Posts Tagged ‘software licensing’

News Analysis: Rimini Street Vs Oracle Ruling Has No Negative Impact on Third Party Maintenance Rights

Recent Oracle vs Rimini Street Ruling Is About Customer Software License Rights Not Third Party Maintenance

On February 13th, 2014, the United States District Court , District of Nevada Judge Larry Hicks issued a partial summary judgment in the Oracle vs Rimini Street Case. Here’s the executive summary to key questions about the ruling*:

Is Third Party Maintenance still valid for Oracle products or anyone else? Yes.  Users should make sure this right is explicit in all future software deals.

Can a customer give a copy to a third party? Yes if you have this in your license agreement.   Users should negotiate this in  contracts to ensure this right exists and remains as part of the ownership experience.

Do you have to read every contract detail before a third party maintenance provider can host the software? Yes. If there are site restrictions  and if you want to host it in a vendor’s own data center.  Make sure you have the right to a site change or site license change.

Can copies of software from customers that are loaded onto the server that are identical to what another customer’s rights be used or reloaded. Yes, the software license goes to intellectual property not to the media.  Third party maintenance vendors can use the same instance in setting up their clients and this will drive down the cost.

Does this ruling impact other businesses? Yes.  If you have no site specific rights, you can’t have a third party outsource or host.  This could have major legal ramifications for Oracle and other vendor’s existing hosting and outsourcing businesses.

Four Customer Cases End In A Draw For Oracle and Rimini Street Based On Contract Law Technicalities

The ruling includes cases from four customers each with unique contract language:

  • City of Flint – US District Court rules In Oracle’s favor. “Based on the court’s ruling s above, none of Rimini’s asserted license provisions (Sections 1.2(b), 1.2( c), or 14.2) expressly authorize Rimini ’s copying of Oracle’ s copy righted PeopleSoft branded software a s a matter of law. Therefore, the court finds that Oracle is entitled to summary judgment on Rimini’s express license affirmative defense as it relates to the City of Flint, and the court shall grant Oracle ’s motion accordingly.

    Point of View (POV):
    The City of Flint’s PeopleSoft contracts were pre-Internet and did not allow for third parties to copy licenses onto other servers on their behalf.  In fact, the licenses only allowed for the City of Flint to provide “access to and use of the Software” to a third party.  The ruling makes sense and is based on how the license contract is written.
  • Pittsburgh Public Schools – US District Court rules In Oracle’s favor. “Based on the rulings above, the court finds that none of Rimini’s asserted license provisions (Sections 1.1, 1.2, or 10.2) expressly authorize Rimini’s copying of Oracle’s copy righted PeopleSoft branded software as a matter of law. Therefore, the court finds that Oracle is entitled to summary judgment on Rimini’s express license affirmative defense as it relates to the Pittsburgh Public Schools, and the court shall grant Oracle’s motion accordingly”.

    (POV):
    Despite Oracle granting the Pittsburgh Public Schools “a nonexclusive, nontransferable license to make and run copies of the Software, “the right to access and use the Software is a separate right from the right to copy or reproduce software”.  The ruling makes sense as with City of Flint based on the language in the original PeopleSoft contract.

News Analysis: Oracle’s Cloud Strategy – Revisionist History or Cloud Genius?

This is a joint post with my colleague Holger Mueller who looks at IaaS/PaaS and Future of Work technologies for Constellation Research.

At a press conference on June 24th, 2013 with Microsoft’s CEO, Steve Ballmer ,and Oracle’s President Mark Hurd announced a cloud partnership where Azure customers will be able to run Oracle Database (no version mentioned, but Constellation expects this to be 12c), Oracle Weblogic, and Java.

Oracle also announced availability of Oracle Linux for Azure customers. Constellation believes that the deployments of the Oracle 12c, Weblogic and Java stack pieces will be deployed on Oracle’s Linux.  Should this be true, the approach makes sense, as this is a tested and proven hardware and software combination. Further, Microsoft has already begun to run parts of Azure on Linux.

The partnership alliance poses significant implications for both vendors and more importantly customers moving to the cloud for three reasons:

  • Java comes to Azure, a sign of pax in the .NET vs Java wars. For Applications to run on Azure, they needed to be built in C# or compatible languages. Now, with the licensing of Java by Microsoft as part of this partnership, Java applications will run on Azure. This opens doors for Java applications on the Azure cloud, as well as general more portability for Java applications. And Azure becomes a friendly cloud for the 9 million+ Java developers out there. .

    Point Of View:
    Microsoft and Oracle strike a win-win here.  Microsoft gains more language derived potential for expanding Azure and Oracle adds a marquee cloud stack to support Java.  Given the substantial overlap of enterprise customers on both Microsoft and Oracle, customers will benefit from more cross cloud compatibility for Java while supporting Azure for IaaS.
  • Azure will run Oracle Weblogic and the Oracle Database. Microsoft will support Oracle Linux in Azure as the foundation to run the middleware and the database stack.  Though the press release and the press conference did not specify which Oracle database, Constellation speculates this is for Oracle Database 12c. In addition, Oracle announced license mobility for customers who want to run software on Azure and bring Oracle Linux to Azure..

    (POV):
    Interesting enough when Larry Ellison spilled the news for this announcement during the Q4 Oracle earnings call, this was not about the Oracle Database, but very specifically about Oracle 12c. It’s not clear why 12c is not specifically referenced in the press release – but with the ORacle 12c general availability slotted for June 25h, 2013, this moment may not have been the time to steal the thunder.  Of note, it is not only the database, but also the Weblogic application server which will be deployed on Azure. This comes as a surprise at first, but given the work Oracle has done to integrate the former BEA flagship product with 12c and Java – it was a question of taking whole technology building and avoiding too many interfaces. Why run Java apps through Biztalk to an Oracle database?  Constellation views this as a smart move by both companies, as it allows Azure customers to utilize more of the Oracle products, that are more and more entwined due to the Fusion and Exaxxx products.
  • The hypervisor is where Microsoft and Oracle draw a line in the sand. Oracle will support Microsoft’s hypervisor Hyper-V to be the demarcation line between higher level application code and the Oracle products that now run in Azure.  The combined offering will be running on Hyper-V, which creates some headaches for Oracle on the hypervisor level as Constellation predicted, and will be supported by Oracle support as running on Windows Azure. .

    (POV):
    This poses some engineering work for the Oracle hypervisor teams, but nothing impossible to achieve. And the benefits are tangible, Hyper-V built applications will now be able to run on the Oracle Database (12c, and on Oracle Linux). This will give a lot of performance critical (think Dynamics) applications that were limited by SQL Server scalability before, new breathing room.  Microsoft was able to protect higher level applications of its technology stack with this agreement and at the same time Oracle benefits from a whole ecosystem of Hyper-V compatible applications. The cost of supporting Hyper-V for Oracle, which is tangible, is however dwarfed by this additional market potential. And it gives Mircosoft an important leg up against VMware’s vSphere.  Constellation believes this has significant implications in the cloud stack wars among Amazon, Google, HP, IBM, and VMware.  In unusual candidness for these  Oracle listed the current and future deliverables for the alliance in an blog post here.

Why did this happen?

As previously mentioned, this would have been a very good April Fool’s headline – even back on April 1st 2013. So this alliance comes as a surprise pretty much to all industry observers, at least we have not seen anyone claiming to see this one coming.

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

Constellation Sees An Alarming Increase In Inquiries

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

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

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

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

Unethical Sales Leaders Endorse This Practice To Make Their Numbers

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

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

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

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Research Summary: Constellation Cosmos – Cloud Bill of Rights for SaaS Apps, Actian and Netsuite Achieve Epic Status

Constellation Certifies Vendors On How Well They Perform To The Cloud Bill Of Rights

The Enterprise Cloud Buyer’s Bill of Rights provides a tool for clients and vendors to change the tenor of contract negotiations from user subservience to an equal and collaborative long-term partnership.  This Constellation CosmosCertification for the Cloud Buyer’s Bill of Rights: SaaS Applications is intended to help buyers and prospective buyers of enterprise cloud applications identify the vendors that meet the spirit of the Cloud. The certification applies four of the six Cosmos categories and includes ownership experience, use case support, corporate vision and ecosystem feedback. Constellation rates vendors on a 0- to 5-point scale.  Constellation’s goal is to recognize vendors for honoring these rights upfront in their existing contract language and throughout the buyer and ownership experience.

Behind The Scenes On How The Cosmos Works

Constellation CosmosTM is Constellation’s flagship quantitative and qualitative product and solution comparison tool.  A typical Cosmos contains 50 to 150 exception-based criteria used to help buy-side clients with product and solution selection across the galaxy of choices.  The evaluation comprises of six major categories on a 0 to 5 point scale where Constellation evaluates key criteria in:
  1. Ownership experience. Criteria evaluated include assessments on vendor executive advocacy and accountability, timely and meaningful interactions, professional customer support, overall sales cycle and buying process, quality of product and service, and ongoing transparency.
  2. Solution offering. Criteria evaluated include assessments of functional requirements, technical requirements, architectural considerations, and deployment options pertinent to the category.
  3. Use case support. Criteria evaluated include assessments on the ability to support anywhere from 3 to 12 popular use cases requested by end user clients.  Use cases typically align with a business process. Considerations include geographical requirements, market size requirements, and industry requirements.
  4. Market execution. Criteria evaluated include assessments of the total number of live customers, total number of customers including prospects, total number of customers over 1B in revenue, funding raised to date (if a startup), total annual revenues, total number of external trained professional service staff, total number of internal trained professional service staff, number of updates per year, and geographic penetration
  5. Corporate vision. Criteria evaluated include assessments of the strength of management team, product direction, level of innovation, market leadership, community stewardship, and investment in R&D.
  6. Ecosystem feedback. Criteria evaluated include assessments of vendor-supplied references (at least 3), direct customer feedback from inquiries and interactions, and partner feedback.
The final ratings place solutions into 5 categories
  1. Epic. Composite scores typically above 4.25
  2. Stellar. Composite scores typically between 3.25 and 4.24
  3. Emerging. Composite scores typically between 2.25 and 3.24
  4. Nascent. Composite scores typically between 1.25 and 2.24
  5. Laggard. Composite scores typically between 0 and 1.24

The Constellation CosmosTM graphic is a three-dimensional visualization tool built from three axes:

  • Capability represents the X-axis. Capability includes the use case support and solution offering categories.
  • Strategy and execution drives the Y-axis. The score comprises of market execution and corporate vision.
  • Reputation forms the Z-axis. The scores come from the ownership experience and ecosystem feedback categories.
  • Weighted score defines the radius of the sphere. The scores are the composite from capability, strategy, and reputation.

 

Constellation updates Cosmos’ periodically as client demand dictates.  Some reports may be deprecated over time based on lack of market interest.  Constellation reserves the right to determine when reports are updated and in what manner.

NetSuite and Actian Corp Achieve Epic Status In the First Of Many Certifications Of Cloud Companies
For the Cloud Bill of Rights: SaaS Applications, the application and the vendor contract were evaluated on 61 criteria.  Constellation evaluated the vendors based on the experience of over 1500 software contract negotiations.

Netsuite provides an end-to-end cloud business application suite and was certified against the 61 criteria listed in Constellation’s Cloud Bill of Rights and the Constellation Cosmos methodology. Netsuite achieved a 4.48 weighted score and achieved the highest certification – Epic for its achievement in meeting the 61 requirements of the Cloud Buyer’s Bill of Rights category

Actian Corporation was certified against the 61 criteria listed in Constellation’s Cloud Buyer’s Bill of Rights and the Constellation Cosmos methodology.  Actian Corporation’s acquired Pervasive Software on April 11, 2013. Constellation evaluated Pervasive Software prior to the merger. The cloud based integration application known as Actian DataCloud and its contract were evaluated on 61 criteria in the Cloud Buyer’s Bill of Rights: SaaS Applications.. Actian DataCloud achieved a 4.77 weighted score and achieved the highest certification – Epic for its achievement in meeting the 61 requirements of the Cloud Buyer’s Bill of Rights category.

Report Links

Download a snapshot of the reports at the Constellation Research website:

Constellation Cosmos – Cloud Bill of Rights: Saas Apps Actian Corp.

Constellation Cosmos – Cloud Buyer’s Bill of Rights: SaaS Apps – Netsuite, Inc.

Your POV.

How’s contract negotiations with your Cloud Vendors? Let us know your experiences.  Add your comments to the blog or reach me via email: R (at) ConstellationRG (dot) com or R (at) SoftwareInsider (dot) com.

Reprints

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

Disclosure

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

Copyright © 2001 – 2013 R Wang and Insider Associates, LLC All rights reserved.

 

News Analysis: New SAP Customers Face Maintenance Hike

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

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

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

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

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

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

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

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

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Monday’s Musings: Trends In The Top Software Insider Posts of 2012 (#softwareinsider)

Thank You For Your Support

SoftwareInsider.org generated almost 10 million page views in 2012 (see Figure 1).  This does not include syndication through Constellation Research, Forbes (discontinued in 2012), Enterprise Irregulars, Computerworld UK, and other great media partners.

Figure 1.  Software Insider Achieved 9.8M Page Views for 2012

Classic Posts Address The Key Fundamentals In The Disruptive Technology Shift

Four posts have made the all time favorite list and address the 5 consumer technology forces that influence enterprise software.

  1. Monday’s Musings: How The Five Consumer Tech Macro Pillars Influence Enterprise Software Innovation
  2. Research Report: The 18 Use Cases of Social CRM and The New Rules of Relationship Management
  3. Tuesday’s Tip: Understanding the Many Flavors of Cloud Computing
  4. Best Practices: Five Simple Rules for Social Business

2012 Top 40 Reflects A Broader Shift To Business Outcomes And Technology Adoption

Analyst Relations and the World of Influence - The top blog post of 2013 discussed the future of the industry analyst versus legacy analyst firms.

Consumerization of Technology and The New C-Suite – The impact of technology on the C-suite has never been greater.  As business strategy relies more on technology, CMOs, CFOs, and other line of business heads can expect to work more closely with the CIOs and CTOs.

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

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

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

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

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

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

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

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

Customer Specific Maintenance Comes With Many Disadvantages

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

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

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

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

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

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

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

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

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

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

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

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

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News Analysis: Spinnaker Expands JD Edwards Support With Versytec Acquisition

Versytec Acquisition Addresses Growing Demand For JD Edwards Support


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

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

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

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

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

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

Forward And Commentary

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

A. Introduction

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

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

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

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

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

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

Figure 1. Visualizing the High Costs of Support And Maintenance

(Right-click to see full image)

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

Business Leaders Often Poorly Prepared For Cloud/SaaS Contract Negotiations

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

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

Avoid These Common Mistakes In Cloud Contracts

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

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

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

Your POV.

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

How can we assist?

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

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

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

Related Resources And Links

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

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

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

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

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

20100104 News Analysis: SAP Revives Two-Tier Maintenance Options

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

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

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

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

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

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

20090504 News Analysis: Oracle Waives Fees On Extended Support Offerings

20080909 Trends: What Customers Want From Maintenance And Support

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

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

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

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

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

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

20090721 Tuesday’s Tip: 3 Approaches To Return Shelfware

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

Reprints

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Disclosure

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

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

News Analysis: Microsoft Licensing Update – May/June 2011

Keeping Up With The Latest In Microsoft Licensing

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

Product And Program News

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

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

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

Microsoft Promotions Update

Here are the following known promotions:

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

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

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

More…