Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

Jane Disbrow Negotiating a CRM Software License Agreement

1,007 views

Published on

Published in: Technology, Business
  • Be the first to comment

Jane Disbrow Negotiating a CRM Software License Agreement

  1. 1. Jane Disbrow Negotiating a CRM Software License Agreement These materials can be reproduced only with Gartner’s official approval. Such approvals may be requested via e-mail -- quote.requests@gartner.com. Notes accompany this presentation. Please select Notes Page view.
  2. 2. Negotiation Is Key <ul><li>Choosing a vendor before negotiating the software license agreement is dangerous to the financial health of the enterprise. </li></ul><ul><li>Do the same due diligence on the contract terms and conditions as should be done to determine functionality requirements. </li></ul>
  3. 3. Key Issues <ul><li>Who should be involved in the negotiation and what process should be followed? </li></ul><ul><li>What are some of the license models being used by software vendors today, and what are the advantages and disadvantages of those license models? </li></ul><ul><li>How can enterprises spot the problem clauses often found in license agreements? </li></ul>
  4. 4. Entire Agreement Clause <ul><li>“ This agreement replaces and supersedes any prior verbal or written understandings, communications and representations between the parties and constitutes the complete agreement between the parties. No other act, document, usage or custom shall be deemed to amend or modify this agreement unless agreed to in writing and signed by both parties.” </li></ul>Contract Reality: Warranty is often just 90 days and states that the software will perform substantially in accordance with the documentation, and the vendor must be notified of any nonconformance within the warranty period — which is not practical if there is a long implementation.
  5. 5. Getting Started: Who Should Negotiate? <ul><li>Technology negotiation is a specialty </li></ul><ul><li>It must include negotiation skills. </li></ul><ul><li>Legal will usually focus on legal terms and conditions. </li></ul><ul><li>Business issues related to technology need to be covered in the license agreement. </li></ul><ul><li>Technical terminology must be understood by the negotiators. </li></ul><ul><li>The direction of the enterprise and | the IT division must be taken into consideration. </li></ul>
  6. 6. Responsibilities of Software Negotiators <ul><li>Research and obtain financial information about vendors. </li></ul><ul><li>Assist with RFP preparation; include contract terms in the RFP that are required by the final agreement. </li></ul><ul><li>Review RFP responses for issues to include in final agreement. </li></ul><ul><li>Review any current contracts with any possible vendor to see if they can be used for the new deal, or if the contract will need to be redone. </li></ul><ul><li>Read potential contracts and inform management of major problems. </li></ul><ul><li>Negotiate the contract as the central point of contact for all parties — legal, business units, technical. </li></ul>
  7. 7. Who Should Be Part of the Negotiation Team? Database Requirements Hardware Requirements Future Direction of Technology Technical Primary Point of Contact With Vendors Ensuring All Issues Are Documented in Contract Final Price Negotiation Coordinating the Negotiation Process With All Team Members Negotiator Business Requirements Functionality Business Process Changes Business Installation System Integration Development Future Direction of Applications IT Apps. Limitations of Liability Enterprise Name Subsidiaries Affiliates Mergers/ Acquisitions/ Divestitures Legal Risk Legal
  8. 8. <ul><li>Usage rights </li></ul><ul><li>Price protection </li></ul><ul><li>Maintenance caps </li></ul>GOAL: Equitable Contracts Between CRM Vendor and Customer Customer Vendor Users can balance the scale by focusing on such things as: <ul><li>Financial due diligence </li></ul><ul><li>Clarifications with examples </li></ul><ul><li>Legal review </li></ul>
  9. 9. Trends in CRM License Agreements <ul><li>Buyers market for current CRM deals </li></ul><ul><li>More-complicated license models </li></ul><ul><li>Greater discount for initial license, but higher ongoing costs </li></ul><ul><li>Licenses as part of a package “deal” that will include services, implementation and training </li></ul>
  10. 10. CRM Pricing Survey Results, November 2002 Percent Count Answer 42.7% 38 Named user 65.2% 58 Per module 20.2% 18 Module per named user 27.0% 24 Concurrent user 9.0% 8 Revenue or other financial-based metric 3.4% 3 Number of employees 7.9% 7 Transaction-based pricing 12.4% 11 Role-based pricing (professional, employee self-service, business partner) 13.5% 12 Size of hardware platform 36.0% 32 Other 237.3% 211 Multiple license models per vendor Results from 89 CRM software vendors on their licensing models
  11. 11. License Models Named User: Many vendors offer some form of this license model for their CRM software. It is usually easy to understand but may be costly if there are many occasional users. Concurrent Users: Usage rights are often ill-defined in the contract. Role-Based User: Can be costly if not well-defined as to usage rights, and there are not rights to convert from one role user to another. Business Metric: Often ill-defined; consider what should be eliminated from and/or added to the business metric. Transaction-Based Metric: Can be difficult to estimate usage in advance. How it is measured is very important.
  12. 12. Problem Clauses in CRM Licenses Gotcha !!!
  13. 13. Charges for Changes in Technology Example of onerous term and condition: “If the licensee decides to change from one supported database to another supported database, the cost will be horrendous.” Likely way presented in the contract: Database: Oracle (or any other specific database listed) Example of solution (not legal advice): “ This software is not subject to any upgrade, downgrade, usage or transfer fees within the organization. Licensee may transfer this software at no additional cost to any hardware platform, software operating system or database that the vendor supports for this software.”
  14. 14. Reinstatement Fees Example of onerous term and condition: “If the licensee drops maintenance, then reinstatement fees are subject to whatever we want to charge at the time, and the licensee will have absolutely no leverage.” Likely way presented in the contract: “ Reinstatement fees are subject to then-current policies in effect.” Example of solution (not legal advice): “ Licensee can resume software support and maintenance for lapsed periods by paying licensor an amount no greater than the back support fee that would have been due if software support and maintenance had been continued over the lapsed period.”
  15. 15. Software Compliance Example of onerous term and condition: “ We are going to send you software that you are not licensed to use. If you use this software in error, you will be out of compliance with this contract, and woe to you if we audit.” Likely way presented in the contract: “ Licensee shall not access or use any portion of the software not expressly licensed and paid for by the licensee.” Example of solution (not legal advice): “ Licensor shall not ship any software to licensee that licensee is not authorized to use.”
  16. 16. Downsizing of Usage Example of onerous term and condition: “ During the sales cycle, we sold you more software than you can use. Now that your enterprise is facing budget cutbacks and a large reduction in the workforce, we still expect you to pay for all licenses and modules whether you need them or not because we need the money too.” Likely way presented in the contract: XXXX (not addressed at all) Example of solution (not legal advice): “ Licensee shall have the right to remove unused licenses and modules from support at the renewal of the maintenance term, with a corresponding reduction in ongoing maintenance and support costs.”
  17. 17. Indemnification Clause Example of onerous term and condition: “ Software vendor may, in its reasonable judgment and its sole option and expense: 1) obtain for licensee the right to continue to use the software; 2) replace or modify the software so that it becomes non-infringing; or 3) terminate the license for the infringing software and return the license fees paid for such software prorated over a five-year term.” <ul><li>Four problems with the above clause: </li></ul><ul><li>“ Software vendor may …” This does not set very high requirements for the vendor. It may or it may not do something. “Shall” is usually standard. </li></ul><ul><li>It should be required to go with Option No. 1 first, as continuing to use the same software would be easier for the enterprise. </li></ul><ul><li>Only the “infringing” software will be reimbursed — maybe just one module. A complete system was licensed. </li></ul><ul><li>License fees are prorated for five years. The replacement cost would be more than this. Try for a full refund of all software. </li></ul>
  18. 18. It’s time to play … “What’s Wrong With This Order Form?”
  19. 19. What’s Wrong With This Order Form? Anytown, USA Any Enterprise Corporation Server AS400 S/N 12345 Windows NT application server HP Unix database server Oracle 8i Designated Location: Business Unit: Computer Environment: Hardware Manufacturer: Software: Operating System and Version Database Manager and Version Number of concurrent users: Number of servers: Client IBM PC or compatible Windows NT N/A 500 1 Included System and Item Description Module A Module B Module C Module D License fee User Fee for 500 Concurrent Users TOTAL LICENSE FEE: (Less) Discount DISCOUNTED LICENSE FEES Implementation (estimated) License Fee Included Included Included $1,500,000 $30,000 $1,530,000 (430,000) $1,100,000 $350,000 Continuing Support Fee Year 1 $300,000 $6,000 _____________________________ ____________ ___________________ Vendor signature Licensee signature
  20. 20. What’s Wrong With This Order Form? Anytown, USA Any Enterprise Corporation Server AS400 S/N 12345 Windows NT application server HP Unix database server Oracle 8i Designated Location: Business Unit: Computer Environment: Hardware Manufacturer: Software: Operating System and Version Database Manager and Version Number of concurrent users: Number of servers: Client IBM PC or compatible Windows NT N/A 500 1 Included System and Item Description Module A Module B Module C Module D License fee User Fee for 500 Concurrent Users TOTAL LICENSE FEE: (Less) Discount DISCOUNTED LICENSE FEES Implementation (estimated) License Fee Included Included Included $1,500,000 $30,000 $1,530,000 (430,000) $1,100,000 $350,000 Continuing Support Fee Year 1 $300,000 $6,000 _____________________________ ____________ ___________________ Vendor signature Licensee signature
  21. 21. What’s Wrong With This Order Form? Anytown, USA Any Enterprise Corporation Server AS400 S/N 12345 Windows NT application server HP Unix database server Oracle 8i Designated Location: Business Unit: Computer Environment: Hardware Manufacturer: Software: Operating System and Version Database Manager and Version Number of concurrent users: Number of servers: Client IBM PC or compatible Windows NT N/A 500 1 Included System and Item Description Module A Module B Module C Module D License fee User Fee for 500 Concurrent Users TOTAL LICENSE FEE: (Less) Discount DISCOUNTED LICENSE FEES Implementation (estimated) License Fee Included Included Included $1,500,000 $30,000 $1,530,000 (430,000) $1,100,000 $350,000 Continuing Support Fee Year 1 $300,000 $6,000 _____________________________ ____________ ___________________ Vendor signature Licensee signature
  22. 22. What’s Wrong With This Order Form? Anytown, USA Any Enterprise Corporation Server AS400 S/N 12345 Windows NT application server HP Unix database server Oracle 8i Designated Location: Business Unit: Computer Environment: Hardware Manufacturer: Software: Operating System and Version Database Manager and Version Number of concurrent users: Number of servers: Client IBM PC or compatible Windows NT N/A 500 1 Included System and Item Description Module A Module B Module C Module D License fee User Fee for 500 Concurrent Users TOTAL LICENSE FEE: (Less) Discount DISCOUNTED LICENSE FEES Implementation (estimated) License Fee Included Included Included $1,500,000 $30,000 $1,530,000 (430,000) $1,100,000 $350,000 Continuing Support Fee Year 1 $300,000 $6,000 _____________________________ ____________ ___________________ Vendor signature Licensee signature
  23. 23. What’s Wrong With This Order Form? Anytown, USA Any Enterprise Corporation Server AS400 S/N 12345 Windows NT application server HP Unix database server Oracle 8i Designated Location: Business Unit: Computer Environment: Hardware Manufacturer: Software: Operating System and Version Database Manager and Version Number of concurrent users: Number of servers: Client IBM PC or compatible Windows NT N/A 500 1 Included System and Item Description Module A Module B Module C Module D License fee User Fee for 500 Concurrent Users TOTAL LICENSE FEE: (Less) Discount DISCOUNTED LICENSE FEES Implementation (estimated) License Fee Included Included Included $1,500,000 $30,000 $1,530,000 (430,000) $1,100,000 $350,000 Continuing Support Fee Year 1 $300,000 $6,000 _____________________________ ____________ ___________________ Vendor signature Licensee signature
  24. 24. What’s Wrong With This Order Form? Anytown, USA Any Enterprise Corporation Server AS400 S/N 12345 Windows NT application server HP Unix database server Oracle 8i Designated Location: Business Unit: Computer Environment: Hardware Manufacturer: Software: Operating System and Version Database Manager and Version Number of concurrent users: Number of servers: Client IBM PC or compatible Windows NT N/A 500 1 Included System and Item Description Module A Module B Module C Module D License fee User Fee for 500 Concurrent Users TOTAL LICENSE FEE: (Less) Discount DISCOUNTED LICENSE FEES Implementation (estimated) License Fee Included Included Included $1,500,000 $30,000 $1,530,000 (430,000) $1,100,000 $350,000 Continuing Support Fee Year 1 $300,000 $6,000 _____________________________ ____________ ___________________ Vendor signature Licensee signature
  25. 25. What’s Wrong With This Order Form? Anytown, USA Any Enterprise Corporation Server AS400 S/N 12345 Windows NT application server HP Unix database server Oracle 8i Designated Location: Business Unit: Computer Environment: Hardware Manufacturer: Software: Operating System and Version Database Manager and Version Number of concurrent users: Number of servers: Client IBM PC or compatible Windows NT N/A 500 1 Included System and Item Description Module A Module B Module C Module D License fee User Fee for 500 Concurrent Users TOTAL LICENSE FEE: (Less) Discount DISCOUNTED LICENSE FEES Implementation (estimated) License Fee Included Included Included $1,500,000 $30,000 $1,530,000 (430,000) $1,100,000 $350,000 Continuing Support Fee Year 1 $300,000 $6,000 _____________________________ ____________ ___________________ Vendor signature Licensee signature
  26. 26. What’s Wrong With This Order Form? Anytown, USA Any Enterprise Corporation Server AS400 S/N 12345 Windows NT application server HP Unix database server Oracle 8i Designated Location: Business Unit: Computer Environment: Hardware Manufacturer: Software: Operating System and Version Database Manager and Version Number of concurrent users: Number of servers: Client IBM PC or compatible Windows NT N/A 500 1 Included System and Item Description Module A Module B Module C Module D License fee User Fee for 500 Concurrent Users TOTAL LICENSE FEE: (Less) Discount DISCOUNTED LICENSE FEES Implementation (estimated) License Fee Included Included Included $1,500,000 $30,000 $1,530,000 (430,000) $1,100,000 $350,000 Continuing Support Fee Year 1 $300,000 $6,000 _____________________________ ____________ ___________________ Vendor signature Licensee signature Total Due Upon Signing $1,450,000 $306,000
  27. 27. What’s Wrong With This Order Form? Anytown, USA Any Enterprise Corporation Server AS400 S/N 12345 Windows NT application server HP Unix database server Oracle 8i Designated Location: Business Unit: Computer Environment: Hardware Manufacturer: Software: Operating System and Version Database Manager and Version Number of concurrent users: Number of servers: Client IBM PC or compatible Windows NT N/A 500 1 Included System and Item Description Module A Module B Module C Module D License fee User Fee for 500 Concurrent Users TOTAL LICENSE FEE: (Less) Discount DISCOUNTED LICENSE FEES Implementation (estimated) License Fee Included Included Included $1,500,000 $30,000 $1,530,000 (430,000) $1,100,000 $350,000 Continuing Support Fee Year 1 $300,000 $6,000 _____________________________ ____________ ___________________ Vendor signature Licensee signature
  28. 28. What’s Wrong With This Order Form? Anytown, USA Any Enterprise Corporation Server AS400 S/N 12345 Windows NT application server HP Unix database server Oracle 8i Designated Location: Business Unit: Computer Environment: Hardware Manufacturer: Software: Operating System and Version Database Manager and Version Number of concurrent users: Number of servers: Client IBM PC or compatible Windows NT N/A 500 1 Included System and Item Description Module A Module B Module C Module D License fee User Fee for 500 Concurrent Users TOTAL LICENSE FEE: (Less) Discount DISCOUNTED LICENSE FEES Implementation (estimated) License Fee Included Included Included $1,500,000 $30,000 $1,530,000 (430,000) $1,100,000 $350,000 Continuing Support Fee Year 1 $300,000 $6,000 _____________________________ ____________ ___________________ Vendor signature Licensee signature
  29. 29. Developing a Checklist <ul><li>Why a check list is important: </li></ul>Saves time — can be reviewed quickly to see the terms and conditions to be added to a license agreement Can include terminology that can be repeated in license agreements again and again, and be pre-approved by legal Prevents overlooking some major clauses Missing terms and conditions often cause more problems than terms and conditions that are included
  30. 30. Important Terms and Conditions Often Missing From Contracts <ul><li>Before signing on the dotted line: </li></ul><ul><li>Perpetual license </li></ul><ul><li>Escrow clauses </li></ul><ul><li>Audit protection </li></ul><ul><li>Mergers, acquisitions and divestitures </li></ul><ul><li>Right to change location, platform, operating system or database </li></ul><ul><li>Service-level agreements and entitlements for maintenance </li></ul><ul><li>Broad usage rights — parent, affiliates, subsidiaries </li></ul>
  31. 31. Include as Part of the CRM Contract <ul><li>Support Issues </li></ul><ul><li>RFP Response </li></ul><ul><li>Oral Promises </li></ul><ul><li>Presentations </li></ul>
  32. 32. Recommendations <ul><li>Use trained negotiators for the CRM software license agreements. </li></ul><ul><li>Establish best-practices procedures for the CRM software procurement and follow them. </li></ul><ul><li>Use a team approach to negotiation to ensure that all requirements — legal, procurement, technical and business — are taken into consideration. </li></ul>

×