating Your Q4 Software Maintenance Contracts Now!

20090721 Tuesday’s Tip: 3 Approaches To Return Shelfware

20090127 Tuesday’s Tip: Software Licensing and Pricing – Now’s The Time To Remove “Gag Rule” Clauses In Your Software Contracts

Reprints

Reprints can be purchased through Constellation Research, Inc. To request official reprints in PDF format, please contact sales (at) ConstellationRG (dot) com.

Disclosure

Although we work closely with many mega software vendors, we want you to trust us. For the full disclosure policy, stay tuned for the full client list on the Constellation Research website.

Copyright © 2012 R Wang and Insider Associates, LLC All rights reserved.

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