This is the second post in a series on strategies and tactics for negotiating your licensing agreements with software companies including SAP, Salesforce, and Workday.
Salesforce is coming off of another banner H1 and monumental customer event, Dreamforce ’15. The SaaS giant continues its meteoric rise — now into full-blown CRM, Internet of Things (IoT), and broader platform use cases. Customers remain excited and enthusiastic about Salesforce’s potential to transform their business, and they continue to adopt more and more of the Salesforce portfolio.
This continued growth has also meant a greater deal scrutiny by customers big and small. Although Salesforce famously built its business by going direct to line of business leaders -- flying under the radar of corporate procurement and IT -- those days are coming to an end. Salesforce’s growing deal sizes and newfound position as a mission-critical, strategic platform have caught the attention of sourcing and procurement professionals, IT leaders, CFOs, and even CEOs and Boards of Directors.
As you think about your relationship with Salesforce and prepare for negotiations, here are some tips to consider:
Have a thorough understanding of your current and future Salesforce usage. This will inform an appropriate and fair deal that you won’t outgrow too quickly.
Remember that deal structure and contract terms and conditions are critical. It’s not just about your price or the discounts negotiated, but also the business value your company is receiving.
This is the first post in a series on strategies and tactics for negotiating your licensing agreements with software companies including SAP, Salesforce, and Workday.
I recently had a call from an unhappy SAP customer moaning about the high costs of SAP’s annual maintenance and questioning whether they are getting good value for the money. I’m afraid that this is not a one-off conversation but something that is popping up regularly these days. The factors leading to the dissatisfaction include:
Any procurement or asset management professionals who have seen the new movie based on E.L.James’ best selling novels may have noticed the similarity between the eponymous antihero and a license management services consultant. Mr. Grey will use charm and threats to persuade you to run his audit scripts on your network. You have an obligation to demonstrate your compliance with the software license terms, but that doesn't mean that you have accept his opinion about what those terms actually mean.
Sources inside some large software companies tell me that license audits generate 20% to 30% of their license revenue. Although a lot of that will represent deliberate or reckless under-licensing, many of the disputes that I hear about involve software salespeople abusing some licensing shades of grey to pressurize customers into paying them money. It is difficult to predict how a court will interpret nineties contract language in the current technology context, so many companies pay up rather than risk a compliance lawsuit. Here are five questions of interpretation that no lawyer can answer:
Who is really using my software? I continue to hear risible interpretations of ‘use’ and ‘access’, such as the software company that claimed motorists were users because they saw output from its database when they drove past an electronic road sign. I’ve previously suggested a standard interpretation of use in my report Let's Clear Up The "Indirect Access" Mess based on the concept of interaction - i.e. both input by a user and output by the software. Enterprises need to persuade their vendors to accept this interpretation urgently, otherwise the Internet Of Things will bankrupt you.
Previously Microsoft tried to discourage customers from using virtual desktop infrastructure (VDI) on top of rival operating systems by applying complex licensing rules involving various TLAs such as RUR, VDA and CSL (which I’m not going to explain here, because they are, thankfully, no longer needed). The USL is far simpler - clear Windows licensing replacing translucent frosted glass, so to speak.
I help hundreds of technology buyers each year to understand the impact of technology changes on their software contracts, but I also get questions from software providers about how best to price their products. Some are bringing new products to market and want to know how to maximize revenue, while others are struggling with obsolete metrics such as per processor and want to update their pricing for the modern mobile, cloudy world. The answer is usually to find licensing metrics that make their pricing value-based while balancing simplicity and fairness. The more value a customer gets from your product, the more they should be willing to pay for it. If you make your pricing too simple then you won't match value sufficiently closely, which will cause you to price yourself out of some deals and leave money on the table in others. If, OTOH, you try to match value too precisely you risk making your pricing so complicated that buyers will reject it, and you, completely.
For example, suppose you have a product that will help people do their jobs better, so you decide that charging for each user will be a good approximation for value. The potential problem is that not everyone will use your product the same, in terms of depth of functionality and/ or frequency of access. Your single per user price will be unfair to companies with long tails of light, infrequent users, for whom you'll therefore be too expensive. Conversely your pricing will be unfair to you when the customer is mostly power users. To make your pricing fairer you could have different prices for different categories of user, but then you risk being criticized for being too complex.
I’ve just returned home from San Francisco where I was attending the Oracle Openworld 2011 (#OOW11) event. Overall it's a good event, although, as usual, a bit frustrating. Instead of examples of how customers are using its products to transform their businesses, the Oracle keynotes always descend into technical detail, with too little vision and too many unimpressive product demonstrations and ‘paid programming’ infomercials (if I had wanted to listen to Cisco, Dell, and EMC plugging their products, I’d have gone to their events).
When, a month ago, I accepted Oracle’s invitation to attend #OOW11, I thought I’d be able to escape the oncoming British autumn for some California sunshine and watch some Redsox playoffs games on TV. Well not only did the Sox’s form plummet in September like a stock market index, but Northern California turned out to be 20° colder than London. But despite that, and the all-day Sunday trip to get to the event, one can’t help being impressed by the attendee buzz and by the logistical achievement, with over 45,000 attendees accommodated around the Bay Area and bussed in and out every day to the conference location. Luckily, Oracle looks after its analyst guests very well, so we were within walking distance at the excellent Intercontinental Hotel.
As soon as you think you understand software companies’ policies on virtualization, a new problem appears that makes you tear your hair out and scratch your now-bald head. This month’s conundrum is whether or not VMware’s ThinApp product breaches your Microsoft Windows license agreement:
However, Microsoft, via its knowledge base, claims that “Running multiple versions of Windows Internet Explorer, or portions of Windows Internet Explorer, on a single instance of Windows is an unlicensed and unsupported solution.” http://support.microsoft.com/kb/2020599/en-us#top
VMware doesn’t warn customers that ThinApp could cause them Microsoft licensing problems, but neither does it claim that it is legal. It merely advises customers to check with Microsoft.
The lines are blurring between software and services — with the rise of cloud computing, that trend has accelerated faster than ever. But customers aren’t just looking at cloud business models, such as software-as-a-service (SaaS), when they want more flexibility in the way they license and use software. While in 2008 upfront perpetual software licenses (capex) made up more than 80% of a company’s software license spending, this percentage will drop to about 70% in 2011. The other 30% will consist of different, more flexible licensing models, including financing, subscription services, dynamic pricing, risk sharing, or used license models.
Forrester is currently digging deeper into the different software licensing models, their current status in the market, as well as their benefits and challenges. We kindly ask companies that are selling software and/or software related services to participate in our ~20-minute Online Forrester Research Software Licensing Survey, letting us know about current and future licensing strategies. Of course, all answers are optional and will be kept strictly confidential. We will only use anonymous, aggregated data in our upcoming research report, and interested participants can get a consolidated upfront summary of the survey results if they chose to enter an optional email address in the survey.
As promised in a previous blog post: Which Software Licensing Policy Is The Unfairest Of Them All? , we've launched a survey to find out what sourcing and vendor management professionals think about some common software licensing policies. This isn't about bashing powerful software companies, but about building a consensus behind a campaign to bring software licensing rules up to date - i.e. protection of innocent buyers, rather than regime change. I've narrowed an initial list of 30 questionable policies down to this Foul Fifteen of candidates for the (un)coveted "Unfairest" award:
1. Double charging for external users
2. Prohibiting or overcharging for anonymous users
3. Maintenance on shelfware
4. Counting cores instead of processors
5. Counting all processors in a server, even if partitioned
6. Upfront license purchase only, not phased in line with project milestones
7. Maintenance repricing
8. Insisting on purchase of all licenses before implementation starts
9. Product enhancements packaged as new SKU’s
10. Licensing by deployment, even if unused
11. Charging for use of modules that customers cannot control or track
12. Retaining right to change licensing policies at any time
13. Multiplexing – definition is unclear or too wide
Two months ago, we announced our upcoming Forrester Forrsights Software Survey, Q4 2010. Now the data is back from more than 2,400 respondents in North America and Europe and provides us with deep and sometimes surprising insights into the software market dynamics of today and the next 24 months.
We’d like to give you a sneak preview of interesting results around some of the most important trends in the software market: cloud computing integrated information technology, business intelligence, mobile strategy, and overall software budgets and buying preferences.
Companies Start To Invest More Into Innovation In 2011
After the recent recession, companies are starting to invest more in 2011, with 12% and 22% of companies planning to increase their software budgets by more than 10% or between 5% and 10%, respectively. At the same time, companies will invest a significant part of the additional budget into new solutions. While 50% of the total software budgets are still going into software operations and maintenance (Figure 1), this number has significantly dropped from 55% in 2010; spending on new software licenses will accordingly increase from 23% to 26% and custom-development budgets from 23% to 24% in 2011.
Cloud Computing Is Getting Serious
In this year’s survey, we have taken a much deeper look into companies’ strategies and plans around cloud computing besides simple adoption numbers. We have tested to what extent cloud computing makes its way from complementary services into business critical processes, replacing core applications and moving sensitive data into public clouds.