Posts Tagged ‘Tuesday’s Tip’

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


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.

Best Practices: Five Simple Rules For Social Business

Early Adopters And Pioneers Have Benefited From Social

Across executive board rooms and even in living rooms, social business is all the rage.  In 2010, social crm (SCRM) and Enterprise 2.0 (E20) rose into mainstream conversation.  Despite the mindshare and awareness, a majority of business leaders have yet to begin these initiatives.  The good news – those organizational leaders who have adopted disruptive technologies in social, have already realized the benefits.  Those benefits include:

  • Faster product time to market and customer adoption
  • Reduced marketing spend and increased marketing engagement
  • Reduced incident to resolution times that lead to greater customer retention
  • Greater market influence and brand awareness
  • Improved collaboration across departments and improved knowledge bases
  • Growth in the top line and savings in the bottom line

SCRM and E2.0 Evolve Into An Uber Category Of Social Business In 2011

Fast followers have noticed the business benefits and have begun planning for social business initiatives in 2011.  Innovative management teams can expect social businesses to bring together the many concepts of social media, social analytics, social media monitoring, social marketing, SCRM, E20, community platforms, and Vendor Relationship Management (VRM).  Leaders seeking to understand social business can succeed by following these five simple rules for social business (see Figure 1.):

Figure 1. Five Simple Rules For Social Business

  1. More…

Tuesday’s Tip: How To Compare Total Ownership Costs

Apps Strategy Options Abound And Organizations Need Accurate Comparison Methodologies

Recent inquiries from blog readers and client engagements highlight a growing need to compare the cost of apps strategies.  Common comparison scenarios often include:

  • SaaS versus on-premise
  • Upgrade versus customization
  • Single instance versus two-tier
  • Vendor maintenance versus third party options
  • Custom apps versus packaged apps

Cost Comparisons Should Encompass The Software Ownership Lifecycle

An inventory of costs should comprise the phases of application ownership (see Figure 1).  License fees, implementation, and maintenance often define the most common costs.  However, additional factors by phase should include:

  • Phase 1 – Selection. Costs include services such as requirements gathering, vendor selection services, contract negotiation fees, and program management.
  • Phase 2 – Implementation. Costs include projects such as change management, business process reengineering, integration, customization, and testing.
  • Phase 3 – Adoption. Costs include, training, testing, configuration, report creation, and customizations.
  • Phase 4 – Optimization. Costs include upgrade, testing, custom development, and other integration fees.
  • Phase 5 – Renewal. Costs include third party maintenance, management, and vendor selection.


Tuesday’s Tip: Understanding The Many Flavors of Cloud Computing and SaaS

Confusion Continues With Cloud Computing And SaaS Definitions

Coincidence or just brilliance must be in the air as three esteemed industry colleagues, Phil Wainewright, Michael Cote, and James Governor, have both decided to clarify definitions on SaaS and Cloud within a few days of each other.  In fact, this couldn’t be more timely as SaaS and Cloud enter into mainstream discussion with next gen CIO’s evaluating their apps strategies.  A few common misconceptions often include:

  • “That hosting thing is like SaaS”
  • “Cloud, SaaS, all the same, we don’t own anything”
  • “OnDemand is Cloud Computing”
  • “ASP, Hosting, SaaS seems all the same”
  • “It all costs the same so what does it matter to me?”
  • “Why should I care if its multi-tenant or not?
  • “What’s this private cloud versus public cloud?”

Cloud Computing Represents The New Delivery Model For Internet Based IT services

Traditional and Cloud based delivery models share 4 key parts (see Figure 1):

  1. Consumption – how users consume the apps and business processes
  2. Creation – what’s required to build apps and business processes
  3. Orchestration – how parts are integrated or pulled from an app server
  4. Infrastructure – where the core guts such as servers, storage, and networks reside

As the über category, Cloud Computing comprises of

  • Business Services and Software-as-a-Service (SaaS) – The traditional apps layer in the cloud includes software as a service apps, business services, and business processes on the server side.
  • Development-as-a-Service (DaaS) – Development tools take shape in the cloud as shared community tools, web based dev tools, and mashup based services.
  • Platform-as-a-Service (PaaS) – Middleware manifests in the cloud with app platforms, database, integration, and process orchestration.
  • Infrastructure-as-a-Service (IaaS) – The physical world goes virtual with servers, networks, storage, and systems management in the cloud.

Figure 1.  Traditional Delivery Compared To Cloud Based Delivery


The Apps Layer In The Cloud Represents Many Flavors From Hosted To True SaaS

SaaS purists often challenge vendors on delivery models in the cloud at the apps layer (see Figure 2).  Often classified as OnDemand, there are 3 common approaches:

  1. Single Instance – (a.k.a. “On Demand”). Think traditional apps deployed one cusotmer per app or per server. Many vendors provide hosting capabilities. Customers don’t worry about the IT infrastructure and retain the flexibility to modify, customize, and in most cases choose when they want to change the code. All customers can use different versions of the software
  2. Multi Instance – (a.k.a. “Server Virtualized”). Think “VMware” like. Apps deployed into a shared-web hosting environment. A single instance copy of the app is configured and deployed into a web directory for each customer. Vendor benefit from easier to manage multi-instance environments. Customers don’t worry about the IT infrastructure and retain the flexibility to modify, customize, and in most cases choose when they want to change the code. All customers can use different versions of the software.
  3. Multi-tenant – (a.k.a. “True SaaS”). Apps in a multi-tenant deployments provide a single operating environment shared by multiple customers. Config files are created and deployed each time a customer request services. Customers don’t worry about the IT infrastructure and retain the flexibility to modify, configure but NOT customize the code. Customers usually receive upgrades at the same time. Everyone shares the same code.

Figure 2.  Different Strokes Of OnDemand For Different Folks


The Bottom Line – Different Models Bring Varying Degrees Of Trade Offs In Cost Versus Flexibility

Keep in mind there are cases where one deployment option is more favorable than another. Just because you are multi-tenant SaaS doesn’t mean you are better. On the other hand, when vendors tout OnDemand as a SaaS offering, then the SaaS bigotry begins. Be on the look out as more vendor provide mix-mode offerings to support disconnected modes, SaaS and On-premise, Public and Private clouds, as well as other improvements in integration with stronger client side ESB’s. Expect many vendors to put their offerings into the Cloud as Cloud/SaaS moves beyond the mainstream for apps strategy.  Let’s take a look at a two decision criteria:

Scenario 1: From least expensive to most expensive to run for a vendor:

  1. True SaaS
  2. Server Virtualized
  3. Hosting

Why is this important? Let’s see, you choose a Hosted solution and the vendor’s costs to run the app goes up with each new customer as it has to manage the different environments. No matter how hard the vendor will try to “fit” everyone to standard configurations and deployments, that’s not always possible. Flexibility has a cost. In a “True Saas” solution, the cost to add an additional customer is minimal and each customer reduces the overall cost for everyone. Ultimately, a True SaaS deployment will have the lowest cost/user/month fee. What will you do 5 years into an Hosting scenario when you are locked in?

Scenario 2: From most customizable to least customizable for a customer:

  1. Hosting
  2. Server Virtualized
  3. True SaaS

Why is this important? Your may have specific needs in an area where the SaaS vendor has not provided the deepest level of configurations. You can’t just go in and modify the code unless everyone else wants it or the vendor’s has it on the roadmap. The cost of comformity is the lack of flexibility. What will you do 5 years into a True SaaS scenario when you are locked in and the vendor won’t add the feature or functionality you need?

Your POV

What’s your view on SaaS vs Cloud?  Does this help clarify the definitions?  Are you looking at private, public, or hybrid cloud options?  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 SaaS/Cloud strategies.  Here’s how we can help:

  • Crafting your next gen apps strategy
  • Short listing and vendor selection
  • Contract negotiations support
  • Market evaluation

Related resources and links

Take the new and improved survey on 3rd party maintenance

20100322 Monkchips – James Governor “Defining Cloud is Simple. Get Over It. The Burger”

20100319 ZD Net: Software as Services – Phil Wainewright “Is SaaS the Same as Cloud”

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

Tuesday’s Tip: The SAP Optimization List – Key Ecosystem Vendors You Should Know

High Cost Of Ownership And Changing Requirements Drive SAP Users To Seek Optimization Solutions

As users await SAP to regain its mojo (see Dennis Howlett’s post) and implement it’s “Voice of the Customer” strategy in 2010, users must continue to reduce their cost of ownership and complexity (see Figure 1).  In addition, rapidly changing business requirements require some users to seek SaaS alternatives, additional point solutions, and extensions.

Figure 1.  Cost Reduction Top of Mind for SAP users

What SAP users want from SAP

Consequently, vendors providing SAP optimization and extension solutions represent one of the fastest growing parts of the $78.7B (2009 Altimeter Group estimate), 850,000 person strong SAP service partner and developer ecosystem.   SAP users already embrace many of the solutions from vendors on this inaugural SAP Optimization List as part of their business value oriented apps strategy. The living list covers seven areas including:

  1. application extension and usability;
  2. application life cycle management;
  3. archiving, storage, and data management;
  4. license management and optimization;
  5. Microsoft Office integration;
  6. third party maintenance; and
  7. virtualization

1. Application Extension and Usability

Users often complain about the poor usability of SAP solutions.  These solutions allow users to change their user experience with SAP.  In some cases, the solutions provide composite app creation capabilities in other tool sets to inter-operate with SAP.

  • Adobeprovides interactive forms for the SAP environment in both an off-line and on-line deployment.  Submitted forms are then entered into SAP.  Forms can include validations and other secure features.
  • ERP-Linkallows users to extend the SAP environment for business intelligence, document management, content management, and composite application creation using Microsoft tools.  The i_Net platform creates SAP-Microsoft interoperability.
  • GuiXTprovides users with the ability to deliver customized user interfaces in SAP applications.  GuiXT is often used by clients to simplify screens and user flows without impacting SAP code.

2. Application Life Cycle Management

Whether it may be instance consolidation, upgrades, test data management, or performance planning, these vendors ease the process of managing the SAP application life cycle.

  • Hayes Technologyassists customers with replicating production application data for dev, testing, and training environments.  Gold Client allows organizations to replicate the data sets they need in SAP configuration, master data, and transcational data.
  • Hyperformix - builds on SAP internal monitoring capability.   Organizations gain a performance monitoring tool that identifies hardware, infrastructure, and architecture optimization opportunities.
  • Intellicorpprovides an artificial intelligence based optimization solution called Live Compare that compares version of SAP for use in testing, upgrade planning, and other life cycle activities. The solution helps clients understand their pre and post environment.
  • Panayadelivers a SaaS based optimization tool for SAP upgrades, enhancement packages, and ABAP code cleansing.  Customers generate a code analysis to determine differentials between versions.  The tool proactively tells user what will break, how to fix it, and where to test.
  • Tidal Softwareoptimizes the allocation of SAP support resources through a root cause analysis methodology.  Performance, IT Process, and Workload automation solutions address both day to day and upgrade scenarios such as a system refresh.
  • West Trax – uses a benchmark tool based on over 300 clients in 13 industries to determine system optimization opportunities for upgrades and  consolidations.  KPI Scan, KPI Optimizer, and KPI QA help organizations identify opportunities, make suggestions, and assist with compliance.

3. Archiving, Storage, and Data Management

  • EMC – provides content management and archiving solutions to support compliance requirements.  Other capabilities include cloning, backup, and recovery, and information protection.
  • IBM Optimdelivers a suite of integrated data management solutions that includes data privacy, test data management, archiving, retention and E-discovery, and upgrade consolidations.

4. License Management and Optimization

Solutions in this category focus on helping clients manage their license usage.  Many large enterprises lack the understanding of how much shelfware may be in production.  In addition, the used software market provides users with opportunities to unload or acquire older releases of software.

  • Flexera (formerly Acresso, Macrovision) - helps clients with a software solution to understand usage, ensure compliance, centralize updates, predict future demand, and improve contract negotiation leverage.
  • SUSEN Softwareprovides a market place to buy and sell used software or shelfware.
  • UsedSoft - supports a market place to buy and sell used software or shelfware.

5. Microsoft Office Integration

Organizations require easy ways to leverage Microsoft Office as an interface into SAP.  Common scenarios include Outlook, Excel, Access, and Word integration.

  • SAP Duetrepresents a solution in joint partnership between Microsoft and SAP to provide interoperability.  Current users complain about the slow pace of innovation and high cost.  A new version addressing these issues will be out in 2010.
  • Winshuttlefacilitates data exchange between SAP and Microsoft Excel or Access.   Winshuttle’s data management tools automate data entry, data download, and reporting tasks for the entire SAP BusinessSuite 7.

6. Third party maintenance

Customers seeking relief from maintenance choose solutions that provide maintenance, tax updates, and regulatory changes for often half the cost of existing SAP maintenance prices.  The clear leader in the market is Rimini Street though some other system integrators have been quietly providing such services.

  • Rimini Street- delivers maintenance options for SAP customers who do not seek to upgrade but would like to keep their existing systems up to date with tax, compliance, and other break-fix issues.  Rimini Street’s charter program has met significant success with over 100 client cases for SAP customers.
  • Your System Integrator of Choice – The recent Siemens SAP maintenance contract negotiations revealed that other vendors such as IBM and HCL were bidding for the maintenance business.   Many SoftwareInsider readers have shared with us that many system integrators, especially those in Europe provide such services.

7. Virtualization

Virtualization allows organizations to consolidate server infrastructure costs for development, testing, training, and production environments.

  • EMC – provides virtualization solutions that include high availability (HA), backup and recovery (BR), and cloning.
  • VMWare -  reduces an organizations physical infrastructure footprint with its solutions.  VMWare provides additional solutions that deliver high availability (HA) and disaster recovery (DR).  In addition to cost savings, many Software Insider readers report performance improvements.

The Bottom Line – Lots Of Proven Solutions, Expect More Details In Future Friday’s Features

Over the course of the next 6 months, we will be profiling many of these vendors.  Key questions that will be answered:

  1. What’s the appropriate use case?
  2. What other customers have used these solutions?
  3. What are sample ROI’s achieved?

Meanwhile, let’s see what news, programs, and innovations develop at SAP’s Field Kickoff Meeting (FKOM 2010) the third week of January.

Your POV.

Have you worked with any of these vendors?  Feel free to share your experiences.  Am I missing anyone?  This list will be continuously updated so please share with us your thoughts.  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 © 201o R Wang and Insider Associates, LLC. All rights reserved.

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

Keep In Mind Basic Rules Still Apply Regardless Of Deployment Option

The proliferation of SaaS solutions provides organizations with a myriad of sorely needed point and disruptive solutions.  Good news – business users can rapidly procure and deploy, while innovating with minimal budget and IT team constraints.  Bad news – users must depend more on their SLA guarantees and deal with a potential integration nightmare of hundreds if not thousands of potential SaaS apps.  Though the 7 key benefits of SaaS outweigh most downside risks, organizations must design their SaaS apps strategies with the same rigor as any apps strategy.  Just because deployment options have changed, this does not mean basic apps strategy is thrown out the window.  Concepts such as SOA, business process orchestration, and enterprise architecture will be more important than ever.  Here are 10 strategies to consider as organizations take SaaS mainstream:

  1. Begin with the business process and desired business value. Understand the desired business value and outcome.  Map back the key performance indicators (KPI’s) to the business processes. Identify what processes will be covered by the SaaS solution.  Determine overlaps and hand-offs between on-premise and SaaS to SaaS that are required to measure the desired KPI’s.
  2. Engage stakeholders early and often. Today’s apps strategies must constantly evolve. Change is happening so fast that line of business leads and IT leaders must collaborate in real time.  The result – an ever changing list of requirements.  While SaaS allows business leaders to make go-it-alone decisions, success will require close collaboration on short term and long term requirements, dependencies, and strategy.
  3. Bet on future suites, SaaS platforms or PaaS (Platform-as-a-service). Winners and losers will emerge in this wave of Cloud computing.  Vendors such as Netsuite, Workday, Zoho, Epicor, and SAP have built or will be building suites.  They provide safe bets as more and more functionality will be rolled into their offerings. Concurrently, organizations should also choose vendors who bring a vibrant and rich ecosystem to the table because those vendors will win in the market. and NetSuite already provide users with a platform to build on apps.  Other vendors such as as Google Apps Engine, Microsoft Azure, IBM, and Zoho provide rich developer communities.  Partner and customers will drive innovation which is why platform adoption (i.e. today’s middleware) makes a difference.
  4. Augment with best of breeds, but avoid best of breed hell. No one platform can provide every solution, but choose wisely.  Best of breeds provide deep vertical capabilities and rich last mile solutions.  However, no one wants to manage hundreds of vendor relationships.  Create frameworks that allow business users to work with vendors which support open standards, integrate well with your existing integration strategies, and follow the bill of rights.   Reduction in the number of vendors will become a priority in 2010 going on into 2011.
  5. Assume hybrid will be the rule not the exception. Prepare for hybrid deployments throughout the decade.  Despite the benefits of SaaS and broad adoption in 2010, legacy apps will not go away.  Just count the number of mainframe and client-server apps still in use today.  Many on-premise apps will take time to migrate to SaaS. In some cases, legal requirements will prevent data from being stored off-site.  Software plus services offerings from companies such as Infor, Lawson, Microsoft Dynamics, and SAP may become the norm in 2010 as companies seek private and public cloud solutions.
  6. Design with good architecture. Keep your enterprise architects (EA’s) or hire some more.  Inevitably, more and more SaaS solutions will enter the organization.  EA’s will proactively plan for new scenarios and account for future business requirements.  Organizations should keep some rigor in terms of standards for solution adoption while accounting for the need to rapidly innovate.  Business leaders will need some frameworks on which solutions to adopt.
  7. Choose the right integration strategy for the right time. SaaS integration strategies will evolve based on the organization’s SaaS adoption maturity.  The first set of solutions will probably require point to point integration of data.  Over time, users often migrate to centralized integration services that account for process.  Some will go full enterprise service bus (ESB) and look at business process orchestration as well.  Consider solutions from CastIron, Boomi, Pervasive Software, Informatica, and SnapLogic.  Going forward customer data integration and master data management will be more important than ever.
  8. Minimize long-term storage costs with archiving. Storage represents a significant long term SaaS cost.  Savvy clients can reduce the cost of SaaS storage with a myriad of technologies such as EMC, IBM Optim, and RainStor.  By archiving, organizations will experience faster transaction times, maintain compliance, and reduce storage fees.
  9. Hedge risk with SaaS escrows. Most SaaS vendors will require 5 to 7 years to achieve profitability.  End users often demand software escrows in the on-premise world when they are concerned about vendor viability, takeover threats, and other related breaches to performance or service level agreements.  Software escrows vendors serve as the trusted third party independent organization which holds a copy of the software code.  This often includes user data, source code, documentation and any application executables. SaaS escrows work in a similar way.  Vendors such as EscrowTech, InnovaSafe, Iron Mountain, NCC Group. and OpSource can provide such services.
  10. Protect your rights. Client – vendor relationships in SaaS are perpetual.  Organizations have one shot to get the contract right and begin the relationship with the right tenor.  Apply best practices from The Customer Bill of Rights: SaaS. Work with vendors to find the right balance in approach.

The Bottom Line For Customers – Build Frameworks That Support Easy Line Of Business Adoption

The broad adoption and trajectory of SaaS solutions requires organizations to rapidly replace edicts and 5 year plans with guidelines and policy frameworks.  The goal – enable anyone in the organization to procure a SaaS solution that meets key guidelines and standards.  The result – flexibility, security, and scalability that allows solutions to be used on-demand and in concert with existing applications.

Your POV.

As you work out your SaaS apps strategies, drop us a line and let us know how you are deploying, what challenges you’ve faced, and what successes have you achieved.  We’re happy to weigh in.  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.

Tuesday’s Tip: Call Vendors On Their Bluff About “Rev-Rec” And Software Maintenance 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.

Tuesday’s Tip: Use The Organizational Hierarchy Of Needs To Prioritize Apps Strategies

Organization’s face significant prioritization challenges as they plan their 2010 apps strategies.  Faced with shrinking budgets, competing priorities, increased management scrutiny, outdated legacy apps, and uncertain economic conditions, organizations must answer key questions such as:

  • How do I determine which business requirements carry more weight?
  • Where do regulatory requirements fit when compared to other priorities?
  • What’s a good prioritization scheme to rank projects and initiatives?
  • Can I justify my budget or request for additional funding?
  • When can I move towards social media?
  • What’s my social enterprise/Web 2.0 / Enterprise 2.0 strategy?

As with Abraham Maslow’s motivational theory for individuals, organizations follow a hierarchy of needs.  Based on five key stages, the Organizational Hierarchy of Needs provides one proven classification methodology to prioritize business requirements and drivers in determining enterprise apps strategies (see Figure 1).  The five stages in detail include initiatives and projects can be defined as:

  • Brand – priorities focused on expanding the image and appeal of an organization’s outside perception including building connectedness
  • Strategic differentiation – priorities that create game changing transformation or business model disruptions including the adoption of newer social enterprise apps or connected business solutions.
  • Sales and growth – priorities that drive top line improvements.
  • Operational efficiency – priorities that drive business efficiencies including cost optimization, process transformation, and elimination of redundancy.
  • Regulatory compliance and controls - priorities that keep the CXO’s out of jail, respond to a health and safety requirement, mitigate liabilities, or be compliant with new regulations.

Figure 1. Organizational Hierarchy of Needs

R "Ray" Wang's Organizational Hierarchy of Needs

The bottom line – start your apps strategy by applying a prioritization framework of business requirements and drivers

Every project and initiative can be placed into one of the five stages.  Use the organizational hierarchy of needs to classify and prioritize the importance of each project.  With a clear sense of how the priorities stack up, you can begin crafting your apps strategy around organizational readiness, business process optimization, technology strategy, and vendor ecosystems.

Your POV

Have you begun planning your apps strategy for 2010?  If not, do you need assistance in planning out a strategy for 2010?  If you have a plan, how well does the Organizational Hierarchy of Needs assist in your efforts?  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.

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

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:

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.

Tuesday’s Tip: How To Properly Align Team Incentives In Software Contract Negotiations

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.

Tuesday’s Tip: 3 Approaches To Return Shelfware

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.