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Phil Downe - Avoiding Shady IT Vendors (final version)

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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?

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Phil Downe - Avoiding Shady IT Vendors (final version)

  1. 1. Negotiating Software Deals in the Cloud Creating Value Where it’s Needed Most Presented by: Phil Downe
  2. 2. Every Vendor’s Strategic Direction is the Cloud
  3. 3. Opaque / Bundled Pricing Over-buying Shelfware Eroding Discounts Over Time Agreement Traps and Pitfalls Growth, True-ups & Renewals Unfamiliar Territory Disadvantage Where are the Risks?
  4. 4. No Transparent, Set Pricing Vendors Take What They Can Unlocking Value Requires Preparation Vendors Do This Every Day! Recognize the Potential Negotiating Disadvantage Software Costs are Enormous!
  5. 5. 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 Strategic Planning and Preparation:
  6. 6. Zone of Consideration Vendor Presentations Vendor Selection L E V E R A G E TIME IT Vendor Non-Profit 0% Leverage RFP Launch RFP Response Legal Drafting IT Vendor Non-Profit 100%
  7. 7. Pricing Future Price Protection Systems Implementation Charges Term of the Agreement Ancillary Charges (Storage & Transactions) The Legal Terms (SLAs & SOWs) Price-Points & Issues to be Negotiated:
  8. 8. 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 Leverage & Revenue Recognition:
  9. 9. 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.) Pricing:
  10. 10. Pricing Subscription A Pricing: Volume Clip Levels: (Adjust as needed) List Price ($) Discount (%) Net Price ($) 50 to 100 $250.00 50% $125.00 101 to 200 $250.00 60% $100.00 201 to 300 $250.00 75% $62.50 etc. (add lines as needed) Subscription B Pricing: Volume Clip Levels: (Adjust as needed) List Price ($) Discount (%) Net Price ($) 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)
  11. 11. 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 Potential Price-Traps:
  12. 12. 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 Future Pricing Tactics:
  13. 13. 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 Other Pricing Opportunities:
  14. 14. 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 Leverage Vendor Deadlines:
  15. 15. 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 Storage in the Cloud:
  16. 16. 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 Shelfware:
  17. 17. 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! Ramp-Ups:
  18. 18. 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! Vendor Revenue Recognition Rules:
  19. 19. 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 Professional Services (PS):
  20. 20. MSA – Master Subscription 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 The Legal Agreement:
  21. 21. 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… Risks in Terms
  22. 22. 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 Audit Language:
  23. 23. 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 Wrap Up:
  24. 24. Presented by: Phil Downe www.ITnegotiations.com phil.downe@itnegotiations.com (416) 804-7445

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