Software Biz: Licensing, Contracts, and Upgrades, Oh My

Monday Apr 7th 2008 by Joshua Greenbaum
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Software contracts continue to be obscure documents written by vendors using language and terms that all too often come back to haunt unwary customers.

I just watched the Wizard of Oz with my kids, so forgive me if basic struggles of good versus evil are foremost on my mind these days. And long journeys through scary lands populated by evil beings out to harm the innocents of the world. And redemption, though it comes in the end by looking inward, instead of through the magic powers of some supposedly benevolent being.

All of this relates directly to an issue that is simmering somewhere between the back burner and the front living room of every enterprise software vendor, and in that list I include newbie SaaS vendors as well as oldbie on-premise vendors.

The problem is this: software licenses are expensive, even in the SaaS world, and getting more so all the time.

Meanwhile, contracts continue to be obscure documents written by vendors using language and terms that all too often come back to haunt unwary customers. And upgrades are all too often an opportunity to discover that the maintenance money a company has been pouring down the vendor’s balance sheet does not guarantee that the customer is actually entitled to the free upgrade they thought they had been paying for.

In other words, there’s a lot of disingenuousness in pricing and contracting these days, and a lot of futility in trusting that vendors care about giving their customers a fair deal. On the contrary, all too many contracts contain genuinely harmful clauses that are plain evil, in so far as they are put there as gotchas in the hope that the customer –vastly undergunned in the minutia of contract terms and conditions – won’t notice until it’s too late.

A recent example: an IBM customer wishing to switch from DB2 to another database – SQL Server – found that IBM had inserted a little gotcha into an overall mainframe contract that included huge penalties for early termination of the database side of the contract. What should have been a big cost-cutting move by the unsuspecting customer ended up costing them much more than had they just stayed with DB2 in the first place.

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Sure, you could argue that this is a case of caveat emptor, except that I can assure you the emptor in this case had no idea what that little sneaky clause really meant, and I can equally assure you that IBM knew exactly what it meant.

Another of my favorites involves a customer who bought product X (sorry, I’m under NDA here) with the promise that feature Y was firmly in the roadmap and would be available, for free, as part of the customer’s maintenance fee. Lo and behold, the vendor bought company Z, which specialized in feature Y, and the poor customer was told that the only way to get feature Y was by paying for a new license and going through a complex integration process. Another unhappy emptor.

There’s another version of the above story that also plays out all too often: a customer on maintenance discovers that the new feature they thought they were getting for free as part of that massive 22 percent maintenance fee has been declared a “net new” feature that isn’t covered by maintenance at all. Net new means new contract, new fees, and a newly disgruntled customer. Grrrr.

All of which makes navigating this unholy trinity of licensing, contracting and upgrades not too unlike that innocent stroll down the Yellow Brick Road. It starts out as a walk in the park, and definitely would continue to be one, were it not for the Wicked Witch of the West watching and waiting to spring another trap for the heroes. Licensing, upgrades, and contracts, oh my.

So, to finish this tortured analogy, this tendency to exploit customers whenever possible, unfortunately, requires the same solution as the one that finally became apparent to Dorothy after she had, well, pretty darn near lost it all: it was up to Dorothy, and no one else, to make her way home again. And it’s up to you, the poor emptor, to manage the caveat side of this relationship all by yourself.

Because, and this is the real damn shame of it all, VENDORS ALL TOO OFTEN DON’T CARE AS LONG AS THE QUARTERLY REVENUE NUMBERS LOOK GOOD.

Sorry for shouting, but that’s what this all boils down to. There is no deus ex machina waiting to rescue you from the clutches of vendors who play games, all too deliberately, with largely unsuspecting customers. Okay, there are those few consultants, who, like the Good Witch Glinda, who can provide a timely push or two in the right direction. Some, like Net (net), can actually save you millions in the initial contract phase, as well as prevent the kind of gotchas that get me so riled up.

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But it’s the customer’s job to engage these professionals, and throw that fatal bucket of water on the vendors in their moment of evil. Unlike the Wicked Witch, your vendor won’t melt away. Instead, hopefully, they’ll wake up to the realization that licensing, contracts, and upgrades don’t have to be a zero sum game. It can actually be a win-win for all.

Just tap your shoes together three times and repeat after me: There’s no place for dishonesty, there’s no place for dishonesty, there’s no place for dishonesty. Maybe if we say it enough it will even come true.

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