Taking a Stand to Protect Your IT Spend
Author: Eric Guyer
The old adage that the customer is always right is no longer passé as the IT market shifts from traditional, perpetual license agreements to cloud subscriptions. Old habits die hard, however, and most customers need to be shaken from the Stockholm syndrome that decades of painful negotiations and paying exorbitant maintenance fees have left them with. The most symptomatic effects are far more subtle than positive feelings toward their supplier-captors; rather, it’s the belief that suppliers’ values reign supreme.
Consider, for example, how Oracle treats its customers within a negotiation for incremental licensing. To summarize, contract terms and software metrics are largely non-negotiable. No one would ever consider buying a car after being told that it comes in any color they want so long as it’s green. Yet, most customers allow enterprise suppliers to define how its software may be licensed, paid for, measured, retired, etc. Worse still is the punitive nature of termination clauses. We routinely remind our clients that they, not the supplier, should be dictating the elements of the deal.
Of course, if it looks, walks, and barks like a dog, then it must be a dog, right? Oracle may be the smelliest of all dogs, and has trained the industry that a 50% margin is the highest value. So pervasive is Oracle’s approach to licensing software that other behemoths such as IBM and SAP have slowly changed their own policies to mirror those of Oracle. IBM, especially, is getting fleas from lying down next to Oracle with its own version of re-pricing.
This means two things, at least. First, traditional software agreements will die a slow death, but not before taking several more huge bites out of your IT budget. It’s wise to review your long-standing enterprise software agreements to plant the seeds of defection and cost reduction. Second, new and hungry cloud (and even perpetual) software offerings should not be approached with the same down-trodden sense of surrender that Oracle and SAP elicit out of their customers. Rather, the pre-planning of budgets and alternatives are, once-again, effective tools from which to return some bargaining power to your side of the table.
Oracle’s profit model is so powerful and compelling that any supplier that gains market leadership will eventually be tempted to adopt the approach to managing its customer base. Yes, even today’s market disruptors that seem so customer-friendly will eventually forget who the customer really is. But that doesn’t mean you should train them to act like Oracle or SAP by treating them as such. In the meantime, it’s wise to remember that David did beat Goliath when dealing with large, entitled suppliers. With NET(net) on your side, your odds are vastly improved against any supplier.
Enterprise software isn’t the only arena to consider these principles. We find these dynamics at play within hardware, consulting services and outsourcing. Take heart, however, because our charter is to shift the tide back towards our clients, where in many cases, the client is stranded on an island and wondering how to get back home.
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