SAUG Summit Delivered Great Networking Opportunities And Information Exchange

Over 550 attendees converged on Sydney August 3rd to 5th, 2010 for the annual SAP User Group Summit.  Members were treated to 28 session, 7 keynotes, and 4 SAP 101 educational sessions.  The smart design of the conference gave attendees ample opportunities to connect and share ideas between sessions.  Kudos to Kim Salter and team for a great event! In conversations with over 100 attendees, four trends emerged:

• Excitement in putting Business Intelligence (BI) to work. A combination of pent up demand, SAP marketing of Business Objects, and early adopters of BW led to many interesting conversations about the future road map.  Users sought clarity on the future direction and for the most part received it around BEX support and future investments.  Many continued to wonder if SAP would clean up its master data management strategy and address the need for a stronger next generation BI platform.

• Considerable interest in how the Cloud can be used with existing SAP investments. Several sessions on the cloud were given.  Jeff Word, President of SAP Product Strategy provided an SAP Session on Cloud Computing.  The 6th  keynote on “Ready for the Cloud and SaaS?” provided users with 10 strategies to use Cloud Computing with or without SAP.  With so much confusion on Cloud terminology, attendees wanted a reset on the definitions and categories of cloud computing.  In each conversation, cost savings and flexibility drove the interest to consider cloud options.  A good mix of both technology and business leaders instigated the conversations.  Considerable disappointment emerged when they found out Business by Design would not be available to Australia until late 2011.

• Concern about negotiating leverage in SAP contracts. In both the CIO session and in passing conversations, the majority of attendees expressed a concern about waning leverage in contract negotiations for the acquisition of new licenses or dealing with maintenance fees.  A few attendees expressed frustration that the SAP Australia head office ignored them when their contracts were written by the corporate entities in countries abroad.  They felt that SAP should act with one face to the world.

• Questions on when to upgrade. Many attendees expressed concern on when to upgrade.  A large number on 4.6 and 4.7 saw no need to make the shift yet despite a few key features in Enhancement Packages.  In fact, many of these users augmented the gaps with SaaS solutions today in expense management, CRM, business intelligence, and strategic HCM.

A photo collage of the event can be seen below (see Figure 1):

Figure 1. SAUG Summit 2010 Flickr Feed

Source:Copyright © 2010 R Wang and Insider Associates, LLC. All rights reserved.

The Bottom Line For Users (Clients) – Get Active In The User Group To Gain Influence On SAP

SAP users and their user groups have a unique opportunity to put in the right infrastructure to engage in productive partnership with SAP.   SAP management is now more willing than ever to hear customer feedback.  Customers seeking to innovate within their SAP investment should ask hard questions about what is in the SAP Labs portfolio.  User groups will play a key role in helping to prioritize future SAP product road map investments.  Users and their user groups should push for frameworks that monitor customer requests  and increase transparency in the prioritization process. Customers can not allow SAP to squander any more of the 10’s of billions in maintenance fee and license fees “invested” with SAP.  It’s time to partner and user groups provide a great vehicle and catalyst to begin and continue the conversation.

Your POV

SAP users, are you feeling the same concerns in your region?  What are your other concerns that you wish to hear SAP address?  Add your comments to the discussion or send on to rwang0 at gmail dot com or r at softwaresinsider dot org and we’ll keep your anonymity.

Please let us know if we can be of assistance in an advisory capacity.  Here’s how we can help:

• Crafting a next gen apps strategy
• Short listing and vendor selection
• Contract negotiations support
• Market evaluation
• Implementation partner selection
• Connecting with other partners
• Sharing best practices
• Designing a next gen apps strategy
• Providing contract negotiations and software licensing support
• Demystifying software licensing

Related resources and links

20090803 A Software Insider’s Point Of View – R “Ray” Wang “Monday’s Musings: Users Now Expect More Advocacy From Their User Groups”

20100518 A Software Insider’s Point Of View – R “Ray” Wang “Event Report: Sapphire 2010 Brings Customers Back To A Sense Of Normalcy”

20100512 A Software Insider’s Point Of View – R “Ray” Wang – “News Analysis: SAP Bets On Innovation With $5.8B Sybase Acquisition”

Reprints

Reprints can be purchased through the Software Insider brand or Altimeter Group.  To request official reprints in PDF format, please contact r@softwareinsider.org.

Disclosure

Although we work closely with many mega software vendors, we want you to trust us.  SAP is currently a  client of Altimeter Group but not a client of Insider Associates, LLC.  SAUG is a client of Insider Associates, LLC.  For the full disclosure policy please refer here.

Copyright © 2010 R Wang and Insider Associates, LLC. All rights reserved.

Recent Client Interactions Hint At Increasingly Aggressive Vendor Behavior

Conversations with 11 enterprise apps customers in the past two months indicate stricter enforcement of vendor “All or Nothing” maintenance policies.  “All or Nothing” maintenance policies often require customers to put all licenses on maintenance or receive no maintenance from the vendor.  These policies also prevent customers from reducing the number of licenses covered by maintenance.  The rationale for these policies – customers could potentially apply the patches, bug fixes, and upgrades for covered licenses to the uncovered licenses.  While this may seem reasonable, accounting for changes in revenue recognition appears to be the greater issue.

All Or Nothing Policies Impact Shelfware Reduction The Most

Traditionally, customers with declining revenues and employees sought provisions to reduce shelfware.  Shelfware is software purchased but not deployed.  While customers are not required to purchase maintenance with their new licenses, most modern software maintenance contracts include clauses that prevent flex down and invoke penalties for reducing the number of licenses during the maintenance period.  These policies lock customers in to maintenance contracts to preserve the Total Account Value (TAV).

Purchasing Additional Licenses Challenge The Legality Of All or Nothing Policies

In recent contract negotiations, several customers sought to add additional licenses of a product they owned that was not on maintenance.  Subsequently, the sales teams for both vendors told them to “true up” on maintenance or they could not purchase additional licenses.  The customers found this to be contradictory as they did not have to buy maintenance to own the software to begin with.  The tying of maintenance to purchases may, in fact, be illegal.  Consequently, clients often face a Catch-22 in four typical scenarios (see Figure 1):

1. Acquiring entity received new licenses in a merger. Acquired organization may not keep current on maintenance.  Organization does not bundle the software contracts.  Organization does not realize they need to be on maintenance to purchase new licenses for combined entity.  Software vendor insists that the entire company pay back maintenance to buy new licenses.
2. Divested entity inherited licenses from a divestiture. Divested organization keeps licenses from an unbundled contract.  Organization seeks to purchase new licenses.  Organization does not realize they need to be on maintenance to purchase new licenses for combined entity.  Software vendor insists that the entire company pay back maintenance to buy new licenses.  New customers would not have to pay for maintenance with new licenses.
3. Regional units purchased separate licenses from other units. Some divisions drop maintenance contracts.  Others keep maintenance.  Organization does not realize they need to be on maintenance to purchase new licenses for combined entity.  Software vendor insists that the entire company pay back maintenance to buy new licenses even though buying entity is on maintenance.
4. Organization dropped maintenance on desupported products. Organization dropped maintenance on some products that were no longer being supported.  Organization does not realize they need to be on maintenance to purchase new licenses for combined entity.  Software vendor insists that the entire company pay back maintenance to buy new licenses even though buying entity is on maintenance.

Figure 1. Four Typical Scenarios Where All Or Nothing Fails Customers

The Bottom Line For Buyers – Organizations Can And Should Push Back On Unfair Policies

In 9 out of the 11 cases, clients pushed back hard during the negotiations process.  Escalation to the legal team proved to be the best route to blow past the sales puffery.  However, clients should use these key negotiations tips to gain leverage in the conversation:

• Do not bundle contracts, ever. If you bundle, you lose leverage. Period.  Keep your contracts separated so you can flex up or flex down.
• Download the latest updates and bug fixes. Don’t get caught in a situation where your vendor blocks your access for not being on maintenance.  Always download the latest patches and entitled upgrades as soon as they become available.  Of course, do not apply these entitlements to software where you do not have maintenance rights!
• Decouple support from maintenance when possible. Seek customer friendly clauses in your contracts.  Use the Microsoft Dynamics example as your guide in contract negotiations..
• Consider third party maintenance options.  Third party maintenance options exist for many vendors.  Cut the maintenance fees in half while receiving comparable or better levels of support for bug fixes, tax changes, and regulatory updates.  Keep in mind, third party maintenance cuts off access to future upgrades.

Your POV.

Are you preparing for the 2011 maintenance contract renewal cycle? Have you faced this issue with your vendor?  How did you resolve it?  Ready to put the expertise of over 1000 software contract negotiations to work?  Give us a call!  You can post or send on to rwang0 at gmail dot com or r at softwaresinsider dot org and we’ll keep your anonymity.

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 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

Resources And Related Research:

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 the Software Insider brand or Altimeter Group.  To request official reprints in PDF format, please contact r@softwareinsider.org.

Disclosure

Although we work closely with many mega software vendors, we want you to trust us.  For the full disclosure policy please refer here.

Copyright © 2010 R Wang and Insider Associates, LLC. All rights reserved.

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

• Enrollment For Application Platform (EAP) Updates. What is it?:  The new updates include SQL Server 2008 R2, Visual Studio 2010, and SharePoint Server 2010.  SQL Server prices for EAP go up with Standard receiving a 25% hike and Enterprise Editions a 15% increase.  Customers who buy Visual Studio products with Software Assurance (SA) receive Microsoft Development Network (MSDN) subscription benefits.  SharePoint Server for Internet Sites is updated for SharePoint Server for Internet Sites Enterprise.  Who’s impacted?: Customers who are standardizing application platforms on products such as BizTalk Server, SharePoint Server, SQL Server, and Visual Studio .  When’s it effective?: This program begins May 3rd, 2010.

  Point Of View (POV): EAP is a program for customers interested in standardizing on the Microsoft Server Platform.  Price savings for new licenses range from 15% on Standard Edition to 40% on Premium Editions.  Overall, the program makes sense because it allows customers unlimited usage with annual or three year true up terms that create a flexible approach towards standardizing on Microsoft.  Other benefits include rights to the latest version of products and the flexibility to deploy unlimited incremental units.  Customers also receive 100 percent Software Assurance (SA) coverage on footprint for included products.  While the price increase on SQL Server is definitely not welcomed, this may be the time to look at Software Assurance (SA).  The new version does come with additional features such as data compression, Master Data Services, StreamInsight, and PowerPivot.

  On the Visual Studio front, customers will notice the replacement of the Visual Studio Developer Tools group with Visual Studio Ultimate with MSDN, Visual Studio Premium with MSDN and Visual Studio Professional.  Ultimate and Premium versions now count towards the minimum requirements.  Users also receive access to Visual Studio Test Professional, Visual Studio Team Explorer Everywhere.  Finally, the new plan replaces the Visual Studio Test Load Agent with Visual Studio Load Test Virtual User Pack.

• Office 2010 and “Wave 14″ Products Launch. What is it?: Office 2010 suite, Project 2010, Sharepoint 2010, Visio 2010, and the updated ECAL suite are now in the Volume Licensing channel in the May 2010 price list. Who’s eligible?: All customers. When’s it effective?: This program starts in the retail channel (FPP) when products become General Availaiblity (GA) in June 2010.

  POV: Movement to the Volume Licensing channel makes sense as Office 2010 and “Wave 14″ products represent a core customer purchase.  Keep in mind only Office Professional Plus 2010 and Office Standard 2010 qualify for Volume Licensing.  Office Home 2010 and Office Professional 2010 do not qualify.

• Forefront Protection 2010 For SharePoint Available May 2010. What is it?: Forefront Protection is added to the Volume Licensing Price List. Who’s eligible?: All customers in standalone purchase, Forefront Protection Suite, and part of the Enterprise CAL suite. When’s it effective?: The program begins May 2010.

  POV: Forefront has improved and new security partnerships keep users from uploading or downloading content that may contain security breaches, malware, out-of-policy content, to SharePoint libraries.  Users should do a quick cost comparison before moving this into the Enterprise CAL suite as standalone purchases in some cases may prove to be more flexible during the initial trial phase.

Microsoft Promotions Update

The following are new promotions that have been introduced as of May 1, 2010:

• Enterprise Desktop and Professional Desktop. What is it?: Savings on Microsoft Enterprise Desktop, Professional Desktop, Enterprise Desktop with Microsoft Desktop Optimization Pack (MDOP) and Professional Desktop with MDOP.  Who’s eligible?: Commercial and Government customers who qualify as Microsoft Open Value Level C (OV Level C) customers.  When’s it effective?: This program starts May 1st, 2010 and expires June 30th, 2010.

  POV: To qualify as an OV Level C customer, customers must have an Enterprise agreement for more than 250 desktops PC’s governed by a company wide agreement.   Customers who meet the qualifications for OV Level C typically receive an initial purchase discount up to 15% discount.   However, customers must purchase from a value added reseller (VAR).  Interested customers should hurry as the general OV Level C program originally expired April 3rd, 2010 but has been extended to June 30th, 2010.

The following are promotions ending on June 30th, 2010:

• Open Value Subscription Expanded Up to Date.  What is it?: Upgrade to Microsoft Office 2010 or Windows 7 for customers who sign a new Open Value Subscription or Open Value Subscription for Government agreement.  Who’s eligible?: The Open Value Subscription program up-to-date promotion for existing desktop platform licenses of current (N) and previous (N-1) versions has been expanded to include N-2 versions: Microsoft Office Professional XP, Microsoft Office Small Business XP, and Microsoft Office Standard XP. When’s it effective?: Available now – the licenses launched worldwide in January 2010.

  POV: If there’s a compelling need to move to Office 2010 and Windows 7 and an Open Value Subscription is on the table, this represents a good incentive to upgrade to Microsoft Office 2010.

• Rental Rights. What is it?: Rights for organizations to rent, lease, or outsource PC’s to third parties with qualifying Windows operating system or Microsoft Office system software.  Who’s eligible?: Open License, Select License, and Select Plus customers.   When’s it effective?: The program is effective from now till June 30th, 2010.

  POV: Based on current license rights, office equipment leasing companies, PC leasing companies and other businesses which provide PCs to operators of hotel and airport kiosks, internet cafés, and business centers, can not rent, lease or outsource the Microsoft software on the PCs to end users.  Microsoft began a program in January 2010 to offer these rental, leasing, and outsourcing rights for these businesses.  The program modifies the licensing rights for this type of third party end user situation.  The rights are provided through a one-time license transaction.  The rights are non-transferable and endure for the term of the underlying software license or life of the hardware they are attached to.

• Windows HPC Server 2008 Promotion. What is it?: Customers who purchase Windows Server HPC Edition operation system server license and Software Assurance (SA) packs can save up to 25%.  Who’s eligible?: customers must be on Open License, Open Value, Select License, Select Plus, and Enterprise Agreements.  When’s it effective?: April 1, 2010 to June 30, 2010.

  POV: Microsoft’s been beefing up its maintenance programs.  Today’s SA packs include more than upgrade rights.  Services range from cold back ups for disaster recovery, home use programs, E-learning, new version rights, to spread payments.   Microsoft does not require SA with purchase.  Customers who seek maintenance should assess their business requirements first and then determine what features and packs within SA to select.  Make sure you only buy maintenance for what you need.

• Open Value Level C 15% Discount. What is it?: A 15% discount for an initial Enterprise product order.  Who’s eligible?: Customers who have an Enterprise agreement for more than 250 desktops PC’s governed by a company wide agreement   When’s it effective?: The program is effective from now till June 30th, 2010.

  POV: Interested customers should hurry as the general OV Level C program originally expired April 3rd, 2010 but has been extended to June 30th, 2010.  Customers must purchase from a value added reseller (VAR).

• Simplify And Save: Discount For Renewal Into Open Value. What is it?:  Renewing customers can save up to 15% on Software Assurance for the entire duration of an Open Value agreement for all products (i.e. all three years).  Who’s eligible?:  Customers with SA renewable products on the Open Value price list qualify.  When’s it effective?: Until June 30, 2010.

  POV: Open Value agreements only make sense if a customer wants to commit to a 3-year time frame.  Benefits include anytime upgrades, a single agreement, and the availability to move to client access licenses (CAL) instead of choosing between Small Business or Desktop Professional platforms.

The Bottom Line For The Customer – Many Promotions Expire Due To June 30th Fiscal Year End

As with any other software vendor, year end brings an end to promotions and a frenetic rush to meet quarterly and yearly forecasts.  If there’s any lesson learned from this past year, vendors continue to incentivize promotions to grow maintenance revenue.  Microsoft is no exception as most promotions seek to increase customer base penetration.  Customers should pay close attention to how often upgrades, service requests, and license usage match with overall maintenance contracts.  Asses whether value has been achieved between the overall apps strategy and actual contract usage.  Keep an eye on reducing shelf ware and overall maintenance costs per employee.  And most of all focus on the ratio of business impact and cost of delivering IT services.

Your POV

What do you think of Microsoft’s recent promotions?  Are you challenged trying to manage your Microsoft Licenses? Do you find the licensing too simple or too complex?  Add your comments to the discussion or send on to rwang0 at gmail dot com or r at softwareinsider dot org and we’ll keep your anonymity.

Please let us know if you need help with your Microsoft and overall apps strategy and contract negotiations strategy.  Here’s how we can help:

• Providing contract negotiations and software licensing support
• Demystifying Microsoft licensing
• Assessing SaaS and cloud
• Evaluating Cloud integration strategies
• Assisting with legacy ERP migration
• Planning upgrades and migration
• Performing vendor selection
• Renegotiating maintenance

Related resources and links

20100428 Software Insider – R “Ray” Wang “News Analysis: Microsoft Licensing Update – April 2010″

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

20091008 Deal Architect – Vinnie Mirchandani “Third Party Maintenance Is Really 4 Decades Old”

20071120 News Analysis: Too Early to Call the Death of Third Party Maintenance

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!

20090622 News Analysis: Infor Flex Reflects Proactive Maintenance Policy

20090516 News Analysis: Rimini Street Launches Third Party Maintenance for SAP

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

20090428 News Analysis: SAP and SUGEN Make Progress on Enterprise Support

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

20090330 Monday’s Musings: It’s The Relationship, Stupid! (Part 2) – Stop Slashing The Quality Of Support And Maintenance

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

20081012 Monday’s Musings: 5 Steps to Restoring Trust in the Vendor – Customer Relationship

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

20090912 News Analysis: Siemens Cancels SAP Maintenance Contract

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

Disclosure

Although we work closely with many mega software vendors, we want you to trust us more.  Microsoft is currently a retainer client of Altimeter Group but  not a client of Insider Associates, LLC.  For the full disclosure policy please refer here.

Copyright © 2010 R Wang and Insider Associates, LLC. All rights reserved.

Four Common Customer Scenarios Will Trigger Vendors To Raise The Back Maintenance Fee Discussion

Back maintenance fees describe the amount an organization would have paid for maintenance if they would have continued to pay the usual stream required to access support, bug fixes, patches, and upgrade rights.  As economic conditions have worsened, many organizations have turned to self-support, third party maintenance (3PM), or dropped support.  Discussions with 43 enterprise software customers reveal four common scenarios (see Figure 1):

1. Scenario 1: Self supporting customers looking to upgrade to next release. Customers (44.19% n=19/43) in these scenarios typically run mature systems and are in businesses that do not face dynamic change .  They stopped paying maintenance years ago and rarely make major changes to the system.
   Catalyst:  Something happens in the business and the need to upgrade arises.
   Typical vendor response: Upgrades can only be provided to customers who pay for maintenance.  Upon payment of back maintenance, upgrades will be provided.  In some cases, vendors also levies a penalty.
2. Scenario 2: Self supporting customers seeking a major bug fix or regulatory update. Organizations (27.91% n=12/43) in this dynamic have self-supported for years without incident but run into scenarios where their own teams can not resolve an issue.
   Catalyst: Bug fixes and major regulatory changes can not be supported by the internal team.
   Typical vendor response: Bug fixes and regulatory updates can only be provided to customers who pay for maintenance.  Upon payment of back maintenance, patches and regulatory updates will be provided.  In some cases, vendor also levies a penalty.
3. Scenario 3: Customers shifting to third party maintenance (3PM) looking to future upgrade/replacement. Those customers (16.28% n=7/43) who move to a third party maintenance provider and give up future upgrade rights often face threats from sales people that they will have to “pay dearly” if they plan to come back  to the vendor.
   Catalyst: Final decision to end of life systems and upgrade to new platform results in interaction with existing vendor.
   Typical vendor response: Customer must pay back maintenance in order to purchase additional modules or upgrade. In some cases, vendor also levies a penalty.
4. Scenario 4: Customers not paying for maintenance with license contracts. More and more customers (11.63% n = 5/43) in newer areas such as CRM no longer pay for maintenance and support past the first year.  With replacements every 4 to 5 years for CRM, some customers achieve a better ROI by avoiding the 5 years of maintenance.  Why?  Five years of maintenance at 20% is equivalent to the cost of the original license.   Instead, they just rebuy a replacement/upgrade every 5 years.
   Catalyst:  Replacement and full rebuy of new system.
   Typical vendor response: Customer must pay back maintenance in order to purchase additional modules or upgrade.  In some cases, vendor also levies a penalty.

Figure 1. Common Triggers That Drive Back Maintenance Fee Threats

Customers Often Have More Leverage Than They Realize

Most organizations fear that vendors will carry out threats to charge back maintenance.   Those vendors who subsidize license fees with maintenance to maximize Total Account Value (TAV) often threaten customers the most.  Many organizations will cave-in to demands.  Do not cave-in!  In almost every scenario, expert contract negotiations often result in win-win propositions for both the customer and the vendor for a few reasons:

• Vendors really don’t want to lose an existing customer. Despite the threats from vendors, customers who self support, move to third party maintenance (3PM), or opt out of support, find themselves with significant leverage.  Free of the vendor, organizations in this scenario can make a clean decision because the technology typically is outdated, the cost of upgrade is close to the cost of reimplementation, and the organization has entered a new buying cycle.  If a current vendor wants a customer to pay back maintenance on top of the new license fees, that vendor will find themselves at a price disadvantage with a newer alternative.  Most vendors would rather win your business than lose a customer over back maintenance fees.
• SaaS competition brings more choices in most categories. The explosion of SaaS deployment options opens up the door to competition with the traditional on-premise vendors.  In most cases, there are enough viable options to add  competitive pressures.  SaaS competitors can transcend existing platforms allowing for more choice in new markets.  Organizations should introduce SaaS vendors into short lists in decisions to replace or add additional functionality to existing systems.  Competition often results in the vendor backing down on their back maintenance fee threat.
• Most customers have not bundled their service contracts. With a flurry of mergers and acquisitions for organizations and the technology vendors, most organizations have not consolidated their software contracts.  Separate agreements give organizations significant leverage when dealing with vendors because organizations can choose which applications and solutions to cut maintenance on.  This power to slice and dice among the contracts provides tremendous negotiation advantage and a strong check and balance with vendors.  Do not bundle your maintenance contracts unless significant advantages exist in new terms and conditions.

The Bottom Line For Users – Software Market Remains A Competitive Buyers Market For Now

Economic conditions, SaaS competition, and heavy dependence on maintenance revenue leave software vendors hungry and competitive for new license revenue.  In markets with SaaS competition, customers continue to win concessions in license and maintenance fee reductions.  Today, few vendors can afford to enforce their threats to charge for back maintenance. With a high likelihood that current conditions will continue, its would be unlikely to assume that vendors would give up the opportunity to win license revenue by charging for back maintenance.  Work with a contract negotiations expert with applications strategy experience for the best results.  Avoid contract negotiators who do not understand vendor product road maps or hide behind revenue recognition excuses.

Your POV

Has your vendor threatened back maintenance?  Should you have rights to Third Party Maintenance (3PM) ?  Do you feel its okay for your vendor to prevent you from access?  What’s a fair amount to pay for maintenance?  Add your comments to the discussion or send on to rwang0 at gmail dot com or r at softwaresinsider dot org and we’ll keep your anonymity.

Please let us know if you need help with your contract negotiations and maintenance renegotiation.  Here’s how we can help:

• Assistance with vendor threats of back maintenance
• Crafting your next gen apps strategy
• Contract negotiations support
• Free market evaluation to identify contract cost savings

Related resources and links

Take the new and improved survey on 3rd party maintenance

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

20091008 Deal Architect – Vinnie Mirchandani “Third Party Maintenance Is Really 4 Decades Old”

20071120 News Analysis: Too Early to Call the Death of Third Party Maintenance

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!

20090622 News Analysis: Infor Flex Reflects Proactive Maintenance Policy

20090516 News Analysis: Rimini Street Launches Third Party Maintenance for SAP

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

20090428 News Analysis: SAP and SUGEN Make Progress on Enterprise Support

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

20090330 Monday’s Musings: It’s The Relationship, Stupid! (Part 2) – Stop Slashing The Quality Of Support And Maintenance

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

20081012 Monday’s Musings: 5 Steps to Restoring Trust in the Vendor – Customer Relationship

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

20090912 News Analysis: Siemens Cancels SAP Maintenance Contract

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

Copyright © 2010 R Wang and Insider Associates, LLC. All rights reserved.

Who Says Support Has To Be Bundled With Maintenance?

About a decade back, vendors would offer support and maintenance as two separate line items on their contracts.  Support would run about 5 to 10% the license fee and so would maintenance.  Keep in mind, average support and maintenance fees were under 15% back then.  Here’s a quick primer on what was covered:

• Maintenance.  Traditional areas include basic bug fixes, functional and performance enhancements, upgrades, backward compatibility, and legislative and regulatory updates.
• Support.  Most requests fall in the technical support category.  Support cases typically include installation issues, integration questions, third product compatibility, and complex scenario resolutions.

Today, almost every vendor in the enterprise apps world (i.e. ERP, CRM, SCM, eCommerce, etc) has decided to bundle the two line items together. It’s now known as software maintenance and support and vendors charge between 18 and 28% of net price.

Microsoft Dynamics Uniquely Provides A Separated Maintenance And Support Option With Choice, Value And Flexibility

While many in the software industry have obsessed with locking customers into maintenance and support contracts, the Microsoft Dynamics team set out to differentiate the ownership experience around the key principles of choice, value, and predictability (see Figure 1).

• Choice.  After the initial purchase, Microsoft Dynamics has offered customers the option to purchase maintenance and support separately.  This is unique to the industry for three reasons because customers:
  1. Choose whether or not to buy maintenance.
  2. Determine who they go to for support.
  3. Separate the technical support from the maintenance decision.

• Value.  Microsoft’s maintenance plan bundles a series of customer friendly services that deliver value.  The include
  1. Unlimited acccess to eLearning.  Customers can get to any course at any time with their maintenance dollar.  There’s no requirement for expensive week long training academies.
  2. 24 hour self-service support. Microsoft’s invested in its self support community and has 1000 new users a month with 30,000 self-help posts to date.  Most questions can be addressed in the discussion forum or directly by an expert.
  3. 10 years of lifecycle support. Most vendors provide a 5 year plan with escalating costs in the 6th and 7th years.  10 years represents a reasonable life cycle for ERP.

• Predictability.  Along with the 10 years of lifecycle support, Microsoft Dynamics will use the original purchase price as the basis of calculating future maintenance fees.  Users must stay current on enhancements to qualify.

Figure 1: Microsoft Dynamics’ Delivers Choice and Value In Its Support And Maintenance Offerings

. 

The Bottom Line – Users Should Demand A Split In Maintenance And Support

Now’s the time to seek options in maintenance.  Shelfware reduction, third party maintenance (3PM), and contract re negotiations should provide some relief at the business level.   However, decoupled maintenance from support options opens up the customer base to internal and third party options.  Sticking with maintenance and not support may prove to be the best value (i.e. next to 3PM) and create a win-win between the vendors and customers.

The Bottom Line – Progressive Vendors Can Take Charge And Lead The Way.

Software vendors must reexamine their offerings to understand what customers need.  Should economic conditions worsen, more third party maintenance (3PM) options will emerge and force pricing pressures against today’s tired models.  Vendors must take action by phasing in or offering tiered maintenance offerings and minimal support

Your POV

Are you a Microsoft Dynamics customer?  Did you unbundle support from maintenance?  Are you looking at options to compare the vendors?  We’d love to hear your point of view.   Please post or send on to rwang0 at gmail dot com or r at softwaresinsider dot org and we’ll keep your anonymity.

Let us know if you need help with your enterprise apps strategy by:

• Conducting an ROI on 3rd party maintenance options
• Identifying cost reduction opportunities
• Renegotiating your software contracts
• Improving innovation via SaaS and other deployment options

Take the new and improved survey on 3rd party maintenance and

Related resources and links

20091008 Deal Architect – Vinnie Mirchandani “Third Party Maintenance Is Really 4 Decades Old”

20071120 News Analysis: Too Early to Call the Death of Third Party Maintenance

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!

20090622 News Analysis: Infor Flex Reflects Proactive Maintenance Policy

20090516 News Analysis: Rimini Street Launches Third Party Maintenance for SAP

20080909 Trends: What Customers Want From Maintenance And Support

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

20090428 News Analysis: SAP and SUGEN Make Progress on Enterprise Support

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

20090330 Monday’s Musings: It’s The Relationship, Stupid! (Part 2) – Stop Slashing The Quality Of Support And Maintenance

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

20081012 Monday’s Musings: 5 Steps to Restoring Trust in the Vendor – Customer Relationship

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!

20090602 Tuesday’s Tip: Now’s The Time To Consider SaaS Software Escrows

Copyright © 2010 R Wang and Insider Associates, LLC. All rights reserved.

Apps Users Seek Third Party Maintenance For Cost, Value, and Service

Updated surveys from inquiries, client conversations, and user group meetings show a 113.8% increase in interest in third party maintenance (3PM) services from Q3 2009 to Q1 2010 (see Figure 1).  Key factors stem from (see Figure 2.):

• Continuing cost pressures. Budgets continue to be at flat or have been reduced.  Organizations must do more with less.  Add pressures to innovate, CIO’s must find fat without trimming bone.
• Gaining minimal value in maintenance services. Most felt they were paying too much for too little.  An 8 point jump reemphasized the issue with a lack of tiered offerings.
• Declining plans to upgrade. Worsening economic conditions from Q3 2009 to Q1 2010 led a 27 point increase in interest in 3PM.  Expect many respondents to change their point of view (POV) as economic conditions improve.
• Expecting better service. Service continues to play a key factor in decisions to go to 3PM.  Over 60% of respondents had experienced poor levels of service.
• Slowing pace of vendor innovation. Greater than half of respondents believe their vendor has been too slow to deliver new capabilities. These include SaaS deployment options or key functionality in areas such as strategic HCM and social CRM.
• Disliking the vendor. About 1/3 of the survey respondents have bad experiences with their vendor.  Many times it comes from sales person or support rep experiences.
• Delivering self support. Almost 30% of respondents already provide their own support.  These organizations have no need to pay maintenance when they are doing all the work.

Figure 1. Interest in 3PM grows 113.8% over 2 quarters.

Figure 2. Cost Pressures, Value, And Decision Not To Upgrade Drive Current Trends to 3PM

Limited Options Exist For Most Enterprise Apps Customers

Of the 101 respondents in Q1 2010 interested in 3PM, Oracle (88.1%) and SAP (76.2%) users expressed the greatest interest in seeking independent services (see Figure 3).  Over 80% of the users were from large companies greater than 1000 employees across the globe.  Most SAP users surveyed have mixed environments with Siebel, JD Edwards, and PeopleSoft joint installations.  Unfortunately, very few public options exist for sole SAP users (see Figure 4).  For example, SAP customers can only turn to Rimini Street.  Oracle customers on PeopleSoft, JD Edwards, and Siebel also have limited choices with Rimini Street, netCustomer, and Spinnaker among the options.  IBM, Infor, Lawson, Computer Associates, Epicor, Microsoft Dynamics, Oracle E-Business Suite and database customers have no options.  (Note: This data may not be completely statistically significant given the sample size of 240, but hopefully it provides some directional input.)

Figure 3. Oracle And SAP Users Drive Interest In 3PM

Figure 4. Very Few Public Options Exist For Customers

The Bottom Line For Users – Users And User Groups Must Band Together To Guarantee 3PM Rights. Don’t Take These For Granted!

Although the latest surveys show a 17 point increase in the belief that 3PM is a right, this right is under fire by big vendors such as Oracle who have taken legal actions against 3PM providers for improperly (i.e. TomorrowNow) and allegedly (i.e. Rimini Street) violating intellectual property rights.  If providers have violated such laws, Oracle rightfully should defend its positions and those providers be punished.  However, there’s a lot of money at stake.  For most vendors, maintenance represents 50% to 80% of their revenue stream.  Consequently, users and user groups have a responsibility to:

• Demand that their contracts include provisions that protect their right to 3PM
• Require vendors to work out rules on how 3PM providers can deliver services without violating software IP provisions
• Seek anti-trust class action with the US DOJ (i.e. Christine A. Varney) and the EU Compeition (i.e. Joaquín Almunia) against software vendors who hinder 3PM providers from providing services

Users and user groups must vigorously defend their positions in contracts and legal action or lose this right.  Failure will result in a continued software maintenance monopoly.  Success will ensure market competition and renewed innovation.  Attention: OAUG, Quest, and SUGEN leadership your members need your help!

Figure 5.  A Growing Body Of Users Believe 3PM Is A Right

The Bottom Line For Vendors – Proactively Address The Issue Or Expect A Groundswell Of Activism

SaaS, subscription pricing, 3PM, and the economy provide a confluence of forces that will continue to attack maintenance revenue streams.  Many legal cases have been fought over this issue including IBM vs Amdahl and Geac vs Grace Consulting.  SAP’s failed attempt to convince customers on the value of Enterprise Support led to a public relations disaster and a factor in the resignation of their CEO.  The result – many vendors considering price hikes held back.  In fact, some savvy software vendors retooled and restored the client -vendor relationship by:

• Offering more entry points and tiers to support options. The three pillars of software maintenance and support policies still apply.  However, several vendors are now offering more tiers of support as lower entry points.  Two vendors have finalized plans to offer just the bare bones legal and regulatory updates.  Other vendors have made it easier to come back with maintenance amnesty plans.
• Providing flexible maintenance policies. Vendors who change rigid policies have experienced success among customers.  Some Both Infor through Infor Flex and Micrsoft Dynamics allow like for like swap credits to migrate between existing products.
• Renegotiating existing terms. Some vendors are helping clients meet the realities of the current market conditions. Big on the list is helping clients address shelf ware without repricing of contracts.  For clients who paid full maintenance on software that’s at least 4 years old, some vendors are offering to reduce up to 20% of the overall licenses not in use.  This leads to lower maintenance revenue but engenders good will among key clients.  Further, several vendors have allowed clients to apply credit towards another module as an alternative.
• Delivering amnesty programs. Several vendors have allowed customers to return to maintenance programs after years of not paying.  Such programs play a key role in helping customers upgrade but should be used sparingly as customers may become accustomed to this practice.
• Creating better peer forums to share information. Almost every vendor surveyed has a program to improve the online support capabilities.  Applying Social CRM use cases,  user generated content in peer forums tops the list of initiatives.  Other plans focus on sharing data on benchmarks, operational metrics, and best practices.
• Assisting with vendor financing. Clients seek access to financing, especially many in the mid-market who’s credit lines have been zapped.  Microsoft has led the charge by providing 0% financing for its Microsoft Dynamics ERP and Microsoft Dynamics CRM Customers.  Other vendors such as IBM, Infor, Oracle, SAP, Sage also offer vendor led financing programs that include hardware, implementation, training, and other services.
• Lowering cost of usage and ownership. Though tops on the list as a conceptual practice, most vendors will need to roll out such initiatives over the next 24 months.  A few notable exceptions include Agresso with its VITA architecture which allows customers to rapidly make business and UI changes, Microsoft Dynamics customers who report back significantly lowered implementation and training costs compared to most vendors, and Epicor customers who report significant productivity gains with Service Connect.  SaaS customers already experience such gains.

Your POV

Take the new and improved survey on 3rd party maintenance and let us know if you need help with your enterprise apps strategy by:

• Conducting an ROI on 3rd party maintenance options
• Identifying cost reduction opportunities
• Renegotiating your software contracts
• Improving innovation via SaaS and other deployment options

Please post or send on to rwang0 at gmail dot com or r at softwaresinsider dot org and we’ll keep your anonymity.

Related resources and links

20091008 Deal Architect – Vinnie Mirchandani “Third Party Maintenance Is Really 4 Decades Old”

20071120 News Analysis: Too Early to Call the Death of Third Party Maintenance

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!

20090622 News Analysis: Infor Flex Reflects Proactive Maintenance Policy

20090516 News Analysis: Rimini Street Launches Third Party Maintenance for SAP

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

20090428 News Analysis: SAP and SUGEN Make Progress on Enterprise Support

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

20090330 Monday’s Musings: It’s The Relationship, Stupid! (Part 2) – Stop Slashing The Quality Of Support And Maintenance

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

20081012 Monday’s Musings: 5 Steps to Restoring Trust in the Vendor – Customer Relationship

20100114 News Analysis: SAP Revives Two Tier Maintenance Options

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

20090912 News Analysis: Siemens Cancels SAP Maintenance Contract

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

20090602 Tuesday’s Tip: Now’s The Time To Consider SaaS Software Escrows

Copyright © 2010 R Wang and Insider Associates, LLC. All rights reserved.

Gains In SaaS Adoption Driven By Speed And Cost Savings…

Preliminary data from Q4 earnings data show continued traction among SaaS solutions.  Expect SaaS deployments to gain steam in 2010 as organizations finalize their SaaS apps strategies to take advantage of 7 key benefits:

1. Richer user experience – SaaS apps bring Web 2.0 usability to the enterprise world through rich internet applications using Adobe Air, HTML 5, Microsoft Silverlight, and other tools.
2. Rapid implementation – SaaS applications focus on configuration and integration, not hard core implementation.  Users can be up in weeks, not months.
3. Frequent cycles of innovation - At present, most vendors introduce new functionality, enhancements, and bug fixes on frequent refresh cycles.  Some vendors provide as frequent as weekly updates, others – seasonal.
4. Minimal upgrade hassles – Users focus on minimal testing scenarios and receive updates all at once.  In applications with significant regulatory and tax updates, SaaS applications reduce the cost of compliance by as much as 77%.
5. Always on deployment – Organizations can expect average up-time levels at 99.95% or higher for most applications.  These results often exceed existing on-premise performance.
6. Subscription pricing – Subscription pricing reduces the capital burden of common on-premise payment models.
7. Scalability – Organizations can add or subtract users as needed without worrying about procuring new hardware and other infrastructure.

Moreover, latest Information Week Analytics survey reaffirms several key benefits of SaaS adoption – time to market and cost savings (see Figure 1).

Figure 1. Information Week Analytics Survey Confirms Trends In Adoption

…Yet, Aggregated Information Provides The Differentiated Value To Clients

Despite the obvious benefits with SaaS deployments, three hidden advantages will emerge with market maturity:

• Benchmarking. SaaS vendors sit on a tremendous treasure trove of data.  Participating organizations could opt-in to share secure and masked information for the purposes of business optimization.
• Trending. Organizations could also opt-in to identify larger market trends.  Trending information could be used to help organizations with planning.
• Prediction. More sophisticated organizations will take SaaS vendor trending data and design new algorithms to support predictive analytics.  The richness and consistency of the data set will improve accuracy.

The Bottom Line For SaaS Vendors – Create Additional Value As An Information Broker

The end game for SaaS vendors may not be a re-creation of the on-premise world in the Cloud.  In fact, those vendors with a true multi-tenant SaaS model may turn out to find additional revenue streams as information brokers.  Expect demand for premium information-on-demand services to begin with benchmarking and evolve to prediction.  For example, imagine the benefits gained by organizations who consume the latest buying behavior data from their CRM vendors.  Organizations could turn to HCM vendors for geographical salary or hiring trends.  Customers of financial vendors could better predict credit risk factors.  A key requirement – customers must trust their SaaS vendor’s data ownership and privacy policies before the industry makes this transformation.  With acceptance, vendors will have more reasons to move to a SaaS offense.

The Bottom Line For Organizations – Determine Your Data Rights Before You Sign The Contract

Organizations in SaaS deployments will want to preserve the their data rights and minimize their cost structures to consume aggregated information.  A few key areas should be considered:

• Data usage. Organizations generally assume that the data belongs to the organization while the software belongs to the SaaS vendor.  To be safe, organizations will want to be clear that rights to use data will require an organization’s permission.  In addition, the disposition of data should be made clear
• Data access. Organizations should expect unhindered access to raw data, queries, and extraction.  Access to data should not require additional fees.
• Aggregated data cost. Organizations participating in aggregated data programs should be given preferential treatment not only in cost, but also access to data.  The cost of this “stone soup” approach should be factored in pricing.

Your POV

Where are you in your SaaS deployment?   Have you thought about these long-term benefits? Looking for assistance with crafting, validating, or reviewing your SaaS Apps Strategy?  Do you have a different point of view? Please post or send on to rwang0 at gmail dot com or r at softwareinsider dot org and we’ll keep your anonymity.

Other Useful SaaS Strategy Links

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

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

20090602 Tuesday’s Tip: Now’s The Time To Consider SaaS Software Escrows

20081028 Tuesday’s Tip: SaaS – Integration Advice

20090714 Sandhill.com – R ‘Ray’ Wang – “Opinion: Moving to a SaaS Offensive”

20070903 Trends: What’s all the fuss about True SaaS, OnDemand, Hosting?

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

20091109 Monday’s Musings: SaaS, SOA, Integration and How To Make A Peanut Butter And Jelly Sandwich In The Cloud

Copyright © 2010 R Wang and Insider Associates, LLC. All rights reserved.

Standard Support Returns After Much Deliberation

SAP announced today that they would be reintroducing their Standard Support offering.  Customers now gain choice with a 2-tier maintenance offering. Here are the details between standard support and enterprise support.

• Standard Support Offering reintroduces at 18%. Customers seeking core bug fixes, support packages, risk mitigation, and related new functionality will have choice in staying on standard support.  The program is designed for customers who seek to keep their systems up and running.  Customers with CPI clauses in their contracts will want to take note – the first set of consumer price index (CPI) price increases will begin January 1st, 2012.
• Enterprise Support remains at 22%. SAP will continue to offer Enterprise Support at 22% for new customers and a ramp up for existing customers (see Figure 1).  Enterprise support includes features such as best practices for IT operations, proactive monitoring and reporting, and transparency for business process performance.  Customers who choose to go with Enterprise Support prior to March 15th, 2010 will be eligible for ramp up.
• Supplemental offerings still available. Other programs such as Max Attention, Safeguarding, and Product Support for Large Enterprises (PSLE) will continue to be available by choice and invitation.

Figure 1. SAP’s New Support Pricing Scale

(Source: SAP)

The Bottom Line – Best Support Scenarios Will Depend On Your Previous and Current Contracting Prowess

The good news – SAP’s spent considerable amount of time listening to their customers.  The result – customers do want choice and there are plenty of choices to be made.  Decisions on which option is best can be best summarized by asking a few key questions:

• Are you expanding your use of SAP in the next 3 to 5 years? Determine your pace of adoption for SAP products.  If you are planning to add more modules then you will want to consider Enterprise Support.  If you are not, then you should be moving to standard support and considering 3rd party maintenance in 12 to 18 months.
• Do you have a CPI increase in your contract? If you do, then you’ll want to see if the total is above the inflation rate or the enterprise support ramp up of 6% per annum.  The best case is to have negotiated CPI + 0% but most SAP customers have CPI +5% as standard, well over the 6%.
• What’s your overall SAP apps strategy? How will you harness innovation within and around SAP?  What’s your plan in the next 12 to 18 months?  What will you be doing with SaaS?  How will you be incorporating portals such as Sharepoint?
• Can you make a decision on Enterprise Support by March 15, 2010? Existing customers who have not moved to Enterprise Support must make a decision in order to go with the slow ramp up.  Those who wait after March 15, 2010 will start at 22% maintenance.

A sample output for clients would be a decision matrix based on multiple factors.  Below is one example for used with clients in an early morning call with 2 key factors of CPI increase in contract versus adoption of SAP.  Other factors will include when your contracts began and what lifecycle of adoption your organization are in. (See Figure 2):

Figure 2.  Sample SAP Support Decision Matrix

Copyrighted © 2001- 2010 R "Ray" Wang and Insider Associates LLC.

Your POV

Need help with your contract negotiations?  Tap into the experience of thousands of contract negotiations.  Have a story to share about SAP contracts? Please post or send on to rwang0 at gmail dot com and we’ll keep your anonymity.

* Not responsible for any factual errors or omissions.  However, happy to correct any errors upon email receipt.

Other Useful Software Contract Negotiations Links

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

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

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

Tuesday’s Tip: 3 Approaches To Return Shelfware

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

Related Blogs, Press, and Links

MUST READ – 2010017 Irregular Enterprise – Dennis Howlett “SAP’s Maintenance Cost Sleight of Hand”

News Analysis: SAP Moves All Customers Onto More Expensive Enterprise Support

News Analysis: SAP and SUGEN Make Progress on Enterprise Support

20100115 SearchSAP.com/TechTarget – Courtney Bjorlin ” Choosing Standard or Enterprise support more difficult for SAP customers with no KPIs ”

20100114 IDC – Amy Konary at IDC “Guest Post: Back by Popular Demand, A Basic Maintenance Offering from SAP”

20100114 Forrester Blogs – Paul Hamerman “SAP’s Tiered Support Announcement Diffuses a Contentious Issue”

20100114 IDG News – Chris Kanaracus “SAP shakes up support structure, executive organization”

20100114 Enterprise System Spectator – Frank Scavo “Flash: SAP backs down on 22% maintenance fees”

20100114 Information Week – Doug Henschen “SAP Reintroduces Tiered Maintenance”

20100114 ComputerWorldUK – Mike Simons “Update: SAP does U-turn on Enterprise Support”

Copyright © 2010 R Wang and Insider Associates, LLC. All rights reserved.

DSAG project team and project leader departure could signal disagreement with methodology not SUGEN

SAP embarked on an ambitious program to prove value in its Enterprise Support fee hike last year.   As planned, SAP should announce the results for the first set of SUGEN KPI’s in early December.  However, two key SUGEN KPI project sponsors (revised 11/30/2009) team members have left from the German SAP user group (DSAG).  Confirmed by a spokeswoman to IDG News Service on November 27th, 2009, both project leader Andreas Oczko and project sponsor Otto Schell resigned from their roles on November 18th.  Several outcomes may potentially have led to this departure:

1. The methodology used by the auditing firm (Gartner Consulting) could be quite inconsistent
2. Teams may not have had enough time to review the data to check for statistical errors.
3. The KPI’s measured were only the first set, not the complete set.
4. A few months does not provide enough trending data
5. SAP’s attempting to announce results prior to when 90%+ of its maintenance renewal occurs in Q4

To be clear, DSAG remains a SUGEN member and has not pulled out of the group or project.  The leadership members have just left the project and have been active with the SUGEN group on other projects and issues.

SAP Should Still Be Given Credit For Undertaking A Huge Endeavor

Despite attempting to raise get away with a large (revised 11/30/2009) maintenance fees hike in the middle of one of the worst global recessions, the SUGEN agreement with SAP is a good faith gesture and a step in the right direction.  While this is not a legally binding agreement, the deal calls for SAP to limit increases until demonstrable results from the KPI’s have been achieved.  This is not an easy challenge but a few props should go out to SAP because:

1. SAP’s embarking on a risky but unique program to show value
2. Benchmarking 100 global customers against 10/11 KPI’s creates data consistency challenges
3. Agreeing to present results in the face of public opinion takes courage

The Bottom Line For Users -  Remain Vigilant And Compare SUGEN Results With Your Own

SAP customers should work with their user groups to understand the methodology used and gain access to the underlying data with these 100 customers.  Keep in mind SAP’s Value Academy already has benchmarking data for a broader set of customers.  The result – selection of the 100 customers by the user groups will significantly impact the outcome.  Users should see how their situation fares compared to the benchmarks to gauge their own potential value achieved from SAP’s Enterprise Support

The Bottom Line For Vendors – Provide Customers With Tiered Maintenance Plans

Pressures from SaaS deployments and mid-market competitors will erode the 70 to 80% margins in maintenance fees.  Customers will begin to demand third party maintenance options and include such protections in future contracts.  Those vendors who keep tiered maintenance based on the life of the product in production will engender the most loyalty by providing customers with the right balance between sustaining maintenance and incentives to upgrade.  At the end of the day, customers have to migrate on their own terms.  Maintenance fees should reflect the value that customers receive and not be an impediment in the client – vendor relationship.

Your POV.

If you get a chance, let us know:

• Which SAP products do you use?
• What do you think about the progress on SUGEN KPI’s?
• Are you considering alternatives to SAP?
• Do you feel SAP is innovating fast, ok, or slow enough?

Feel free to post your comments here or send me an email at rwang0 at gmail dot com or r at softwareinsider dot org.

Copyright © 2009 R Wang and Insider Associates, LLC. All rights reserved.

Building Innovation With And Around Your SAP Environment

Location: Manchester CentralAuditorium
Date:23/11/2009
Start Time: 16:25
End Time: 17:00
Speaker: R “Ray” Wang
Company: Partner with Altimeter Group

Keynote summary:

1. Pace of change continues to increase in market forces, work dynamics, business models, and pace of technology adoption.
2. Innovation is essential in this market.
3. There’s a tonne of innovation at SAP. Management and politics keep it from coming out.
4. Users need to tap into innovations from SAP and also help SAP prioritize what should go to market.
5. Users need to know what you want to do before you even talk to SAP.  Get your act together.
6. Use the user group to build the linkages to SAP.  This is a better, more productive approach, especially if you are not a top 400 customer with private access.
7. SAP isn’t bad or good. You can’t view them that way. Management is confused at the moment on leadership, direction, and innovation so figure out what you need from them early and fast.
8. If SAP can’t do it, you don’t have time to wait for them, especially if there’s no commitment. SaaS is an option, other providers are out there.  Come back to them later when they figure it out.
9. The pace of change is too fast. Technology adoption too slow. Companies need to keep moving in innovation.
10. Invest in innovation even if it hurts. Find money to optimize and pay for this.  There are a number of vendors that can assist.

Members of the SAP UK &I user group who would like a copy of the presentation can contact David Stanley, Vice President of Business Development and Sales at david@altimetergroup.com for copies.   Your member number will be required for proof.

Video Highlights – Exposing SAP Innovation

Courtesy of Dennis Howlett

Video Highlights – On ESME vs Salesforce.com Chatter

Courtesy of Dennis Howlett.

Video Highlights – 5 Recent Failures of SAP

Courtesy of Dennis Howlett.

Copyright © 2009 R Wang and Insider Associates, LLC. All rights reserved.

Additional coverage and related links

Event Report: UK & Ireland User Group Conference 2009

• 20091125 Computing – Nicola Brittain “SAP criticised for slow pace of innovation”
• 20091125 ComputerWeekly – Warwick Ashford “In bed with SAP – the future for enterprise software?”
• 20091125 eWeek Europe – Sophie Curtis “European Software Companies Lack Innovation, especially SAP”
• 20091125 myCustomer.com – Stuart Lochlan “Analyst tells SAP Analyst tells customers to kick open the SAP lab doors and demand what they need!”
• 20091125 Silicon.com – Tim Ferguson “Users tell SAP: We need to talk more”
• 20091125 CIO Magazine – Martin Veitch “Big software has given up on delivering the ‘Next Big Thing’”
• 20091125 Computerworld UK – Staff “SAP ‘not delivering on innovation’ user group told”
• 20091125 ZDNet Irregular Enterprise – Dennis Howlett “SAP users start to flex their muscles”
• 20091124 AccMan – Dennis Howlett “5 recent SAP failures”
• 20091124 business CLOUD 9 – Stuart Lochlan “Innovation woes fuels the mess of SAP’s cloud strategy”
• 20091124 ComputerWeekly – Karl Flinders “SAP at odds with user group over prices”
• 20091123 ZDNet Irregular Enterprise – Dennis Howlett “Fawning over Chatter and how SAP missed its chance”
• 20091123 ComputerWeekly – Warwick Ashford ” SAP vows to get closer to users”

SAP users in UK and Ireland remain equally skeptical about SAP

(Photos by R Wang & Insider Associates, LLC.   Copyright © 2009 All rights reserved.)

The SAP user group hosted its annual event.  Conversations with 37 clients reflect the following broad trends in the UK and Ireland:

• SAP users remain skeptical about benefits promised by SAP due to lack of delivery over the past 5 years (See Figure 1.)
• SAP has spent more time reaching out to customers to understand pain points
• Knowledge gaps continue to exist between what SAP users know about SAP and what SAP sales people communicate to clients
• A show of hands in the audience validates conversations that SAP users have not adopted NetWeaver, Duet, ByD, Solution Manager, and Enterprise Support.
• Many customers have budget but need trusted advice as to what is possible in including SAP in their future roadmaps
• Customers seek innovation from SAP but find a difficult time understanding what SAP has to offer
• Many customers have turned to other providers for innovations via SaaS or cost optimization

Figure 1. What SAP Customers Want

The bottom line.

SAP users and their user groups have a unique opportunity to put in the right infrastructure to engage in productive partnership with SAP.  The management team has shifted their outlook.  Early signs indicate a more customer focused approach may be on the way.  Customers seeking to innovate within their SAP investment should ask hard questions about what is in the SAP Labs portfolio.  User groups will play a key role in helping to prioritize future SAP product road map investments.  Users and their user groups should push for frameworks that monitor customer reuqests and increase transparency in the prioritization process. Customers can not allow SAP to squander any more of the 10′s of billions in maintenance fee and license fees “invested” with SAP.

Your POV.

If you get a chance, let us know:

• Which SAP products do you use?
• When will you migrate to BS7 or ECC 6.0?
• What do you think about the progress on SUGEN KPI’s
• Are you considering alternatives to SAP
• Do you feel SAP is innovating fast, ok, or slow enough?

Feel free to post your comments here or send me an email at rwang0 at gmail dot com or r at softwareinsider dot org.

Free Software Gimmicks From Some On-Premise Vendors Only Address The License Cost Issue

Recently, readers and clients have been approached by on-premise vendors offering free software modules to incentivize new license purchases.  However, free should not be confused with the Open Source (i.e. Freeware) movement, where source code is provided with minimal copyright restrictions.  Free should not be confused with any other obligations upon receiving license to that software.  Free should not be confused with… well – free!  In fact, a closer evaluation of free software should include the following 9 test questions:

1. Are you required to purchase a minimum amount of some other module?
2. If you are required to buy a minimum amount, what’s the discount off list for that required module?
3. Could you get the paid module on its own for less than the discount?
4. Could you get the free module on its own for less than the discount?
   
5. Do you have to pay maintenance on the free module?
6. What value will be assigned to the software licenses when maintenance is calculated?
7. Do you get a discounted value for the maintenance on the free software license?
8. Can you return the free software without any charges?
9. Can you trade the free software for other products?
   

The Bottom Line – Calculate The Total Account Value (TAV) When Comparing Software Ownership Costs

Total account value (TAV) provides a methodology to calculate the true cost of ownership over a period of time, typically 10 years.  TAV represents what your worth to the vendor and your total costs.  Components for a side to side comparison should include the following 10 elements:

• License fees
• Maintenance fees over a fixed period of time (e.g. 10 years)
• Implementation costs
• Patching, bug-fixing, and upgrade costs
• Testing costs
• Training costs
• Internal support-related staffing costs
• Hardware or hosting costs
• Retirement costs
• Cost over-runs and that miscellaneous bucket

Use this methodology to compare costs as you figure out your enterprise strategy.   This includes total account value cost comparisons such as:

• Vendor X vs Vendor Y vendor selection
• SaaS versus On-premise ongoing- costs
• Third party maintenance versus extended support

Your POV.

Did you really think you’d get free software?  Have you done a comparison of your existing costs versus scenarios for a new apps strategy?  Need some guidance on TAV?  Feel free to post your comments here or send me an email at rwang0 at gmail dot com.

*standard disclaimers apply.  always check with your legal counsel and procurement experts before taking any action with your vendor contracts.

Vendor Sales Reps Keep Using An Age Old Excuse Out Of Habit

Many organizations start their Q4 software maintenance renewals process in September.  This has led to a flurry of emails and phone calls about revenue recognition (a.k.a. “rev-rec”) rules for software maintenance contracts.   Apparently, both customers and vendor sales reps suffer from mass confusion on this issue.  The result – a conservative but inaccurate stance from sales reps who use pat answer number 1 and tell existing customers that they can’t discount their software maintenance because of rev-rec rules.  For good measure, they usually throw out all the real official sounding terms around AICPA Statement of Position (SOP) No. 97-2 and VSOE.  To customers, this reminds them of technical gobbleydegook and they glaze over this issue about software revenue recognition in despair.

However what’s true for how rev-rec works for license fees does not apply in most cases for software maintenance and support because:

• Maintenance and support fees are adjunct or known as separate from license fees. Maintenance contracts may be based on license fee costs but these fees should be recognized as a separate stream of revenue.  More granular accounting will be required when licenses are bundled with one or more years of pre-paid maintenance, but the vendor should be able to carve out a value for this.
• Post contract customer support (PCS) or what we call maintenance and support is ratable. Maintenance fees are recognized over the life of a contract.  For example, if you got a 1 year contract, then that’s all you impact, not the entire license basis as some vendor sales reps would have you believe.

The Bottom Line – Call The Bluff And Ask The Sales Rep To Show You How SOP-72 Is Applied*

Countering false claims on rev-rec will provide a key weapon in reducing maintenance fees in contract negotiations.  Challenge the vendor to explain their rationale.  When successful, clients can then ask the vendor to base maintenance fees on a reduced total account value without jeopardizing the vendor’s insistence to hold to a maintenance fee percentage.

Your POV.

Have you encountered the rev-rec song and dance?  How have you pushed back on this issue?  Did you find any success with this technique?  Need some guidance?  Feel free to post your comments here or send me an email at rwang0 at gmail dot com.

*standard disclaimers apply.  always check with your legal counsel and procurement experts before taking any action.

Potential Announcement of * Siemens cancellation represents a shift in mood by one of SAP’s most loyal customers

What’s been rumored for the past few months has now publicly been confirmed discussed.  Golem.de (Babelfish Translation in English) *Wiwo.de,(Wirtschaftswoche the German equivalent of BusinessWeek) (Babelfish Translation in English) reports that Siemens says SAP Tschüß (i.e. ciao, cheers, bye) in its September 12th posting.

According to the translated report, “Siemens is one of the largest SAP customers, reports the business magazine economic week (Wiwo): Over 160.000 Siemens coworkers used the software of SAP. For maintenance, to the support and regular software actualizations belong, require SAP 17 per cent of the license costs. For Siemens costs add up after analysts estimations each year on a middle two digit amount of millions.”

*What should be made clear here is that Siemens appears to have submitted its cancellation papers to SAP.  However, the company will most likely not be doing a rip and replace of its core systems. It’s just looking at alternatives for SAP maintenance or even maybe a better counter offer from SAP.

Third party maintenance vendors emerge from the woodwork

Of note, IBM, and HCL have been listed with Rimini Street as contenders for this third party maintenance (3PM) market.  SAP’s system integrators traditionally have shied away or have been rumored to be given strong signals not to provide alternative support options for their vendor partners.  To date, this has led to just one public offering from Rimini Street.  While the process requires significant investment in engineering and support resources, the contenders each bring significant capabilities to the table.  And according to some customers, several other providers have already been providing third party maintenance services for SAP in EMEA.

The bottom line – economic pressures will bring more enterprise software customers to consider (3PM)

Almost all SAP customers have end of year maintenance renewal terms.  As these organizations review their maintenance contracts going into 2010, it will be important to consider the role of third party maintenance in decisions.  Customers seek strategies to free funding up so they can address economic shortfalls and/or invest in innovation. But don’t expect vendors such as SAP to back off without a fight.  Beware of some tactics some vendors have used to cut customers off from the third party maintenance option:

• Do not give away your third party maintenance rights. Review your contracts with your legal team for such similar anti competitive language.  Validate any suspicious terminology with the vendor
• Avoid offers by sales reps to bundle contracts. Once bundled, you will lose the ability to choose what parts of the relationship you wish to change
• Say “NO” to contracts that tie upgrade rights to current status of maintenance payments. Some blog readers report a new tactic emerging in the field where even after downloading upgrades to a perpetual license, some vendors are claiming you do not have such rights unless you are current on maintenance.  This flies in the face of the spirit and intent of a perpetual license.
• Eliminate gag rule clauses in your contracts. Make sure you retain the freedom to work with third parties to assist in contract negotiations.  You’ll also want to have the right to discuss some benchmarking with peers and other user group members.

Your POV

Is your enterprise software contract up for renewal?  How has your vendor treated you to date?  Do you need assistance with negotiating such contacts?  Wonder why Neelie Kroes and the EU ( yes this is an election year) or the US Anti-trust team have not stood up for your consumer rights yet?  What are your user groups doing to assist you?  Post your comment here or reach me direct at r at altimetergroup dot com or r at softwareinsider dot org.  Put the power of expert contract negotiation advice to work or drop us a line.

Related posts

20090912 Deal Architect – Vinnie Mirchandani “Don’t Cry For Me Germany”

20090912 Irregular Enterprise – Dennis Howlett “Siemens Cans SAP Support”

Copyright © 2009 R Wang. All rights reserved.

*Slight changes were made with some factual review input from multiple sources. (18:30 GMT – 8:00)

Labor Day (US Holiday) traditionally marks the end of summer BBQ’s, the beginning of the fall conference season, and yes, the time to begin a review of your software maintenance contacts that expire end of year.   As clients prepare for this seasonal ritual, a few trends in 2009 should set the stage for negotiations:

• Continued weakness in the economy. Vendor revenues continue to decline as new license sales drop and vendors become more dependent on support and maintenance revenues.  Customers looking to upgrade or commit to new apps can expect vendors to be more generous on the support and maintenance front.
• Dated and inflexible architecture of legacy applications. Change in business models, workplace dynamics, and macro economic conditions apply new pressures to aging systems purchased pre-Y2K.  Customers seek paths to upgrade but are limited by economic pressures.
• Vendor awareness of customer discontent with existing support offerings. Customers now seek to understand what value vendors deliver in their support and maintenance agreements.  Many vendors have proactively responded by improving service or making appropriate concessions.
• Growing acceptance of third party maintenance (3PM) options. Vendors such as Rimini Street and Spinnaker have proven to the market that they can deliver 3PM to an array of ERP applications.  Cutting maintenance fees by 50% or more can free up funds for innovation or pay for the next upgrade.

Align your apps strategy before negotiating contracts – do your homework

Contract negotiations strategy should be planned in conjunction with an overall apps strategy.  Begin the process 2 to 3 months in advance.  Make sure the teams have the proper incentives in place.  Take the following steps as you prepare for your maintenance renewals:

• Assess current usage of maintenance and support
• Begin apps strategy planning to determine product adoption road map
• Conduct an internal license audit.
• Determine extent of shelf ware.
• Ensure that maintenance contracts are not bundled
• Followup with your sales rep

The bottom line – follow the seven simple steps to successfully negotiating software contracts.

1. Ensure that the right team is in place
2. Identify the organization’s key business drivers
3. Determine the product adoption plan
4. Consider contract strategy implications of the software ownership life cycle
5. Align contract strategy with product adoption
6. Identify leverage points
7. Prioritize key contract objectives

Your POV

Looking to hear your best practices with software maintenance contract renewals.

• Is your maintenance contract up for renewal at the end of the year?
• Do you need help putting a strategy in place?
• Have you conducted an apps strategy assessment?
• Would you like to break free from your vendor but don’t know what options exist?

Post your comment here or reach me direct at r at altimetergroup dot com or r at softwareinsider dot org.

Copyright © 2009 R Wang. All rights reserved.

In the first step of the original seven simple steps to successfully negotiate software contracts, the key is to have the right team in place.  To refresh everyone’s memory from the March 8th, 2004 post the details for Step 1 are:

Step 1: Ensure that the right team is in place

• Inputs:  Organizational chart and agreement on key roles.
• Action items: Determine the key roles needed to conduct the negotiation. Business teams include the COO, Division VP’s.  Technology leaders include the CIO, enterprise architecture. Vendor management teams include the procurement experts, legal team, etc.
• Deliverables: Responsibilities list for each role.

Having the right team in place is important.  However, dozens of readers point out the dire need to not only align incentives but improve transparency.   Some examples include views such as:

• CIO’s. “While the CIO needs to set the technology direction, we often find two types of CIO’s – the buyer and the implementer.  Buyer CIO’s get wined and dined during the process, hob nob at events, get all the attention and perks, then leave for another company to do the same thing.  Implementer CIO’s get stuck with making the stuff all work, cost overruns, and 100′s of tradeoffs in promised capabilities and all the blame for failure.” – VP of Business Applications, Fortune 100 Company.
• Procurement/vendor management teams. “The only thing that our Procurement VP and her staff seem to care about is the discount % and total savings.  Despite our need for a product that costs the same, we see her team favor the products that show her the most savings.  Its no wonder why vendors keep jacking up prices to create win-wins for companies like ours where procurement teams have considerable influence.” – CIO, EMEA based Financial Services Firm
• Line of business execs. “Often the business side of the house fails to consider the indirect and hidden costs of ownership.  Some solutions are sexier but cost 3 to 5 times more to integrate, maintain, and staff up for.  These guys forget that we pick up the tab when it fails to work well with other systems” – Enterprise Architect,  North American Transportation Company

The bottom line – all incentives in the contract negotiations strategy must align with product adoption strategy

Prior to any contract negotiations, the right team should also take the time to align incentives to the overall business drivers.  Form must follow function and how the solution will be used should be paramount.  Four key criteria:

1. Define success criteria. Start by determining what success criteria will be utilized.  Some metrics include implementation times, return on investment, savings in total account value (TAV), etc.
2. Create transparency in objectives. Team members should lay out their incentives and how performance in their management by objectives (MBO’s) will be impacted by different scenarios.
3. Realign incentives for maximum alignment.  Once the objectives have been determined, the team should come back with incentives that reflect performance in short, medium, and long term goals .
4. Codify and communicate metrics.  Final metrics and incentives should be made public to all team members and performance objectively tracked by an independent committee.

Your POV.

Got additional suggestions and best practices?  Ready for the big maintenance renewal seasons in Q4? If you need assistance with your SAP, Oracle, Infor, Lawson, Microsoft Dynamics, or other enterprise software contract, send me a private mail.  We can assist with a contract negotiations strategy that aligns with your apps adoption strategy.   Please post your comments here or send me a private email to rwang0 at gmail dot com or r at softwareinsider dot org.

Copyright © 2009 R Wang. All rights reserved.

Many user groups currently meet the basic requirements…

Today’s independent and vendor sponsored user groups serve a key role in building community among a common interest group.  Typical mission and objectives often include:

• Creating an environment to share information and best practices
• Exposing issues and limitations with a vendor’s product and partner solutions
• Soliciting member feedback and concerns about vendor and other solution providers
• Leveraging collective power to influence the product road map of the vendor and other solution providers
• Facilitating networking opportunities for a vendor’s greater community and ecosystem
• Educating members on new capabilities
• Creating a forum for the vendor and other providers to discuss new initiatives.

…yet market needs creates demand for stronger leadership on key issues

Comparisons of the November 2008 survey with the latest July 2009 update show that user group members seek greater assistance (see Figure 1).  In fact, rapid vendor consolidation, continual economic pressures, and high pressure sales tactics increase membership demands that user groups increasingly serve as client advocates in working with the vendors.  Key trends from the 2009 H2 191 respondent survey show sharp shifts such as:

• ~52% increase to negotiate license discounts
• ~50% decrease to communicate vendor news and updates
• ~30% increase to address product issues, bugs, enhancement requests
• ~24% increase to fight for maintenance fee reductions
• ~22% increase to influence product road maps

Other interesting trends include:

• ~10% decrease to liaise with software vendor executives
• ~7% increase to deliver training and educational sessions
• ~5% increase to benchmark performance
• ~4% increase to share product and technical knowledge
• ~3% decrease to provide recruiting opportunities
• No change to facilitate peer networking opportunities

Figure 1. Users Now Expect More Advocacy From Their User Groups


Source: Software Insider's Point of View User Group Survey - Copyright © 2009 R Wang. All rights reserved.

The bottom line – users need to play a more active role in both good and bad times

Beyond paying the membership dues, user groups are only as successful as their active membership.   The challenge – strike a good balance in meeting membership needs and involving the membership in participating in key initiatives.  As users, now’s the time to play a key role in transforming the user groups to meet key requirements and putting one of the best checks and balances in play.   Get active, get engaged and ask key questions to find out how effective your user group is? Some key questions user group members should ask:

• How well does the user group align with my organization’s key initiatives?
• Is the user group business model aligned with the ability to advocate for the membership?
• Does the user group have the leadership to publicly and privately raise issues with the vendor?
• Do officers in the user group receive special privileges for their companies that members may not be privy to and how does that influence their ability to advocate on behalf of the membership?
• How much say does the vendor have in the user group’s decision making?
• How independent is the user group?  How much money is received from the vendor versus outside sponsorships?  How does that money impact decision making?

The bottom line – vendors can proactively add value by addressing shifting requirements

Strong user group leadership teams quickly respond to changing membership needs and leverage the power of the users and clients to publicly and privately create checks in the balance of power.  The goal – improve the vendor-client relationship via the influence of the membership.   Savvy vendors can address the enhancement request issue, product road maps, and performance benchmarks by:

• Dedicating executive resources to user group initiatives
• Increasing transparency in the requirements prioritization process
• Creating resources to share benchmarking information
• Reporting more frequently on progress.

Your POV.

Do you feel your user group has given you value?  What are you looking from your user group? As a user what would you like to see from your user group?  Are you a software vendor trying to design better user group programs?  Would you like advice on how your program compares?  Feel free to share your experiences here or send me a private email to rwang0 at gmail dot com or r at softwareinsider dot org.

Copyright © 2009 R Wang. All rights reserved.

Declining demand and diminishing output increase the pressure for enterprises to reduce their software license maintenance costs.  As part of a larger enterprise apps strategy, shelfware reduction provides an area for significant cost savings.   However, shelfware reduction is often hard to achieve because many vendors impose:

• Enterprise wide agreements. These “all you can eat” agreements incentivize customers to buy more than they need at a “good” discount.  Yet, the end result is the payment of maintenance on non deployed apps (a.k.a. shelfware”).
• Repricing clauses. Many contracts contain language that impose list price recalculations when users choose to return their licenses to the vendor.
• Bundled contracts. Contractual language often prevents clients from unbundling their software as needed.  In addition, vendors have initiated focused programs to bundle licenses.

The bottom line – apply three shelfware maintenance fee reduction techniques

Craft a win-win strategy based on your product adoption requirements and overall contract negotiations strategy.  Three proven techniques in order of improving win-win  shelfware reduction scenarios:

• Return unused licenses. Vendors agree to take back licenses and proportionately reduce maintenance costs.  Customers lose future rights to those licenses.
• Park unused licenses. Vendors agree to hold unsued licenses and not charge maintenance.  Customers still have rights to the licenses and will pay for maintenance when licenses are deployed
• Apply credit to purchase of new licenses. Vendors agree to assign a value to shelfware.  Credit on used licenses will be applied to future purchses.  Customers lose rights to the original software but gain rights to new software and functionality.

Your POV.

Having issues with returning shelf ware?  Which approach have you tried?  Ready to share with us your experiences to date?  If you need help with your SAP, Oracle, Infor, Lawson, Microsoft Dynamics, or other enterprise software contract, send me a private mail and we can assist with a contract negotiations strategy that aligns with your apps adoption strategy.   You can post here or send me a private email to rwang0 at gmail dot com.

Copyright © 2009 R Wang. All rights reserved.

FORWARD AND COMMENTARY
“An Enterprise Software Licensee’s Bill of Rights (LB0R) V2″ brings the 10th installment of an on-going series to provide clients with insight on how to better align their packaged apps strategies.  Version 2 of the LBoR updates the original groundbreaking list of 36 best practices for software licensing and pricing and provides a good check list for contract negotiations strategy.  Eleven new rights have been added that reflect support for new deployment options, cost savings beyond the current recession, mitgation from future lock-in, and client best practices.

Other documents as part of the ongoing series on packaged apps strategy include:

1. Why You Need A Long-Term Apps Strategy
2. Forrester’s Long-Term Packaged Applications Strategy Framework
3. Does Your Apps Strategy Support Your Corporate Business Drivers?
4. Packaged Apps Strategies Take A Back Seat At Most Enterprises
5. The ROI Of Packaged Apps Instance Consolidation
6. Five Steps To Building A Recession Proof Packaged Apps Strategy
7. Shape Your Apps Strategy To Reflect New SaaS Licensing And Pricing Trends
8. Third Party Apps Maintenance Rebounds
9. Craft Your Negotiations Strategy To Reflect New Packaged Apps Licensing And Pricing Trends
10. An Enterprise Software Licensee’s Bill of Rights, V2

RESEARCH HIGHLIGHTS

A. Introduction

Since publication in December 2006, the LBoR has played a key tool in enterprise software contract negotiations and packaged apps strategy for over 1000 of my software licensing, pricing, and contract negotiations at Forrester.  During the update of the LBoR, over 100 end users and 70 vendors contributed to the addition of 11 new rights.   This document remains a must read for all those engaged in software contracts.

B. Research Findings

Changing market conditions result in new rights

Four themes emerged among the 11 additional rights added (see Figure 1):

• Support for new deployment options. Virtualization and SaaS transcend interesting pilots and concepts and become the norm in mainstream adoption. Users will expect to achieve savings in virtualized instances, the ability to swap user and usage rights among new deployment options, and protection from SaaS vendor bankruptcies.
• Cost savings beyond the current recession. Renewed focus on cost reduction drive enterprises to identify short- and long-term opportunities. These roles expect choice, value, and predictability in their vendor’s support and maintenance programs.
• Mitigation from future vendor lock-in in a less competitive environment. Consolidation results in less competition. Users should seek leverage in contract negotiations beyond the initial purchase.
• Additional client input into best practices. More than 70 software vendors and 100 Forrester clients and Software Insider blog readers provided similar suggestions for improvements in the selection and implementation phases of the software ownership life cycle.

Figure 1. Eleven New Rights Reflect Changing Market Conditions and Client Input

Figure 2. An Enterprise Software Licensee’s Bill of Rights, V2

Recommendations – Use the bill of rights as the centerpiece in contract negotiations

Now’s the time to review existing relationships and renegotiate contracts using the LB0R V2 as a reference guide.  Apply seven simple steps to successfully negotiate enterprise software contracts and build a long-term packaged apps strategy:

1. Assemble the right team.
2. Identify the key business drivers.
3. Apply the software ownership life cycle and the licensee’s bill of rights.
4. Determine the product adoption plan.
5. Align product adoption strategy with contract negotiation objectives.
6. Identify main leverage points.
7. Finalize the negotiation strategy.

C. Report Links

To read the details about each end-user right, seven simple steps, recommendations and the “What It Means” cycle, click here for the Forrester Report: An Enterprise Software Licensee’s Bill of Rights, V2 . For media courtesy requests, please send me an email to rwang@forrester.com

Read other POV on the Enterprise Software Licensee’s Bill of Rights

• 20090723 Next Gen Enterprise – Dennis Moore “Enterprise Software Buyer’s Bill of Rights and Pricing”
• 20090714 Deal Architect – Vinnie Mirchandani “Bill of Rights – and other amendments to the ‘Enterprise Software Constitution’”
• 20090713 Software Licensing & Master Service Agreements – Sam Conforti “Licensee Bill of Rights by Forrester’s R. Ray Wang”
• 20090713 ZD Net – Enterprise Irregulars – Dennis Howlett “A buy side response to the enterprise buyer’s Bill of Rights (and a partial solution)”
• 20090713 ZD Net – IT Project Failures – Michael Krigsman “Analyzing the enterprise software buyer’s ‘bill of rights’”
• 20090709 Ragsdale’s Eye On Service – John Ragsdale “Forrester’s An Enterprise Software Licensee’s Bill of Rights”
• 20090708 CIO Magazine – Thomas Wailgum “Enterprise Software LIcensing Negotiations: Insider Tips”
• 20090708 IDG News Service – Chris Kanaracus “Forrester expands ‘software bill of rights’”

Your POV.

Would love your feedback on the report.  Looking for help with your SAP, Oracle, Infor, Lawson, Microsoft Dynamics, or other enterprise software contract?   You can post here or send me a private email to rwang0 at gmail dot com.

Copyright © 2009 R Wang. All rights reserved.

In the past 2 weeks, emails from 31 software insider readers highlight a growing and concerning trend with support and maintenance contracts.  Vendors concerns about support and maintenance contract retentions has led to new initiatives to consolidate contracts.  At first glance, this may appear to be proactive and beneficial to customers.  In fact, common rationale provided by the vendor sales reps seem benevolent:

• Reduce the time and headaches of managing multiple contracts
• Update existing contract provisions
• Identify areas of non-compliance.

Keep in mind sales reps have been trained to push these new programs.

The bottom line – users should keep their guards up when vendor sales reps suggest bundling

While the above rationale make sense, bundling often create an all or nothing situation.  Basically, it eliminates your options to go with another vendor throughout the 5 phases of the software ownership life cycle (i.e. selection, implementation, utilization, maintenance, and retirement).  Convenience of one contract will be offset by 3 scenarios why you should never bundle your support and maintenance contracts:

• Lump sum payment. Moving to one support and maintenance contract often means that the annual fees will be paid all at once.  If push comes to shove, customers can mitigate this by asking for partial payments or more regular payment plans.
• Third party maintenance. Customers seeking to move off of their vendor delivered support and maintenance will find themselves unable to segment out specific products and solutions.  Individual contracts by products preserve the option to cancel as needed.  In very rare cases, customers have carved out the maintenance for significantly older releases
• Replacement strategies. Leaving contracts separate allows for easy replacement of applications.  This strategy makes most sense when customers have become a vendor’s customers by acquisition.  Leaving contracts separate enables the option to switch solutions, move to a SaaS option, or create more leverage in deals with the vendor.

Be aware of these new efforts to suggest consolidation of contracts.  There are very few benefits.  Should this be suggested to you, do not hesitate to reach out for advice on strategies to mitigate risk!

Your POV.

In the Enterprise Software Licensee Bill of Rights V2, new rights address this issue.   But for now, have you experienced such vendor tactics?  Did you manage to segment out your contracts?  Do you need assistance with your apps strategy and contract negotiations strategy?  Please post here or send me a private email to rwang0 at gmail dot com.

Copyright © 2009 R Wang. All rights reserved.

Infor announced two new maintenance options for its customers today. These actions represent a proactive approach to provide its customers with new ownership models.  The key offerings include:

• Flex Upgrade: customers move to the latest application version, no change to existing maintenance and support costs, little or no license fees
  POV: Support and maintenance fees should often cover the rights to future versions.  The key issue – can my vendor innovate quickly enough? Customer’s should find progress in Infor’s investment in Open SOA and MyDay.  These solutions will help clients find a path to modernization from their existing applications.   Flex upgrade allows customers to move at their own pace.

• Flex Exchange: switch to another related Infor application of similar size and scope, no change to existing maintenance and support costs, nominal transaction fees
  POV: This offering provides access to Infor’s portfolio.  A customer on one ERP product can migrate to another product with minimal switching costs.  Only a handful of vendors allow this today.  Imagine buying PeopleSoft ERP and switching for Oracle EBS.  Only one other vendor is unique in this – Microsoft Dynamics provides this today by allowing customers to move between its acquired products.

Each offering also provides discounted and bundled project services and incentive pricing for additional users, modules, and extended applications.

The bottom line – Infor Flex provides unique value in a rapidly consolidating market

In many recent surveys, the top customer priorities for 2009 include upgrading, updating, or replacing legacy applications.  Many enterprises face decisions as to which vendors to keep and upgrade with; and which vendors to jettison and migrate from.  Amidst this move to upgrade, many vendors have imposed maintenance support increases or vendor imposed upgrade time lines based on support costs.  Infor’s policy adds a fresh perspective by offering choice, value, and predictability.  In fact, these new policies may engender good will among loyal customers and be just enough incentive to keep competitors from poaching existing accounts.   The only thing that would make this offering better would be flex down options for lower tiered options akin to third party maintenance, but that might be asking too much!

Your POV

Are you ready to flex?  What Infor products do you own?  Would you benefit from Flex UPgrade or Flex Exchange? Please post or send on to rwang0 at gmail dot com and we’ll keep your anonymity.

Related links

See additional coverage from different POV’s

Infor’s Flex Release

Frank Scavo’s Favorable View

Vinnie Mirchandani’s Preference for Flex Down

Dennis Howlett’s Pragmatic Perspective

2009622 IDG News Service – Chris Kanaracus “Infor Rolls out New ‘Flex’ Upgrade Policy”

Copyright © 2009 R Wang. All rights reserved.

(Photo: Rimini Street movable billboard outside SAPPHIRE 09.   Courtesy of Rimini Street.  All rights reserved)

Almost one year after Rimini Street announced its intention to provide third party maintenance, on May 11th, 2009, the ground breaking support services provider announced that it had signed its first SAP clients and launched immediate availability of its support services for SAP products.  Rimini Street promises to deliver more than 50 percent cost savings in annual fees compared to SAP.  Conversations with 83 Sapphire 09 attendees confirm significant interest (79/83) in alternatives to SAP’s Enterprise Support offering, despite the SUGEN announcement.  Key elements of the software offering include:

• Inclusion of older and current releases. Support for the SAP R/3 4.x, ECC 5.0, ECC 6.0, and BW 3.5 and earlier releases Named, local senior support engineers assigned to each client (no off-shoring of support calls)
  POV: In Rimini Streets original announcement, the vendor had intended to provide support for pre ECC products.  The move to support the full line will come as a pleasant surprise to many SAP customers who have upgraded to SAP ECC 5.0, SAP ECC 6.0, SAP NetWeaver 7.0,  and SAP NetWeaver 7.1 looking for leverage and options to SAP Enterprise Support.
• Support through 2020 and beyond. Rimini Street has committed to providing tax, regulatory, and other updates for existing releases without any required upgrades.  This includes application fixes for serious issues and tax and regulatory updates as needed and flexible contract offerings.
  POV: Rimini Street has demonstrated success to date with acquire Oracle products to deliver such capabilities for existing customers.  Multinational customers will want to eavluate details about regulatory support especially in countries such as Brazil, Poland, and Russia.  Customers will want to undestand what Rimini Street defines as a serious issue.
• Follow the sun coverage by a senior engineer. The announcement states 24×7 support coverage with 30-minute or less guaranteed response by a senior engineer.
  POV: A 30 minute response rate by a senior engineer may put Rimini Street in the top echelon of support capabilities.  Most vendors and support organizations promise response times of 60 minutes or less with no guarantee of whom may show up on the other line.
• Comprehensive support with no additional fee. Support for client customizations, interoperability and performance at no additional fee
  POV: No tall order, this third party maintenance provider intends to handle the hairy task of supporting complex environments of spaghetti code and a patchwork of SAP integrations.  One would expect Rimini Street to also offer services to streamline environments in order to reduce their cost of support and increase application efficiency.

Conversations with Seth Ravin (CEO) and David Rowe (Senior Vice President of Global Marketing and Alliances) affirm Rimini Street’s
intentions to invest in this SAP practice.  Demand for third party maintenance and interest in working for a 3PM company appear to be strong.  Many long time SAP employees and support experts have reached out to both Rimini Street and the Software Insider
to seek employment positions.

The bottom line – include third party maintenance (3PM) options as part of apps strategy

Customers must carefully consider when to use third party maintenance as part of their long term apps strategy.   When effectively used, saivngs on maintenance fees can be applied to reinvestment and fund new innovation as opposed to feeding the beast!  Here’s a quick guide as to what scenarios to use third party maintenance:

1. Stable apps environment. Often enterprises in this maintain as is scenario find few change requests from the business.  Internal support teams already deliver most fixes and changes.  A 50% or more cost savings to maintenance makes most sense here.
2. Post upgrade savings. After completing an upgrade and achieving stability, customers can take the opportunity to enjoy new capabilities without having to pay full maintenance.  Customers take a risk here of not receiving any additional functionality and access to new enhancements.
3. Redeployment “upgrade”. Clients who have made significant customizations and modifications requiring reimplementation for an upgrade will consider third party maintenance for both cost savings and negotiations leverage.  Moving to 3PM allows the client to fund the reimplementation or replacement while considering other vendor alternatives.

Third party maintenance may be appealing to most customers.  However, there are caveats to third party maintenance that include:

1. Zero access to future upgrades. Movement to 3Pm means being cut-off from the vendor’s stream of innovation.  Customers seeking functionality in future SAP Enhancement Packages (EhP) should not consider third party maintenance at this time.  Upgrade to the latest requirements before considering 3PM.
2. Potential back maintenance issue. Expect vendors like SAP to pressure customers about potential back maintenance.  Vendors customarily require customers to true up their maintenance fees should they come back.  However, recent amnesty programs by some vendors and the market pressure make this tactic less and less likely.  Moving to 3PM actually provides leverage to the customer.  Will SAP really threaten back maintenance payments when you are choosing among other vendors now that you are not beholden to them?
3. Dependency on a third party. As with any other services contract, carefully consider the key SLA’s around metrics, performance, and unforeseen conditions.

Your POV.

Will you be calling Rimini Street in the next 3 months?  Do you believe that third party maintenance from SAP is feasible?  Does market place choice give you more leverage with SAP? Do you wonder why your system integrators do not offer third party maintenance?  Post your thoughts or send me a private email to rwang0 at gmail dot com.

(Photo: Rimini Street movable billboard outside SAPPHIRE 09.   Courtesy of Rimini Street.  All rights reserved)

Copyright © 2008 & 2009 R Wang. All rights reserved.

More details have emerged on the actual 10 or 11 KPI’s that SUGEN and SAP have agreed to as well as the SAP’s targets for showing value.  To start with, here are the main KPI’s for each category:

SUGEN KPI’S

Business Continuity

• Increased business solution availability
• Reduced amount of work related to all SAP incidents (including reduced mean time to resolve and reduced overall SAP incidents)

Business Process Performance

• Reduced number of emergency changes.
• Reduced amount of work for post-go-live stabilization and optimization.
• Reduced number of failed changes, which must be backed out of business solutions in productive use.

Protection of Investment

• Deployment of the latest innovation for application and technology stacks.
• Reduced maintenance costs by elimination of unnecessary modifications.

Total Cost of Operations:

• Decreased hardware costs (e.g. CPU).
• Decreased storage costs.
• Reduced total work of deploying support and enhancement packages.

Approach shows rigor in the cost justification and value process

According to user group members, measurements will be conducted quarterly with the first one occurring in every six months.  SAP must also show the following in order to prove value:

1. Demonstrate tangible cumulative cost savings for customers exceeding the increase in support fees
2. Prove KPI index decrease by 30 percent within the next four years, aggregated over the100 customers participating in the benchmark program
3. Use cumulative savings over the four years using a pre-define schedule of four percent in 2009, 12 percent in 2010, 22 percent in 2011, reaching the full 30 percent by 2012

The bottom line – user groups should now determine the minimum R&D percentage of investment from revenues

The SUGEN KPI’s provide a great framework for other user groups to begin a discussion on the value of the new SAP  Enterprise Support offering in comparison to today’s programs.  Keep in mind, these are only useful when vendors must justify a maintenance fee increase.  The bigger and more important issue – how are the maintenance revenues reinvested?  Consequently, users should begin to track the ratio of R&D dollars that tie back to the amount of maintenance revenue.  This will be key issue for the next 5 to 10 years.

Your POV

Do you think SAP met its promise to SUGEN?  Will this help you with your commitment to SAP?  Do you feel SAP has now done the right thing?  Send me a private email to rwang0 at gmail dot com.  Posts are preferred!   Thanks and looking forward to your POV!

Copyright © 2009 R Wang. All rights reserved.

Since SAP’s announcement of its single tier Enterprise Support plan last July, customers have continued to express dissatisfaction.   In response to such complaints, the SAP User Group Executive Network (SUGEN) of 12 SAP user groups and SAP have been engaging in discussions around the value derived from this new offering.  This morning SAP and SUGEN announced an agreement on three key areas of the Enterprise Support offering:

• Defined list of key performance indicators to measure the results of SAP Enterprise Support (ES) services. As part of the agreement, the value of ES will be measured by through the jointly agreed SUGEN Key Performance Indicator Index (SUGEN KPI Index).
  Based on the press release and informal conversations, the four areas covered include business continuity, business process improvement, protection of investment, and total cost of operations.  No public details have yet been provided on the specific metrics but there is an expectation for customers to realize value within a four year time frame of the benchmarking program

  POV: The four areas measure how choice, value, and predictability of investment come together in the overall maintenance offering.  If successful, this represents a unique and transparent approach to demonstrating value in maintenance.  In the coming weeks, SAP users will want to seek details of the specific KPI’s and determine how those KPI’s will be measured on a consistent basis across different types of organizations.

• Joint benchmarking program to define and measure how SAP customers may derive value from ES. With agreement on the KPI’s in place, a formal benchmarking program will be instituted to provide baselines to quantify value.   SAP and SUGEN have agreed on the parameters of the representative customer sample.  SUGEN will choose the customers.   Importantly, an independent party will validate results will conduct quality assurance and independent validation of the results.

  POV: Benchmarking remains the critical factor in this program.  SAP customers should pay close attention for balance in the representative customer sample.  Key variables include level of internal SAP competency, size of organization, complexity of environment, number of instances, industry, and geographic focus.   One can not overemphasize the importance of this program.  The results not only impact future maintenance fee increases, but also provide important benchmark data on SAP operations.

• Changes to the 2008 pricing program for current contracts that may will be migrated to ES. Based on the KPI program, SAP agrees to postpone subsequent price increases pending the realization of targeted improvements measured by the SUGEN KPI’s.  These changes have been made to the 2008 pricing program for ES.  Instead of ongoing increases until 2012, the new program ends in 2015.  As stated in the press release “Starting in 2010, the price of SAP Enterprise Support for existing customers will continue to increase based on individual contract terms but will not be higher than a yearly fixed upper cap. This translates to an increase average of no more than 3.1 percent per year from 2010 onwards. The price of SAP Enterprise Support will be capped at 22 percent through 2015. “

  POV:  Two scenarios emerge.  Should the value of ES not be realized, then the price increase will not pass.  However, customers will more likely face a more gradual price increase to the 22%.   This may prove to provide some relief for recession strapped customers.

The bottom line – progress on Enterprise Support issue may result in a win – win for  SAP customers

Expect customers to take the news with cautious optimism.   Should the benchmarks succeed, customers may gain value.  Failure to meet targets meet a freeze on maintenance.  In any case, this is welcomed news and provides a hard fought win-win for the customer and the vendor-client relationship. Congratulations go out to SUGEN and SAP for coming to a common ground!  This shows the importance of preserving independent user groups and the role active users play in shaping the overall agenda.  The one thing left in the choice, value, predictability equation is choice – meaning a tiered maintenance program or access to third party maintenance.  With the less than positive Q1 earnings report announced today, let’s wait to see how other chips will fall into place.

Your POV

Do you think SAP met its promise to SUGEN?  Will this help you with your commitment to SAP?  Do you feel SAP has now done the right thing?  Send me a private email to rwang0 at gmail dot com.  Posts are preferred!   Thanks and looking forward to your POV!

For more POV’s:

Dennis Howlett – April 28, 2009 “SAP software revenues plummet, announces new deal on maintenance”

Copyright © 2009 R Wang. All rights reserved.

FORWARD AND COMMENTARY
“Shape Your Apps Strategy To Reflect New SaaS Licensing and Pricing Trends” represent the seventh report in an on-going series to provide clients with insight on how to better align their packaged apps strategies.  As more and more clients seek SaaS solutions as options to pipe in innovation and potentially control costs, clients should be aware of how to build a SaaS strategy that remains sustainable and prevents vendor-lock in.

Other documents as part of the ongoing series on packaged apps strategy include:

1. Why You Need A Long-Term Apps Strategy
2. Forrester’s Long-Term Packaged Applications Strategy Framework
3. Does Your Apps Strategy Support Your Corporate Business Drivers?
4. Packaged Apps Strategies Take A Back Seat At Most Enterprises
5. The ROI Of Packaged Apps Instance Consolidation
6. Five Steps To Building A Recession Proof Packaged Apps Strategy
7. Shape Your Apps Strategy To Reflect New SaaS Licensing And Pricing Trends
8. Third Party Apps Maintenance Rebounds
9. Craft Your Negotiations Strategy To Reflect New Packaged Apps Licensing And Pricing Trends

RESEARCH HIGHLIGHTS

A. Introduction

Recessionary forces drive applications professionals to seek new delivery models such as software-as-a-service (SaaS), platform-as-a-service (PaaS), and other XaaS (X-as-a-Service) models. But with these options’ upfront benefits in choice, value, and predictability come new ownership risks that applications professionals and business stakeholders should explore. Forrester’s review of 11 vendors in SaaS enterprise resource planning (ERP), customer relationship management (CRM), and supply chain management (SCM) confirms that, motivated by heavy competition for new customers, these vendors remain vigilant in mitigating such end-user concerns. In fact, SaaS vendors continue to improve and refine subscription models for new buying scenarios beyond cost/user/month. Forrester recommends that all applications professionals include SaaS in their firm’s long-term packaged apps strategy and that they take five key actions to mitigate risk while avoiding lock-in.

B. Research Findings

The Recession Is Driving Increased SaaS Adoption 

Faced with impending IT budget cuts, increasing business demands, and the encumbrances of legacy packaged apps, enterprises are increasingly turning to true multi-tenant SaaS delivery options during the downturn.  SaaS adoption as part of a long-term apps strategy keeps growing because:

• Subscription pricing reduces capital expenditures (capex).
• SaaS enables more-rapid deployment.
• Enterprises expect frequent updates with new functionality.
• Business leaders drive more and more software decisions.
• Vendor success generates buzz and increased interest.

Vendors Demonstrate Continued Evolution And Value of SaaS Pricing Models
Forrester analyzed the completed, work-in-progress, or ongoing initiatives for the latter half of 2008 for seven SaaS applications vendors. The software licensing and pricing trends Forrester found include refined pricing models, new bundling and unbundling options, and a focus on fixed-price implementations. Specific trends for these SaaS apps vendors include:

• Amitive delivers a usage-based model to foster collaboration and community participation.
• Intuit attaches a SaaS services model to on-premise QuickBooks Enterprise Solutions.
• Intacct reduces the barrier of entry for SMBs while simplifying channel pricing.
• NetSuite continues to expand vertical-edition bundling and flat-fee pricing for add-ons.
• QuickArrow delivers choice with tiered and bundled user-based pricing models.
• salesforce.com provides more value for existing license fees and more user tiers.
• Workday maintains a simple subscription pricing model based on company size.

Recommendations – Adopt SaaS Benefits While Mitigating Risks In Your Long-Term Apps Strategy

Keep in mind that while cost/user/month SaaS pricing models may seem simple at first, factors such as connection points, storage, support, and module-based pricing can quickly add to their complexity. In addition, true multitenant SaaS models leave users without the software code should the vendor go bankrupt or the client choose to end its relationship with the vendor. While considering SaaS as part of a long-term apps strategy, enterprises should follow these simple suggestions to get the most out of SaaS and mitigate risk:

• Balance pay-as-you-go month-to-month terms with long-term contracts.
• Compare SaaS versus on-premise over an appropriate period.
• Understand long-term ownership implications.
• Seek more than just refunds for outages in service-level agreements.
• Choose a financially viable SaaS vendor or seek a software escrow-like mechanism.

C. Report Links

Click on the link for the detailed report along with the “What It Means” and “Alternate View” for: Shape Your Apps Strategy To Reflect New SaaS Licensing And Pricing Trends. For media courtesy requests, please send me an email to rwang@forrester.com

Your POV.

Would love your feedback on the report.  You can post here or send me a private email to rwang0 at gmail dot com.

Copyright © 2009 R Wang. All rights reserved.

Recession creates an opportunity for frank vendor – client discussion

A fine equilibrium exists between the vendor’s success and a client’s success.  Its time for the enterprise software industry to have a frank and honest conversation about software costs and vendor business models. To date, comparing cost among different vendors remains difficult as license, maintenance, implementation, and other operating costs lack easily comparable benchmarks.  Moreover, the timing of these costs span across different periods of time.  In context, the current customer outrage at some vendors over maintenance increases makes sense for those clients given arguments and assurances that they would receive a smaller upfront discount but pay less on maintenance on the back end.  When a vendor jacks up your maintenance after making that argument, well, you could expect some outrage!

Now the converse of this argument is also true. If a client got a great discount upfront and pays a higher rate for maintenance, one could argue that the costs might even out.  However, if the clients take that great upfront discount and come back to complain about maintenance fees, vendors face a significant issue.   Vendors have a right to be outraged and one could say the client is in poor form.  Yet, odds are high that the client does not understand that the discount was predicated on a predictable revenue stream for the next 7 to 10 years. In most cases, the client could care less because this is after the fact.  So we could reach a lose-lose situation when clients receive a good deal and the software vendor goes bankrupt.   Now if  vendors profit too much at the expense of the client, well, their clients will go bankrupt and we also achieve a lose-lose.

This illustrates the case why the industry needs a frank dialogue to clients about the true cost of ownership; how Total Account Value (TAV) impacts the vendor; and what ramifications exist for recession time software vendor business models.  In today’s economic climate, industry leaders need to lead in striking the right balance with customers, or face more “Le Rebellions“!

Total Account Value (TAV) should drive most licensing and pricing decisions for vendors

Whether perpetual or subscription, on premise or on demand, TAV should drive everything from discounts to maintenance fees.  With every product line, vendors should seek to maximize revenue streams. This is why business models matter.  How can you evaluate what’s an equivalent deal from your competition without a fair comparison.  Let’s take 1000 users and a list price of 4000 and see what would be equivalent between 2 common business models:

SCENARIO 1: Creating equivalency between 2 business models highlights upfront versus downstream revenue requirements

• Vendor W’s upfront revenue maximization strategy. (i.e. modest license discount/ low rate of maintenance). 60% discount on license = 1600 per user.  Total license = 1,600,000.  15% maintenance for 10 years = 2,400,000.  Assume a free upgrade.  Total cost 4,000,000
• Vendor R’s make it up on maintenance strategy (i.e. big license discount/high rate of maintenance). 75% discount on license = 1000 per user.  Total license = 1,000,000.  30% maintenance for 10 years = 3,000,000.  Assume a free upgrade.  Total cost 4,000,000.

As one can see, you’d need a 30% maintenance fee to make up the loss in revenue over 10 years for a 75% discount.  This doesn’t even include the cost of money (NPV)!  In the other example a 60% discount would require a 15% maintenance fee to be equivalent.   Let’s examine the reality of fully loaded costs in the market for the client or True Cost of Ownership:

SCENARIO 2: True Cost of Ownership for 2 models shows Vendor R better for customer, Vendor W better for vendor

• Vendor R’s make it up on maintenance strategy (i.e. big license discount/high rate of maintenance). 75% discount on license = 1000 per user.  Total license = 1,000,000.  22% maintenance for 10 years = 2,200,000.  Assume a free upgrade.  Total cost 3,200,000.  Vendor R makes less per 10 year period.
• Vendor W’s upfront revenue maximization strategy. (i.e. modest license discount/ low rate of maintenance). 60% discount on license = 1600 per user.  Total license = 1,600,000.  17% maintenance for 10 years = 2,720,000.  Assume a free upgrade.  Total cost 4,320,000.  Vendor W makes more per 10 year period.

In the above example, it becomes apparent that going for the upfront license discount gives clients the better long term value.  Clients save about 1.1M just by getting a better license deal upfront.  From a vendor point of view, they lose 1.1M in a 10 year revenue stream.  Hence that’s why some vendors have had to jack up maintenance fees as they discount their licenses.   It’s too hard to make up incremental revenue.  Now let’s add SaaS to the equation.  For SaaS, assume 100/user/month or 1200/user/year with maintenance included:

SCENARIO 3: The SaaS factor highlights True Cost of Ownership point of view

• Vendor S (i.e. typical SaaS subscription licensing approach). 20% discount on license = 960 per user per year or 9600 per user per 10 year period.  Total license and maintenance for 10 years = 9,600,000

Right off the back one could make a few erroneous conclusions.  SaaS appears to be 3 times more profitable for the vendor and or 3 times more expensive for the customer!  But, on premise doesn’t include the cost of implementation which could be up to 2 times the cost of the license fee and upgrades which often 1 to 2 times the original license to implement, test, and deploy.  That’s at least another 3 times the overall cost.  Adding up the final bill over 10 years at least for license, upgrade ,maintenance, and implementation:

SCENARIO 4: Comparing 2 common business models against the SaaS factor shows win-win with SaaS model

• Vendor R’s make it up on maintenance strategy (i.e. big license discount/high rate of maintenance). Total license and maintenance cost 3,200,000.  Add 6,400,000 for implementation.  Add 3,200,000 for upgrade.  Estimated bill = 12,800,000
• Vendor W’s upfront revenue maximization strategy. (i.e. modest license discount/ low rate of maintenance). Total license and maintenance cost 4,320,000.  Add 8,640,000 for implementation.  Add 4,320,000 for upgrade.  Estimated bill = 17,280,000

Once you take into account all costs to the customer, SaaS looks cheaper for clients and vendors make more.  This win-win is rare in the market but one reason why this model will continue to gain steam in the next 5 to 10 years. In fact this back of the envelope calculation shows a 3,200,000 to 7,680,000 savings.  Now, there are drawbacks such as the inability to customize, dependency on provider, and availability of end to end comparable suite solutions, so for a real ROI, check out the Forrester report on ROI of SaaS vs On Premise.

As these examples illustrate, customers should be comparing these final costs against all proposals.  Otherwise, customers can not compare among various offers and fully realize the true cost of ownership! True cost of ownership should be what’s compared and discussed.

The bottom line for end users – consider True Cost of Ownership when reexamining value in the vendor – customer relationship

Packaged apps (i.e. COTS for the public sector) promised overall cost savings and constant streams of innovation.  Clients went down this route to avoid the hassle of having to maintain and upgrade custom apps.  Yet, most clients don’t understand their cost basis. How can you calculate ROI? Calculating the true cost of ownership requires customers to account for all costs across the five phases of the software ownership life cycle (i.e. selection, implementation, utilization, maintenance, and retirement).  Users can then make apples to apples cost comparisons among custom development and other vendors products.

However, costs alone does not address the benefits different vendors provide.  Functionality still trumps costs in all surveys about buying decisions.  Some software vendors complete a bigger functional footprint, or provide better flexibility as some software is easier to use, or increase risk as some software is tougher to implement.  Hence the Forrester view on ROI makes sense and end users should evaluate these costs along with benefits, flexibility, and risk - Forrester’s Total Economic Impact model.  Customers should focus on value, which might mean a fair balance between cost and benefits and a bit more.  With that in mind, the key questions clients should keep asking are:

• “Am I still saving money buying instead of building?”
• “What value am I getting for my support and maintenance?”
• “Have we achieved the cost savings and innovation that was promised?”
• “Can we respond quickly enough to changing business conditions?”
• “Is there enough of a competitive differentiator?”

Once that’s in place, vendor selection will be harmonized.  And, contract negotiations strategy can align with product adoption strategy.

The bottom line for vendors – communicate how your business model drives value to clients

Fairness aside,  maintenance and license fees will be the first two casualties of a downturn as companies look to strike down costs.  Most vendors face growing pressure from users who face tremendous pressures to remain solvent.  However, vendors who communicate the role of total account value (TAV) at the beginning of each sale will gain a new advantage in an educated customer.  As customers understand true cost of ownership, (i.e. the customer view of TAV), they can compare among comparable solutions and understand the value of their investment over a longer period of time.  This level of transparency provides assurance to the customer they received a fair deal.  That eliminates the hassle of trying to manage the perception of being cheated on over the course of the relationship.  It also makes it harder to complain about maintenance and seek third party maintenance options!

Walking through the scenarios, vendors can also alleviate client confusion and gain credibility by demonstrating:

• Value – demonstrating comparable ROI among competitive products over 10 years.  Showing what percentage of the maintenance dollar goes back to product innovation.
• Choice – providing options for clients to pay more upfront, less later; less upfront, more later; or a constant stream over a fixed period of time.  Helping show transparency in the product road map and development process.  Provide tiered maintenance options or embrace third party maintenance like options.
• Predictability – keeping cost structures predictable over an average life cycle of the product (i.e. about 7 to 10 years).  Communicating and delivering on product roadmap promises.

Your POV

Ready to have a frank conversation with your vendor or client?  Have you figured out what the right ratio of reinvestment to profit should be?  Are you a vendor which has been showing how your solution demonstrates value? Posts are preferred or send me a private email to rwang0 at gmail dot com. Thanks and looking forward to your POV!

Copyright © 2009 R Wang. All rights reserved.

Maintenance costs represent a major part of the software budget and the largest growing source of revenue for software vendors.   In fact, an aggregation of the past four quarters of software vendor financial results definitively demonstrates double digit declines in new license revenue, even more exacerbated by the evils of currency flux from the strong dollar for US based vendors. Not surprisingly, vendors are hard at work vigorously protecting their 70 to 80% margin in maintenance revenues just as clients and readers of this blog now zero in on this line item as the major concession target during contract negotiations.  Here are five steps (i.e. as simple as ABC’s) you need to do now*:

1. Assemble all the relevant contract information. Aggregate all your contract information and vendor interaction history so that its centrally accessible.  Determine the value of your maintenance agreement. Examine how often you call for support, apply patches, conduct upgrades, and require technical assistance.  Then calculate the total support and maintenance spend.  Most customers will find that for $1M a year, 5 support calls can be pretty pricey at $200k a pop, especially when upgrades aren’t in the picture for the next 24 months.   The vendor better show up the next day with white gloves and be there in person.
2. Breakdown the total cost of shelfware. Simply put, shelfware is the software licenses purchased, not deployed that is incurring support and maintenance fees.  That great deal 3 years ago you got on 1000 user licenses, when you only ended up using 800, now comes to bite you in the butt.  Calculate the maintenance fee you have for 200 user licenses at $1000/user which is $200,000 X 20% annual support and maintenance X 3 years.  At $120,000, you had better make up the “big” discount you got for buying 1000 user licenses by at least 12% this year and 15% the next year.
3. Craft your overall software adoption strategy. Consider the business drivers that impact software adoption.  Assemble the domain experts, vendor management and sourcing professionals, legal experts, business owners, and IT team.   Apply a long term apps/ recession proof apps strategy and determine when and how licenses will be used in the software ownership lifecycle.  What processes will be supported? What roles will use the software?  When will you upgrade?  Can you consider an alternative?
4. Determine all the alternatives. Depending on your adoption strategy, multiple paths exist.  If there are no intentions to upgrade or enhance the software, self support and third party maintenance (3PM) options from vendors such as Rimini Street and Spinnaker should be considered.  In some cases, an upgrade should be completed before switching over to 3PM or self support.  If the system can be replaced, begin vendor selection efforts so that you will have leverage during the negotiation.  If the system cannot be replaced, consider swapping out unused licenses for credit towards newer or more desirable modules.  Reduce your CPI for new maintenance.  Focus on reducing new license costs.
5. Follow-up with Engage your account representative at least one quarter before the contract expires. Put preparation on your side and begin to let your sales rep know 3 to 6 months in advance that you are unhappy with the current agreement.  Based on steps 1 to 4, you now have the ammunition you need to negotiate from a position of strength.

The bottom line – align your contract negotiations strategy with your product adoption strategy.

Successful negotiations will require these 5 steps.  However, more importantly, organizations should keep a current apps strategy and product adoption strategy.  Without these two key documents, lack of visibility into the business case will lead to shortsighted negotiations that fail to meet the true requirements of the business.  Sourcing, procurement, and vendor management professionals should partner with domain experts who can provide third party, independent and objective advice that will complement contract negotiations strategy.  Click here for more contract negotiation strategy tips.

Your POV

What’s your best practice in reducing maintenance costs?  Post your comments here or send me a private email to rwang0 at gmail dot com.  Do you need more advice on contract negotiations strategy?  If you are a Forrester client, call the inquiry team and they can set up some time.  In your request, specifically ask for R “Ray” Wang.

Contribute to the 2009 Enterprise Software Licensee’s Bill of Rights

Take the new poll on what rights should be included in the 2009 Enterprise Software Licensee Bill of Rights   Posts are preferred!  For every good idea or comment, whether or not we use your idea, we’ll send you a copy of the final report.  Let’s put the collective wisdom of the web to work and help our end user clients create a fair win-win playing field with the vendors.  We’ll be publishing the official update in Q2 2009.  Thanks and look forward to your input!

*Caveats are as follows:  1) This does not constitute legal advice.  Please consult your legal counsel for an official opinion and wording.  2) This does not consider any procurement or vendor management rules that must be applied to your enterprise.  Please work with your vendor management teams for compliance.  3)  Contract negotiation support provides insight into overall trends and price points.  Benchmarks are not provided as each user scenario is unique.

Copyright © 2009 R Wang. All rights reserved.

A common question asked by readers of this blog is when should vendor contract negotiations be led by a domain expert and when should this be led by a procurement professional?  As the complexity of the technology topology increases, expect a multitude of domain experts in roles such as application specialists, business process experts, enterprise architects, and information management professionals to take a greater lead in contract negotiation strategy and become more engaged in the vendor management process.  Let me share with you some best practices from the field.

Here are a few rules that work in favor of the domain experts who have contract strategy expertise:

• Where product strategy drives contract negotiation strategy.
  Sample questions. How should I negotiate my SAP contract with the introduction of Business Suite 7? How should I consider Oracle Fusion Applications as I upgrade from PeopleSoft? How should I structure my contract with my Microsoft Dynamics partner as I move from GP to AX? How do I negotiate my SAP BW contract along with my BOBJ purchases?
• Where vendor knowledge drives contract negotiations strategy.
  Sample questions. How should I deal with Oracle in overall pricing and licensing strategy? How do I avoid a software audit with SAP? Is it typical for SAS institute to price by subscription licensing? How do I avoid an increase in maintenance fees with SAP?
• Where previous experiences in contract strategy becomes valuable for existing customer contract strategy.
  Sample questions. In your experience with Oracle contract negotiations, what’s a typical database discount? What companies have been successful in moving to third party maintenance with PeopleSoft? How many SAP customers have won concessions on maintenance with SAP? Is there a way around the Infor third party maintenance lock-in?

Here are a few rules that favor of the vendor management and procurement generalists:

• Where the domain experts lack contract negotiations strategy.
  Sample questions. How do I set up flex up/ flex down provisions with my vendor? How can I reduce my overall maintenance fee structure?
• Where vendor management and procurement strategy touches issues about managing multiple vendors.
  Sample questions. What are good approaches to manage multiple vendors? Does it make sense to consolidate vendors? When do I deem a vendor a strategic vendor? Should I apply tiering to vendors?
• Where contract negotiations and procurement strategy touches about internal processes.
  Sample questions. Who should engage with vendors? What’s the contract negotiations strategy? How do you handle different procurement processes within the company?

The bottom line – good negotiations strategy requires domain expertise

Contract negotiations devoid of apps strategy or understanding of the vendor’s product strategy often lead to shortsighted negotiations that fail to meet the true requirements of the business.   Success requires strong alignment of product strategy adoption with business strategy and vendor management strategy.

Your POV

Does this resonate with you and your procurement process?  Do you have a best practice in delineating roles in contract negotiations?  Post your comments here or send me a private email to rwang0 at gmail dot com.

Contribute to the 2009 Enterprise Software Licensee’s Bill of Rights

Take the new poll on what rights should be included in the 2009 Enterprise Software Licensee Bill of Rights   Posts are preferred!  For every good idea or comment, whether or not we use your idea, we’ll send you a copy of the final report.  Let’s put the collective wisdom of the web to work and help our end user clients create a fair win-win playing field with the vendors.  We’ll be publishing the official update in Q2 2009.  Thanks and look forward to your input!

Copyright © 2009 R Wang. All rights reserved.

Now’s The Time To Assert Your Rights

With the market now in favor of the enterprise software licensee, its now time to update the Enterprise Software Licensee’s Bill of Rights to include newer topics such as virtualization, SaaS and subscription pricing, newer usage based pricing models, open source, and vendor lock-in avoidance.  As mentioned in a call to action in a December 2008 Monday’s Musings, this groundbreaking report, originally published in December 2006, will be updated to reflect current market conditions.  The goal – improve this reusable contract negotiation model that cuts across the 5 key phases of the software ownership life cycle:

1. Selection
2. Implementation
3. Utilization
4. Maintenance
5. Retirement

An Enterprise Software Licensee’s Bill Of Rights Gives Users A Platform to Build a Win-Win Client Vendor Relationship

December 2006 Enterprise Software Licensee's Bill of Rights

Your POV

So based on some key market changes, here’s my challenge to you.

1. What rights should be added?
2. What rights should be updated?
3. What rights should be retired?

Take the new poll on what rights should be included in the 2009 Enterprise Software Licensee Bill of Rights or send me a private email to rwang0 at gmail dot com.  Posts are preferred!  For every good idea or comment, whether or not we use your idea, we’ll send you a copy of the final report.  Let’s put the collective wisdom of the web to work and help our end user clients create a fair win-win playing field with the vendors.  We’ll be publishing the official update in Q2 2009.  Thanks and look forward to your input!

Copyright © 2009 R Wang. All rights reserved.