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Phil Downe - Avoiding Shady IT Vendors (full)

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In this webinar, IT contract specialist Phil Downe of Relations Management Group explains how to do cloud-based software negotiations with confidence.

The webinar answers the following questions:

How can you avoid vendor captivity and software traps?
How can you prepare for a negotiation, including leveraging and timing the deal?
How can you draft a contract and prevent contract ambiguity?

Publicada em: Tecnologia
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Phil Downe - Avoiding Shady IT Vendors (full)

  1. 1. Negotiating Software Deals in the Cloud Creating Value Where it’s Needed Most www.ITnegotiations.com
  2. 2. Every Vendor’s Strategic Direction is Cloud: 2
  3. 3. Where are the Risks? • Opaque / Bundled Pricing • Over-buying Shelfware • Eroding Discounts Over Time • Agreement Traps and Pitfalls • Growth, True-ups & Renewals • Unfamiliar Territory Disadvantage 3
  4. 4. Software Costs are Enormous! • No Transparent, Set Pricing • Vendors Take What They Can • Unlocking Value Requires Preparation • Vendors Do This Every Day! • Recognize the Potential Negotiating Disadvantage 3
  5. 5. Strategic Planning and Preparation: • All Vendors Have a Formal Sales Strategy • They Have Deep and Consistent Expertise • The “Level-Playing-Field” is Rare • They Have a Step-by-Step Sales Process • Opaque Metrics & Complex Terms • Products & Rules Change Constantly • Insist on Pricing Transparency & Clarity 4
  6. 6. Zone of Consideration Vendor Presentations Vendor Selection L E V E R A G E TIME IT Vendor Non-Profit 0% 100% Leverage: 5 RFP Launch RFP Response Legal Drafting IT Vendor Non-Profit
  7. 7. Price-Points & Issues to be Negotiated: • Pricing • Future Price Protection • Systems Implementation Charges • Term of the Agreement • Ancillary Charges (Storage & Transactions) • The Legal Terms (SLAs & SOWs) 6
  8. 8. Leverage & Revenue Recognition: • Cloud is Dominating Traditional SW Sales • A Subscription (Sub) = 1 User/1 Sub /Month • Higher Discounts for 36 to 60-month Commitments • Vendors Recognize the Total Sale: • End of Q1 & Q2 – Buyer has Good Leverage • End of Q3 – Buyer has Very Good Leverage • Q4 (Year-End) – Buyer Has Excellent Leverage • Vendor Year-Ends are Buying Opportunities 7
  9. 9. Pricing: • Vendors “Bundle” to Hide Price-Points • No Price-Points = No Benchmarks • Price-Protection Needs a Starting Benchmark • No Price-Protection, then… • Full List-Price Add-Ons • Full List-Price Renewal • Clear Price-Points for Every Subscription Type • (Full-Use, Restricted, Read-Only, etc.) 8
  10. 10. Pricing: Subscription A Pricing: List Price ($) Discount (%) Net Price ($) Volume Clip Levels: (Adjust as needed) 50 to 100 $250.00 50% $125.00 101 to 200 $250.00 60% $100.00 201 to 300 $250.00 75% $62.50 etc. (add lines as needed) Subscription B Pricing: Volume Clip Levels: (Adjust as needed) 500 to 1000 $100.00 50% $50.00 1001 to 2000 $100.00 60% $40.00 2001 to 3000 $100.00 75% $25.00 etc. (add lines as needed) 9
  11. 11. Potential Price-Traps: • Clear Initial Price-Points Facilitate: • Add-on Sub Pricing During the Term • Growth Leads to Additional Subs • Renewal Price-Protection • No Protection? Assume Full List-Price • Vendors Shun Price Transparency • Vendors Discount Only When Necessary • Establish Objective Criteria for Future Negotiations 10
  12. 12. Future Pricing Tactics: • Get Clear Sub List Prices • Most Subs are Priced for a 12-Month Term • Paid in Advance • Negotiate Increasing Discounts for: • Multiple Types of Subs • Longer 36 or 60-Month Commitments • Insist on at Least two 12-month Extensions • At the same Sub price • Avoid Automatic CPI or Fixed-Rate Increases • Then Negotiate Bigger Discounts for Longer Terms 11
  13. 13. Other Pricing Opportunities: • Migrating On-Premise Software to Cloud Subs • Get a Credit for Past License Purchases • Reduce Annual Support Charges • For Existing Cloud Deals: • Have Excellent Price-Protection, or • Re-Negotiate Early • Don’t Buy into Vendor Excuses for Short Notices 12
  14. 14. Leverage Vendor Deadlines: •Salesforce – YE January 31 •Oracle YE – May 31 •Microsoft YE – June 30 •Adobe YE – December 1 •SAP YE – December 31 Vendors Cannot “See” Beyond the End of the Quarter 13
  15. 15. Storage in the Cloud: • Data is the New “Oil” • AI & IoT Produces Data – Lot’s of It! • Stored Data Will Double Every two Years • Re-Selling AWS Storage is a “Cash-Cow” • AWS charges US $0.023/GB/Month • For up to 50 TB • Vendors Charging $1.00/GB/Month is 43X Higher! • Do Your Own Storage Deal • Always Keep 100% Control of Your Data 14
  16. 16. Shelfware: • Vendors Over-Sell Subs: • Vendors Promote – Buy for Growth • Vendors Promote – Elite Subs Over “Good-Enough” Subs • Good Price-Protection Avoids This Trap • Buy Only What’s Needed – Price-Protect all Future Subs • Price-Protect Ancillary Module Extensions • If it’s a Potential Add-on Buy – Price-Protect it! • Add Swap-Language • Trade Sub Over-Buys for Useful Subs 15
  17. 17. Ramp-Ups: • The Vendor Wants Immediate Payment to Book Revenue • Sub Pricing Always Starts on the Signature Date • Vendor’s Can’t Book Revenue Until “the Subs are Delivered” • The Buyer Doesn’t Need 100 Subs on Day 1 • Negotiate Further Discounts for the Shelfware • Alternative: • Add 3-Months Subs Free – Keep the Vendor Financial Quarters in Play! 16
  18. 18. Vendor Revenue Recognition Rules: • There Must be Compelling Evidence of an Agreement • The Pricing Must be Predictable • Collectability Must be Reasonably Assured • Software Delivery Has Occurred Threaten the Vendor’s Rev/Rec & You Have a Problem! 17
  19. 19. Professional Services (PS): • Time & Materials (T&M) or Fixed-Price? • Complete Requirement Definitions are Critical • An Early Requirement Costs $0.5X • After-Signature Requirements Cost $2X • After-Go-Live Requirements Cost $3X • Get a Detailed Implementation Plan • Know Who is Doing What/When to Control Costs • Consider $200/Hour is $400K a Year • The A-Team Always Sells – F-Troop Usually Delivers • Consider Milestone-Payments 18
  20. 20. The Legal Agreement • MSA – Master Service Agreement • Addendums, Schedules & Exhibits • SLA – Service Level Agreement • Credits for Failure to Meet the SLA • SOW – Statement of Work • On-Line Terms, Terms of Service, (TOS), Privacy Policy, etc. • Product Order Forms • Often with New Binding Terms 19
  21. 21. True-Up Changes: What to Count: Previous Terms: New Terms: Enrolled Affiliate must submit an annual true-up order that accounts for changes since the initial order or last true-up order, including (i) any increase in licenses, including any increase in Qualified Devices or Qualified Users and Reserved Licenses; (ii) Transitions (if permitted); or (iii) Subscription License quantity reductions (if permitted). Enrolled Affiliate must submit an annual true-up order that accounts for any changes since the initial order or last order. Including: Enterprise Products… Additional Products… Online Services… Transitions… Subscription License quantity reductions… 20
  22. 22. Audit Language • Anticipate Software Audits • They will occur • Restrict Auditors Motivated by Perverse Incentives • Add Conflict-of-Interest Language • Add an Auditor NDA Requirement • Insist on a Definitive Timeline 21
  23. 23. Wrap Up • Start Earlier Than You Think • Competition & Alternatives Drive Savings • Time the Deal for Maximum Leverage • Identify Your Interests: • Set Priorities • Set Targets • Always Negotiate Your Renewal Options 22
  24. 24. Phil Downe phil.downe@ITnegotiations.com 416-804-7445 www.ITnegotiations.com 23

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