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Would you classify the relationship as:
A. We are just another customer to the vendor, and it’s a professional and mutually beneficial business relationship.
B. No joke, we feel like “true business partners” with our major software vendors.
C. We feel like a hostage, locked-in to some of our vendors’ licensing, maintenance and upgrade schemes.
This isn’t a real test or survey, but I got a real sinking feeling after reading Duncan Jones’ new Forrester Research report on Software Pricing and Licensing Trends 2011 (sub. required). The glum feeling: That for too many companies today, the relationship with their software vendors (what he terms the “Software Oligarchy”) is answer C.
CIOs and software sourcing managers faced unenviable challenges in 2009 and 2010, and continue to face them, Jones writes: Do more with less but also increase innovation, improve agility and encourage collaboration. (It all seems like something Initech’s Bill Lumbergh would say: Go ahead and cut some more people from your staff and why don’t you improve our innovation efforts while you’re at it. That would be terrific, mmm-K?)
As if that wasn’t challenging enough, there’s more. “Under continued pressure to control costs in an uncertain economic environment,” Jones states, “[CIOs and sourcing managers] also faced ever-more complex licensing rules, increased license audit activity and proliferating commercial models.” (A CIO of a large multinational told him that software compliance audits are little more than “organized robbery.” Yowza!)
Jones also mentions these tactics: Vendors that refuse to accept lower maintenance—even when the customer has downsized—and those that “force customers to move to license metrics that ensure continual revenue.”
Software vendors are entitled to protect their IP. But one cannot underestimate the fiscal pressure that public software vendors face, and the related customer consequences. Jones writes: “The financial markets price big software companies’ stock on earnings multiples that assume continued revenue and profit growth.” (See SAP co-CEO Bill McDermott’s performance this week on CNBC: “The market is focusing on revenue as a long-term indicator of a company’s health,” he said.)
This fact only exacerbates the core disconnect between a software publisher and its customers. And has created an inherent tension and conflict that, with traditional software deals anyway, makes “software negotiations” seem more like “Mexican stand-offs.”
Jones, however, thinks change might be upon us:
In 2011, Forrester expects to see major changes in the pricing and licensing approaches of traditional software providers. Increasing tension between vendors’ insatiable demands for revenue and buyers’ pressing need to cut non-value-adding maintenance expense, coupled with technology changes such as cloud and mobility, will force publishers to update some long-standing policies.
I’m not as certain. It’s going to require a ton of fundamental changes in the way that both customers and software vendors approach future licensing deals. And as further market consolidation occurs, software buyers will likely feel even more locked in than they do today.
Successful negotiations won’t be related simply to the customers’ deal-making skills, as Jones points out, but to the ability to hit the vendors where it hurts the most: their balance sheets.
“Software providers will embrace these trends,” he writes, “when they see that failure to do so will handicap their sales efforts.”
Do you think the status quo is here for a while, or do you agree with Jones that real change is upon us?