By Alex Geuken. April 14, 2021.
It is accepted in the industry that many software vendors use lock-in agreements as sales tactics to hold on to your business. This appears to be most common among bigger vendors and concerns enterprise type customer agreements (Oracle ULA, Microsoft EA, IBM, SAP and ServiceNOW). Let me elaborate…
The software vendor wants you to commit more of your software portfolio with them. You have one or several products from this vendor already and most businesses want to consolidate and integrate more of their infrastructure and applications. This is a great initiative if it works. Unfortunately, these capabilities are often oversold by the vendor – the integration never happens, and you could end up paying huge sums for shelf ware. But if we get back to the sales process, you want to consolidate the number of vendors and applications in your environment and the software vendor is offering you a high-profile agreement. Usually, these agreements are “all-you-can-eat” type contracts with fixed payments. Sounds good? the problem is commitment, as invariably; you will be required to move to that vendors technologies and solutions out of necessity or encouragement. Once those vendor technologies are deployed, there is no going back. Two reasons that you cannot change now are:
In relation to the first reason, organizations rarely provide budget to buy another solution if something similar is included in your “all-you-can-eat” Enterprise Agreement. The problem is that the existing vendor’s solution is a poor imitation for what you need. This is similar to being committed to playing a hand in poker as the investment in the pot has been too great to fold.
When you are entering these enterprise-type agreements, you put all your eggs in one basket. This is not always a bad idea but there is no software vendor that is best in every area, even if their salespeople want to believe so. They all have their core products, for example, Microsoft Office & Windows, Oracle with its database software, ServiceNow with its service management, and so on. But all these vendors have a big portfolio of other solutions that they will manipulate into these Enterprise Agreements, and in the end, your business will be stuck with shelf ware. The vendor may offer to replace your shelf ware with other solutions (usually acquired technology) should you question the scenario during the agreement. The software vendor wants you to over-commit to its solutions and makes it almost impossible to get out of an agreement.
There are other ways to get locked in, such as wholesale service agreements from hosting providers, or managed service providers, that support everything from hardware, software, and consultants. The cost for the service may appear to be manageable, however, you are stuck behind walls with little control or access to your technologies, you may not own data outputs, and there will be obstacles to customizing or distributing the data. In most cases, in a managed service, businesses are limited to receiving clunky excel reports, or nothing.
Gartner research says you can save 30% with a strong SAM program. This could allow cost reductions by removing the enterprise agreement or getting away from vendor commitment. In most cases, the promise of seamless integration between various technologies and internal mechanisms is just that a promise and nothing more. The sales argument is that it will be cheaper as everything is included, is misleading. You are stuck with overspending on unused or bad solution, resulting in shelf ware. And even if you can legally get out of your agreement, you might be stuck because you have spent all your budget on that vendor.
Wait, what? I speak with companies all over the world and many of them tell me the following: “Great tool, you offer much more than I have today, and this would help us save both time and money, but I can’t change tool now. We have invested so much time and money already in our current tool or SAM project.” This means you are pot committed. The phrase “pot committed” is mainly used in poker.
In the SAM world, it means you should change your SAM tool now because you will lose even more by having to invest more in your current solution.
On top of that, the tool looks to be doing pretty good until you get an audit. So, you have spent maybe a couple of hundred thousand Dollars, years of training and certification on your employees, Implementation cost, multiple modules and connectors, attempts to integrate with your CMDB or maybe other solutions. You are SAM tool pot committed. You don’t see that someone has a better hand and that you should fold. What is the problem? The problem is that you keep on committing. The difference between poker and SAM tools is that in Poker you come to an end pretty quickly, and someone can force you to go all in and it is game over. But with SAM tools you can just keep on committing and committing without coming to a stop. Especially if you don’t know that you can get so much more technology and innovation at a lower cost!
Partners can also get locked in on SAM tools even when they are “tool agnostic or independent”. How is that? First of all, SAM partners want to make revenue by selling services/hours. A tool is needed but the benefits of an on premise tool or a partner hosted tool is significant when it comes to revenue. The partner can charge for support, implementation, maintenance, updates, configurations and hosting, all that is included in the SaaS solution. The Partner has also invested with the SAM tool provider to have the hosted partner platform. They need to get the ROI of that partner platform back. Partners get locked in due to the money they pay for the hosted SAM platform:
In conclusion, the partner invests between 35-50K per year and must sell more service hours to get back that investment. Where do you want your partner to invest hours? Helping you reduce cost; making compliance reports? patching a server? configure a connector?
Think of it like 365, do you want an Exchange server on premise and should it be hosted by a partner or in the cloud?
Nothing changes more or faster than software. This makes it complex to calculate ROI on a purchase model of a SAM tool. The first reason for this is that for your SAM tool to recognize new applications it needs constant updates with all new applications. If you purchase the tool you still need to pay for these updates meaning you are subscribing anyway as you will requireinformation on changes to license metrics, product use rights and compliance.
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