Posts Tagged ‘contract strategy’

Research Summary: Next Generation CIOs Aspire To Focus More On Innovation And The Chief Digital Officer Role

Executive Summary

Constellation shares with its clients the fourth annual groundbreaking survey of CIOs later this week.  The 2014 survey interviews respondents about their priorities by CIO persona.  Constellation identified infrastructure, integration, intelligence, and innnovaiton as the four personas of the next gen CIO in 2011.

Survey results show that while CIO’s prefer to spend more time on innovation projects, most CIOs must spend their time battling the reduction of cost in IT delivery.  In the shift towards dominating digital disruption, CIOs can only move as fast as their organization’s DNA will allow while driving transformation. Using Constellation’s organizational DNA framework, CIOs can understand how much change they can expect their organization to consume and gauge their ability to impact the thought process and culture.  An excerpt of some of the findings can be found below:

A. CIOs Must Battle Keeping The Lights On Despite A Desire To Focus On Innovation

In Constellation’s recent CIO survey of 119 respondents, over 44% expressed that reducing the cost of IT delivery remained the number one priority (see Figure 2).  However when asked what should be the number one priority almost 44% expressed that bringing innovation to the business was the number one requirement (see Figure 3).

Figure 1. CIOs Still Prioritize Reducing IT Costs

Figure 2.  Bringing Innovation to the Business Is Top Of Mind On The CIO Agenda

B. CIOs Must Overcome Three Barriers To Bringing Innovation To The Business

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Tuesday’s Tip: Putting the Kibosh On ERP Vendor Sales Reps Who Troll For Indirect Access

Constellation Sees An Alarming Increase In Inquiries

Constellation has received an alarming increase in inquiries about an unethical vendor sales practice coined as “trolling for indirect access”. Indirect access is when a vendor claims that a client is accessing their perpetually licensed software in an unintentional manner or inappropriately licensed manner.

One vendor uses a definition of, “any individual or machine that accesses the computing capabilities of the software must be a licensed user”.

Another vendor sees it as “any time a system is accessed by a non-vendor system, a license is required to access that data”

In fact, a rash of inquiries over the past two quarters has raised the alarm bells among software customers.

Unethical Sales Leaders Endorse This Practice To Make Their Numbers

While this practice is nothing new, the pickup by vendors raises serious issues as to why this practice remains in their sales play books. Constellation identifies five reasons why vendors continue this practice:

  1. Open up dormant accounts. After pleasant introductions, new sales reps will use this technique to further deals.  Former sales reps agree this is a shake down for cash technique.
  2. Drive sales through fear of audits. Audits are used to start the discussion.  Unsuspecting customers who no longer have context about the original contract may fear breach of contract.
  3. Scare customers into making additional purchases. Threats are used to set expectations.  The vendorsoften waives the issue if the customer buys additional licenses as a “compromise”
  4. Force compliance into new licensing policies. Vendors use this as a way to drive conformity to new license models.  The move from concurrent usage to named users was one example.
  5. Meet territory sales goals. Unscrupulous sales managers suggest this technique to meet their numbers.  Sales reps are told they are defending the vendors license rights.

It All Starts With An Innocent Sales Call From A New Sales Rep

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News Analysis: New SAP Customers Face Maintenance Hike

SAP Plans A Standard Support Maintenance Fees Hike Of 5.5%For New Customers

For new customers, SAP announced its intent to raise its standard support maintenance fee from 18% to 19% effective July 15, 2013.  The standard support option was reintroduced in January 14, 2010, after much pressure from user groups.  A few key takeaways:

  • Price hike follows original plans. SAP has provided a six month advanced announcement to raise maintenance for new customers.  SAP has noted that “the adjustment does not apply to any existing maintenance contracts for SAP Standard Support closed before July 15, 2013″

    Point of View (POV):
    The announcement follows the original plan for existing customers to bring Standard Support in line with Enterprise Support by 2015 (see Figure 1).  SAP appears to be harmonizing the price increases for both existing and new customers.  While average support and service contracts are between 18 and 21% in the enterprise software world, SAP’s price increase will still keep it within the norm.
  • SAP raises maintenance rates under the guise of quality. SAP claims that the maintenance fee hike is related to “maintaining the same high level of quality support in the future.  Key features include access to support packages, new releases of standard support solutions, enhancement packages, technology updates, ABAP source code for SAP software applications, and software change management.  SAP also requires customers to use Solution Manager.

    (POV):
    SAP’s tried hard to justify the price increase by offering message handling, remote services, SAP Solution Manager Enterprise Edition, and access to SAP Service Marketplace as additional value added benefits.   Unfortunately, most customers find Solution Manager to be a mile wide and an inch deep, the remote services to be minorly useful, and the SAP Service Marketplace to be immature at best.   The result – customers are not getting much value for the price increase. (Fellow Constellation Analyst Frank Scavo provides a list of four questions every new SAP customer should ask.)

Figure 1. SAP Enterprise Support and SAP Standards Support Schedule circa 2010

screen-shot-2010-01-14-at-74603-am

The Bottom Line: SAP Wants To Eliminate Standard Support And Competitors to Solution Manager

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Tuesday’s Tip: Act Now To Leave The Door Open For SAP Third Party Maintenance Options

The Real Deadline To Consider Third Party SAP Maintenance Is September 30th

In conversations with hundreds of SAP customers, many have not realized that they must act now in the next 30 to 45 days if they want to move off of SAP customer specific maintenance from extended maintenance for older products. Despite the support window ending in March 2013 for extended maintenance, SAP is requiring organizations to serve notice by September 30th, 2012 (see Figure 1). Key products impacted by this deadline include:

  • SAP ERP 2004 (ECC 5.0)
  • SAP NetWeaver 7.0
  • SAP CRM 6.0
  • SAP SCM 5.1
  • SAP SRM 6.0
  • SAP SRM 5.0
  • SAP CRM 5.0
  • SAP SCM 5.0
  • SAP Netweaver 2004
  • SAP SRM 4.0
  • SAP SCM 4.1
  • SAP R/3 Enterprise (4.7)
  • SAP R/3 4.6C

In past experiences, SAP has taken a hard line on the notification date and customers need to immediately take action should they wish to have the maximum support options available to them.

To be clear, those on SAP’s Business Suite 7 have a longer maintenance support window (see Figure 2.) Those products will be supported with mainstream maintenance until 2020.

Figure 1. SAP Maintenance Strategy and Support Time Lines For Older Releases (2010) Revised With 2012 Version

Figure 2. SAP Business Suite 7 Innovation Road Map Provides Longer Maintenance Until 2020

Customer Specific Maintenance Comes With Many Disadvantages

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News Analysis: UsedSoft Vs Oracle Ruling Opens Up Monopolistic Practices By Software Vendors

Used Software Pioneers Gain A Small Victory In A Shrinking On-Premises Software World

The surprise July 3rd, 2012 judgment by the Court of Justice of the European Union for UsedSoft GmbH v Oracle International Corp rules that “An author of software cannot oppose the resale of his ‘used’ licenses allowing the use of his programs downloaded from the internet”.

“The Court of Justice interprets EU law to make sure it is applied in the same way in all EU countries. It also settles legal disputes between EU governments and EU institutions. Individuals, companies or organisations can also bring cases before the Court if they feel their rights have been infringed by an EU institution.”

The recent ruling on the rights of used software mirrors other rulings in cases such as SusenSoftware v SAP and UsedSoft v Microsoft.  Analysis of the ruling shows that:

  • Exhaustion Rule is now the rule of the land. While the German Federal Court of Justice (BGH) on July 6th, 2000 upheld this legal foundation, many vendors have continued to challenge the case.  In this instance the BGH sent the case to the Court of Justice to interpret the UsedSoft v Oracle International Corp case.  The court deliberated and finally ruled that “The exclusive right of distribution of a copy of a computer program covered by such a license is exhausted on its first sale”.

    Point of View (POV):
    UsedSoft’s primary business model is to market licenses acquired from Oracle customers.  After acquiring rights to the license, UsedSoft’s customers who do not possess the software download the licenses directly from Oracle’s website.  Applied to the “Exhaustion Rule”, this means that the developer’s copyright exclusive right of distribution expires at the time of sale.  In summary, a developer can only make money on the initial sale and any attempt to restrict trade of used software through specific trade terms conflicts with the exhaustion rule.
  • Exhaustion Rule applies to physical and downloaded software. This applies to any on-premises software purchase in person and on-line anywhere in the territory of a Member state of the EU.  The ruling states that “the principle of exhaustion of the distirbution right applies not only where the copyright holder markets copies of his software on a material medium (CD-ROM or DVD), but also where he distributes them by means of downloads from his website.”

    Point of View (POV):
    Oracle’s main argument in the case that the directive does not apply to licenses downloaded from the internet is struck down.  As the highest court in the EU, this ruling is the final ruling.  Downloaded or bought in physical form, exhaustion rule applies to all software including both enterprise, personal, and games.  New acquirer of the licenses can download it directly from the vendor’s site.
  • Software publishers can no longer oppose the resale of the copy of software. The court clarified two points on resales of copies of software.  The first, “Where the copyright holder makes available to his customer a copy- tangible or intangible – and at the same time concludes, in return form payment of a fee, a license agreement granting the customer the right to use that copy for an unlimited period, that right holder sells the copy to the customer and thus exhausts his exclusive distribution right.” The second, “Such a transaction involves a transfer of the right of ownership of the copy. Therefore, even if the license agreement prohibits a further transfer, the right holder can no longer oppose the resale of that copy”

    Point of View (POV):
    The clarifications on the resale of the copy of software have huge ramifications.  Based on the ruling, “the distribution right extends to the copy of the computer program sold as corrected and updated by the copyright holder”.  Users basically have rights to all updates at the time of the sale and this latest version can be sold to the secondary market.  Users who fail to download updates have rights to resell those alterations to the next customer.  The subsequent customer would not have such rights.

  • Software licenses can not be divided in the resale and be reused. The ruling clarifies ownership provisions upon reselling.  “If the license acquired by the first acquirer relates to a greater number of users than he needs, that acquires is not authorised by the effect of the exhaustion of the distribution right to divide the license and resell only part of it”.  “An original acquirer of a tangible or intangible copy of a computer program for which the copyright holder’s right of distribution is exhausted must make the copy downloaded onto his own computer at the time of resale”

    Point of View (POV):
    The court wisely upholds copyright law by requiring the seller to remove the property from their possession prior to resell.  However, the inability to divide licenses means that users will have to be careful about the number of licenses they purchase upfront or purchase with separate contracts to allow for the resell of licenses in the future.

The Bottom Line For Buyers: In the EU You Own Your Software Free And Clear of Vendor Encumbrances

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News Analysis: Spinnaker Expands JD Edwards Support With Versytec Acquisition

Versytec Acquisition Addresses Growing Demand For JD Edwards Support


Denver, Colorado based Spinnaker Management announced on March 6th, 2012 its acquisition of competitor Versytec.  For those who remember their third party maintenance (3PM) history, Versytec was among the first firms to announce third-party maintenance services within a year after PeopleSoft acquired JD Edwards in July 18, 2003.  Constellation estimates that Nashua, New Hampshire based Versytec had between 35 to 40 active 3PM customers.

Third-party maintenance describes support and maintenance offerings delivered by non-OEM providers. These vendors can provide a range of options from basic break/fix to bug fixes, performance optimization, tax and regulatory updates, and customization support. Keep in mind, 3PM does not provide access to upgrades and future versions of the OEM’s product. One big driver is the lower cost of delivery, as much as half the cost of the original vendor’s pricing.  Today most customers pay in maintenance and support the equivalent of a new license every 5 years without achieving the value.  For an average JD Edwards customer that upgrades every 15 years, that’s three times the cost of the original license cost.  In the latest Constellation research report, third party maintenance is one of many strategies to free up millions for customers to fund innovation.

The Spinnaker-Versytec deal is important for a few reasons:

  • Many JD Edwards customers seek alternatives to Oracle’s pricey maintenance fees. Software ownership costs continue to escalate as vendors accelerate their efforts to capture support and maintenance revenues.  From inquiries, surveys, and conversations on the ground, many Oracle JD Edwards World and EnterpriseOne ERP customers seek options to buy-time as they consider whether they upgrade or migrate from their current version.  Why?  Most JD Edwards customers run stable environments and do not gain any value from the Oracle one-size fits all 22% support policy.  Most customers seek phone support and tax and regulatory updates.
  • The market needs more options and choices in the third party maintenance market. Many OEM vendors have gone to the extreme to eliminate third-party options for their customers.  This anti-competitive behavior takes away choice for the customer. A bulked up Spinnaker creates a viable organization that has the critical mass to compete with Oracle.   The combined entity provides third party support services to an estimated 100 160 JD Edwards customers across the globe.
  • Spinnaker Support offers a different approach to third party maintenance. Spinnaker couples its third party maintenance options with consulting services providing a one-stop shop for JD Edwards customers.  Spinnaker also differentiates in its download methodology of customer entitled IP from Oracle.  Spinnaker provides customers with a checklist of what to download prior to migration off Oracle support.

The Bottom Line: Users Must Advocate for Third-Party Maintenance Rights Across the Technology Stack

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Research Summary: Best Practices – Three Simple Software Maintenance Strategies That Can Save You Millions

Forward And Commentary

Software ownership costs continue to escalate as vendors accelerate their efforts to capture support and maintenance revenues. Some vendors have gone to the extreme to eliminate third-party options for their customers. This best practices report examines three strategies to free up unnecessary costs to fund innovation and new projects.

A. Introduction

On average, IT budgets are down from 1-5 percent year-over-year, yet software support and maintenance costs continue to escalate ahead of inflation. Hence, continued pressure on IT budgets and a growing need for innovation projects have top business and technology leaders reexamining their software support and maintenance contracts for cost efficiencies.

Based on experience from over 1500 software contract negotiations, Constellation suggests three approaches to reduce the cost of software support and maintenance. Key strategies include third-party maintenance, shelfware reductions and unbundling maintenance contracts as part of every organization’s tech optimization strategy. Successful implementation can lead to savings from 10-25 percent of the IT budget, freeing up cash to fund innovation initiatives.

B. Research FindingsWhy Every Organization Should Consider Third-Party Maintenance, Shelfware Reductions and Unbundling Maintenance Contracts

Most organizations suffocate from the high and hidden cost of support and maintenance. On average, Constellation’s surveys reveal global IT budgets trending down from 1-5 percent year-over-year since 2008. Consumerization of IT, rapidly changing business models, and aging infrastructure have exposed the high cost of software support and maintenance. Because most organizations allocate from 60-85 percent of their budget to keeping the lights on, very little of the budget is left to spend on new projects (see Figure 1).

Organizations can unlock millions by considering third-party maintenance (3PM), reducing shelfware, and keeping support and maintenance contracts unbundled. Each strategy on its own creates opportunities to drive cost savings. All three strategies combined, provide a roadmap for funding innovation.

  1. Third-party maintenance (3PM) delivers the most immediate cost savings and opportunity for innovation. Third-party maintenance describes support and maintenance offerings delivered by non-OEM providers. These vendors can provide a range of options from basic break/fix to bug fixes, performance optimization, tax and regulatory updates, and customization support. Keep in mind, 3PM does not provide access to upgrades and future versions of the OEM’s product. One big driver is the lower cost of delivery, as much as half the cost of the original vendor’s pricing.  The report shows a survey of 268 respondents and why organizations choose 3PM and who the key vendors are.
  2. Reduction of shelfware remains a key pillar in legacy optimization strategies.  Shelfware (i.e. purchased software, not deployed, but incurring annual maintenance fees) is one of the biggest drains on operational expenses for enterprises. The simple definition of shelfware is software you buy and don’t use. For example, an organization that buys 1000 licenses of Vendor X’s latest ERP software and uses 905 licenses, becomes the proud owner of 95 licenses not being utilized. That’s 95 licenses of shelfware because the user will pay support and maintenance on the license whether or not they use the software or not.  The report details 4 successful and proven approaches.
  3. Unbundling maintenance contracts prevents future vendor mischief. About a decade back, vendors would offer support and maintenance as two separate line items on their contracts. Support would run about 5-10 percent of the license fee and so would maintenance. Keep in mind, average support and maintenance fees were under 15 percent back then. Unfortunately, many users have expressed a growing and concerning trend with support and maintenance contracts. Vendors concerns about support and maintenance contract retentions have led to new initiatives to consolidate contracts. At first glance, this may appear to be proactive and beneficial to customers, but the report details three rationales vendors provide and three strategies how to avoid bundling.

Figure 1. Visualizing the High Costs of Support And Maintenance

(Right-click to see full image)

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News Analysis: The Implications Of Oracle’s Acquisition Of Taleo

Catch my colleague Yvette Cameron’s point of view here. She covers Future of Work for Constellation Research, Inc.

Oracle Plays Catch Up With Public Cloud Ambitions

On February 9th, Oracle announced its intention to acquire Dublin, CA based Taleo for $1.9B.  Taleo is a cloud based talent management software provider with 5000 customers and 1400 employees.   Key take aways to consider:

  • Moves by SAP and Oracle intend to compete with next generation cloud HCM companies. Taleo provides recruiting and on boarding, performance management and goal setting, compensation, succession, and learning and development.  This complete suite tied to reporting and analytics is designed to streamline human resource operations and employee career management across retail and hospitality, travel, healthcare, media and entertainment, financial services, technology, and energy and mining.  Marquee customers include Starbucks, Starwood, Hyatt, JP Morgan Chase, HP, Dell, Conde’Nast, United, American Airlines, Tesora, Blue Cross blue Shield, and Sutter Health.to customers.

    Point of View (POV):
    Oracle sees advantages in acquiring a leading player in the talent management space .  For years, both Taleo and SuccessFactors ate into Oracle’s existing customer base for talent management.  Consequently, other cloud based HCM and HR Tech vendors such as Ceridian, CornerStone OnDemand, FairSail, Kinexa, UltimateSoftware, and Workday continue to attract line of business customers looking for innovations not being delivered by their core HCM providers (i.e. Oracle, PeopleSoft, SAP).  More importantly, cloud computing if properly designed can improve the pace of innovation delivered to customers.
  • Oracle continues to buy its way into a public cloud. Oracle continues to react to buyer sentiment and preference for cloud based solutions with this second major acquisition in what they term the “public cloud” space.  Oracle purchased RightNow for $1.43B on October 24th to address its gaps in customer service solutions.  The Taleo purchase addresses a gap in Talent Management solutions that rival SAP plugged with its recent acquisition of Success Factors for $3.4B .

    Point of View (POV):
    These defensive plays indicate a realization that Cloud delivery emerges as the predominant option for applications. Based on Oracle’s current road map, one can expects Oracle to acquire its way into many other edge applications not listed on its Public Cloud road map (see Figure 1).  Some other applications could include social business solutions, expense management, learning solutions, pricing management, identity management, and mobile device management.   However,  Oracle’s public cloud acquisition strategy so far lacks a key requirement – a choice for multi-tenant architected solutions.  While both RightNow and Taleo have some modules that are multi-tenant, in most instances, these applications have been delivered in single tenancy or in multi-instance. Multi-tenant solutions will provide clients with the most efficient upgrade path and lowest long-term cost structure.  The lack of a public strategy to address this issue remains a significant concern for customers and industry observers.

Figure 1. Oracle’s Vision For A Public Cloud

Source: Oracle Corporation

 

  • Seats matter most in a world of CoIT. Oracle hopes to gain massive cloud scale through Taleo’s 74 million transactions per day and 240 million candidates on Taleo Talent Exchange.  The sheer number of users is massive.

    POV:
    Unlike CRM or ERP, the play for HR is all about acquiring the biggest base of users – employees.  With consumerization of IT (CoIT) in full swing, the goal is to grab as many users upfront and then over time cross-sell them into other edge applications which converge between enterprise and consumer.  Why?  The new strategy among the enterprise apps vendors is land and expand. The largest active user bases will win the war of attrition.

The Bottom Line for Customers: Goodbye On-Premises, Hello Cloud World!

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

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.

News Analysis: Microsoft Licensing Update – May/June 2011

Keeping Up With The Latest In Microsoft Licensing

Given the vast array of Microsoft products and licensing categories, an organization may often feel overwhelmed by Microsoft’s policies.  While there may be some complexity, these series of posts are designed to provide up to date commentary and analysis on new programs as they become available.  Feel free to reach out in the comments section with any questions, comments, and clarifications on the analysis.

Product And Program News

Below are the latest product and program news for the May/June 2011 time period:

  • Partner Addendum Available for License Mobility through Software Assurance. What is it?: Microsoft recently announced a new Software Assurance benefit, license mobility through Software Assurance. SPLA partners are invited to become authorized to offer License Mobility through Software Assurance and take advantage of the opportunities that license mobility can provide to their business. In addition to providing customers more flexibility on how they migrate to and utilize the cloud, the addendum enables customers with Software Assurance on many types of server-side licenses to reassign these licenses to multi-tenant servers at a hoster.  Who’s eligible?: All customers on Software Assurance. When’s it effective?: July 1st, 2011.

    Point of View (POV):
    License mobility allows customers and partners to move licenses to the lowest cost computing platform while preserving choice to the consumer.  It also frees the Microsoft partner providing the shared environment from paying Microsoft SPLA licensing fees for those licenses.  Keep in mind products eligible for License Mobility within Server Farms in the Microsoft Product User Rights (PUR) guidelines include products such as Microsoft Exchange and Microsoft SharePoint. However, infrastructure products such as Windows Server would not be part of License Mobility.

Microsoft Promotions Update

Here are the following known promotions:

  • Changes to SPLA Subscriber Access Licenses for Software Assurance. What is it?: Microsoft will be offering new software access licenses (SALs) for Software Assurance (SA) offerings within the Services Provider License Agreement (SPLA) program. In addition some SAL for SA prices are decreasing.  SALs for SA are available to be assigned to customers who have previously purchased these on-premises CALs and who continue to maintain Software Assurance on those CALs. With SALs for SA, these customers can migrate to the equivalent SPLA service at a discounted rate.  Who’s eligible?: Customers on CALs with Software Assurance (perpetual software licenses) for on-premises use.   When’s it effective?: Effective July 1, 2011.

    (POV):
    The move to SALs provides customers with a transition from on-premises to partner led hosting.  Microsoft sees this as a potential opportunity to help customers move to lower cost of computing over time.  Customers who strongly believe in the perpetual license on-premises model will most likely not take up this offer.  However, most newer customers will see this as an opportunity to shift from capex to opex.

The Bottom Line For The Customer – New Promotions Show Shift To Cloud

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Tuesday’s Tip: Dealing With Pesky Software Licensing Audits

Organizations Report Increase In Software Licensing Audits

Across the board, the largest complaints about software vendors and their business practices have come from increasingly aggressive software auditing practices.  Once thought to be a small possibility, the software vendors now wield this big stick to drive up sales and of course ensure compliance.  Given the 32 percentage gain since Q1 2008 in the percentage of respondents faced with a software audits, procurement managers, CIOs, and CEOs have paid attention (see Figure 1).   Even the recent Gartner report from star analyst Jane Disbrow et al. shows that 61% of their customers have been audited by at least one software vendor.

Figure 1.  Software Vendors Ramp Up Software Audits

Software Licensing Audits Masquerade As Sales Tactics In Disguise

Is this shocking?  Should customers be concerned?    Given the relatively strong compliance rates in the high 80′s, customers should be livid that vendors are willing to jeopardize a relationship to shake down for cash (see Figure 2.).  Here are some key reasons for the audit:

  • Check for compliance
  • Identify installed base competitors
  • Drive incremental license sales
  • Prospect for up-sell/cross-sell

After speaking with 13 major software vendors, most admitted that software audit served two purposes.  The first – keep customers in compliance.  The second – shaking the bushes for new deals during the recession.

Figure 2.  Most Organizations Were In Compliance Post Software Audit

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Monday’s Musings: Putting An End To The Conflict Of Interest Among Some Sourcing Advisors

Many Services Firms Seek Unfair Advantages With Market Makers

Service providers continue to battle it out in the über competitive market for large annual multi-million dollar contracts.  Market makers who serve as sourcing advisors, (i.e. management consultants, analysts, or vendor specialists) often influence the outcome of large sourcing contracts and system integration projects.  Consequently, more and more service providers seek to influence sourcing advisors.

Now let’s be honest, influence through consulting engagements around positioning, competitive intelligence, and go-to-market strategy is nothing new.  Most firms make it transparent to the buyer who they work with.  However, in the past few months, we’ve uncovered several new techniques that cross the line on both objectivity and transparency.  These approaches include both formal and informal contractual guarantees across three major areas:

  • Number of blog posts or written research about a vendor. Sourcing advisors commit to writing certain amounts of research in exchange for a contract with the service provider.  In some cases, the research may require editorial approval by the service provider.
  • Number of invitations to bidders conferences. Sourcing advisors commit to inviting the contracted service provider to a short listed group of candidates.  Some contracts even include a tiered scale for greater payouts based on the number of invitations to deals.
  • Kick backs and referral fees for closed business. Sourcing advisors collect a financial reward for recommending a buyer to a service provider.  Fees work similar to referral models with alliance partners.

The Bottom Line:  Ask These Five Questions Before You Engage With Your Sourcing Advisor

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