Tools and Tactics … To Do Better Deals

Tools and TacticsTo Do Better Deals        

by Steve Gutzman                                          

Too Big to Negotiate?

It seems that everywhere we look things are getting bigger.  The small corner store gives way to the mega mall, the once enormous 55-inch flat-screen TV is now double the size, data is no longer just data – it’s big data – and everything from cruise ships to cheeseburgers is getting supersized.  Even Roger Federer got into the act at the beginning of the year after winning the Dubai Duty Free Tennis Championship, claiming that a bigger racquet head helped his game.  But is bigger always better?  And have some technology companies, through acquisition, become too big to negotiate?

In the business world, the scorecard for acquisitions is mixed.  On the positive side you have XM/Sirius, Disney/Pixar, JPMorgan/Chase and Exxon/Mobil.  In these transactions it can be safely argued that shareholder value was created and end users benefited.  Some not-so-good collaborations included Sprint/Nextel, AOL/Time Warner, Alcatel/Lucent, and HP/Compaq.  In these transactions shareholders did not fare so well.

We all understand from our U.S. history books that when companies get too big, the government can step in with an 1890s-era federal statute known as the Sherman Antitrust Act.  If Teddy Roosevelt had not gone on his trust-busting campaign in the early 20th century, Standard Oil would now be worth an estimated $1 trillion.

In a strange twist, the government recently stepped in not to break up some very big companies in the financial industry-but to keep them alive.  Too big to fail championed the theory that some financial institutions had gotten so large and interconnected, and their importance to the economy so great, that they had to be supported by the government or catastrophic economic harm would follow if they failed.

And what about the high-tech industry?  According to Gartner, over the past five years the high-tech industry has grown approximately 16 percent.  In that same period the top five publicly traded high tech companies have grown almost 45 percent – with most of the growth coming from acquisitions.

The reasons for technology acquisitions are many and include such objectives as accelerating entry into a strategic market where internal development would take too long, plugging a technology or talent gap, buying a distribution channel in an industry or geography where there was no presence, eliminating a competitor, and as is often the case, especially with software companies (think IBM, Oracle, SAP and CA), acquiring a maintenance install base that can provide additional leverage for enterprise license agreement negotiations.  This last point cannot be overemphasized enough, as this is where “sticky products” (products that cannot be easily uninstalled) create leverage, and leverage creates tremendous negotiation advantage.  By some Gartner estimates, the costs associated with switching away from an incumbent range from 300 percent to 700 percent of current fees.

In an industry where corporate strategy often boils down to “grow or die,” it is unlikely that acquisitions are going away anytime soon.  With few exceptions, growth in the high-tech industry cannot be achieved through organic means alone – acquisition is often a central part of the story.  So what can be done from the buyer’s side to protect against the inevitable?

First, assume that the company you are negotiating with will one day be consumed by one of the top-tier players.  As ICN recommends, prepare for the divorce before you get married.  Think ahead to what your technology options could be down the road and understand the conversion costs of going to a different platform, service provider, cloud provider, third-party support provider, or open source provider.  Even if it is a very big number, it may not be as big as the new number you will see at renewal time after an acquisition.  This may not change the procurement decision, but at least when the acquisition letter arrives, it will not be a total surprise.

Second, look at your terms through the lens of one day renegotiating these same terms with one of the bigger players.  Price protection on new purchases, maintenance caps, license swaps, audit protections, usage rights, user profiles, and license metric change protections are but a few key terms that need to be carefully worded.  As software maintenance is of particular value to the vendors (85+ percent margins), the vendors have become very protective of this revenue stream and so two additional areas need to be underscored: buy only what you need, and if a bundle of products is proposed, make sure that you have a written description of what each product does.  Vendors love to include lots of additional products under the guise of value enhancement and they love to bundle products so that they can sell add-on features down the road.  Be wary of these contracting tricks, as they are designed with one goal in mind: to increase leverage at the next negotiation event.  A clause that says, “If the functionality is re-bundled, repackaged, or renamed, but is the same or substantially similar, extra maintenance will not be due,” can save you a lot of money and headache.

Third, don’t fall into the trap of thinking that escrowed source code gives you all the protection you need.  Working with source code requires highly skilled programming resources; most companies do not count this as a core competency.  Having access to source code is one thing.  Knowing what to do with it is quite another.

And finally, understand that after acquisition your options are limited.  The acquiring vendor typically applies a full-court press to convert all the contractual paper of the acquired vendor to their paper.  There may even be some incentives involved.  But in the end, if a customer insists on keeping their old contract (there are always a few in an acquisition), the likely outcome is that the contract will simply be left in the legal entity of the acquired vendor – which in essence becomes a shell company with no support, no people, no upgrades, etc.

The bottom line is this: The big players are getting bigger and this inescapable trend should at a minimum compel a discussion on the elasticity of each major technology platform and the available options if the vendor becomes too big to negotiate.

Steve Gutzman is a senior advisor at ICN and a 35-year veteran of the high-tech industry.  You may contact him at

LinkedIn and First Impressions

Steve Gutzman

By Steve Gutzman, ICN

If you’re a Millennial, you’ve no doubt had the parental talk about being careful with what you put on your Facebook page. After all, colleges and companies routinely include this as part of their admission screening, and one odd entry may give the wrong impression. And with online fraud costing banks and insurance companies a fortune, they too are analyzing people’s online behavior. If you post an entry for public consumption that says you’re on your way to Barbados for a much-needed two-week vacation and are burglarized the next day, do you have a claim?

On the business side of the fence there’s LinkedIn – the de facto social media page for business. Any “parental advice” needed here? Surely this group is meticulously prudent about what they post. Unfortunately, despite plenty of articles written about “social selling,” most dismiss it as a passing fad — for what else could explain why a “star” salesperson for an elite enterprise software vendor would feature a margarita in their profile picture?

The VP of sales of a software company recently shared with his sales team one of those mysterious “industry statistics,” claiming that 70 percent of their customers/prospects look at their profiles on LinkedIn. The only thing surprising about this comment is that the number is not closer to 100 percent. Why wouldn’t a buyer want to know as much as possible about the person hovering over them with a contract and pen? A little bit of research could serve up a welcoming icebreaker like this: “It appears that you have been with five software companies in the last eight years – tell me again why I should make a five-year commitment to you.”

Which begs the question: “What does your profile say about you if you are in sales?” Does it say you love your company, or does it say you’re looking for your next job? Does it say you’ve helped your clients achieve their goals, or does it say you’re a great closer? Does it say you’re a good listener and never presume to know all the answers, or does it say you’ve attended 10 straight 100-percent clubs?

The sales law of first impressions of the face-to-face kind states that you are probably not going to close a six-figure sale in under 90 seconds — but you can sure lose one. First impressions of the online kind can be just as discriminating.

Steve Gutzman is a senior advisor at ICN and a 32-year veteran of the high-tech industry. You may contact him at

Tools and Tactics … To Do Better Deals –

Tools and Tactics … To Do Better Deals                

It may be months before all the problems facing the website rollout become known, but already the pundits seem to have figured out the bigger pieces of the puzzle.  The two primary culprits seem to be lots of bad code that managed to skate through a virtually nonexistent beta test process and a paucity of bandwidth and computing power that led to huge scalability issues. 

There is no doubt that these were two very critical flaws in the rollout, but another key part of the puzzle that cannot be overlooked is that maybe this was just simply a poorly designed contract.  The scrutiny under this scenario should be not when the government website fell down (October 2013), but when it took a big stumble (September 2011).  That was the month it awarded a cost-reimbursement task order contract to CGI Federal.

According to the Washington Post, CGI Federal actually secured its winning bid in 2007, when it was one of 16 companies to get certified on a $4 billion Indefinite Delivery, Indefinite Quantity (IDIQ) contract for upgrading systems within Health and Human Services (HHS).  These types of contracts, often intentionally vague in their requirements, allow agencies to issue task orders to pre-vetted companies and sidestep the full, oftentimes cumbersome procurement process.  From these 16 companies, four were selected to compete for the healthcare website and of the four, CGI was selected.  According to, CGI Federal got a total of $678 million for various services under the IDIQ contract — including the $93.7 million job.

These types of contracts serve their purpose and have their fan base, but was this the best way to ensure success in the largest and most visible technology rollout in recent times?  When the vendors involved in the rollout testified in front of the House Energy & Commerce Committee on October 24, we had our answer.  To a person, they all claimed they had performed admirably but that any questions concerning overall performance of the website needed to be redirected back to the government, specifically the Center for Medicare & Medicaid Services (CMS). 

The thing about IDIQ contracts, and by extension cost-reimbursement task order contracts, is that they’re great for acquiring resources but not so great for acquiring results.  This is the crux of the problem and a topic that ICN founder Joe Auer wrote about in a Computerworld article back in February 2002.  “The results-or-resources question establishes which side will bear responsibility for the results you’re expecting from the deal,” wrote Auer.  “In a results deal the vendor is responsible, while in a resources deal it’s the customer.”  Put a different way – in a resources deal, when problems arise the customer bears the risk and the vendor gets to sell more resources.  

We’ll never know if a results deal would have yielded a different outcome with the healthcare rollout, but chances are pretty good that there would have been a whole lot more accountability on display at the October 24 Congressional hearings, and the problems plaguing the site would have surfaced a lot earlier than October 2013.  The one thing to know about large-scale technology rollouts is that bad news delivered early is good news.      


Steve Gutzman is a senior advisor at ICN and a 34-year veteran of the high-tech industry.  You may contact him at

The Power of No

By Steve Gutzman

It is important to be comfortable saying “no” in a negotiation. Not all terms need to be agreed with, not all best and final prices are best and final, and not all deals need to be done. Unfortunately, many inexperienced negotiators think they must hang on at all costs until a deal is done. For them, saying no to a deal is like saying no to a free lottery ticket … it just might be the winner, and they can’t afford to pass up the jackpot.

From the buying side, preparing for a negotiation requires an understanding of the best “no deal.” The value put on the best no-deal option sets a limit that any agreement must not exceed in order for the buyer to agree. It becomes the point that the buyer will not go above. From the selling side, the best no deal becomes the level that the seller will not go below.

William Ury, in his best-selling book Getting to Yes, calls this the BATNA, or best alternative to a negotiated agreement. According to Ury, “The BATNA is the only standard which can protect you from both accepting terms that are too unfavorable and from rejecting terms it would be in your interest to accept.” In its simplest form, this concept means that if the proposed agreement is better than the BATNA, accept it. If the agreement is not better than the BATNA, continue negotiating. If the agreement cannot be improved, consider withdrawing from the negotiations and pursuing an alternative proposal or walking away from the negotiations altogether. Each side typically knows its own limits, which must continually be assessed and reassessed as new information unfolds. The problem is that many negotiators have only a hazy sense of their own no-deal options or how to value them. At a very basic level, buyers are taught that unless they hear no at least once, they are leaving money on the table. It’s part of the process and can be an important tactic. But let’s explore the use of no from a strategic standpoint as well.

To finish reading this artcile, click here.

Steve Gutzman is a senior advisor at ICN and a 33-year veteran of the high-tech

Caveat Venditor

By Steve Gutzman

George Akerlof is perhaps best known for his article “The Market for Lemons: Quality Uncertainty and the Market Mechanism,” published in 1970 – the paper for which he was awarded the Nobel Prize.  In short, it is an article about asymmetric information and the imbalance of negotiation leverage created when one side knows more about something than the other does.  Remember subprime mortgages?

An imbalance of information is exactly what characterized the technology industry for most of its recent history.  The knowledge and ultimately the negotiation leverage were clearly on the side of the vendor.  An IBM mainframe salesperson in the early ’70s described it as “having an 8th-degree black belt in a barroom brawl with a room full of drunks.”  Back then, if you wanted to know about speeds and feeds, connectivity, throughput, pricing, integration, compatibility, and support, all roads led back to the vendor sales office.  It’s no wonder that caveat emptor – let the buyer beware – became such a useful principle and that the perception of sales was aligned with adjectives such as sleazy, slick, greedy, manipulative, and unscrupulous.

The good news is that the tables have begun to turn in recent years, with buyers having access to more and more information.  This certainly applies to the technology industry, but think of all the other aspects of daily life in which information has become more transparent: buying a car, securing a loan, finding an electrician.  A few keystrokes on Edmunds, LendingTree, or Angie’s List can take the mystery out of what used to be a cumbersome and intimidating set of activities.  In fact, there is so much information available that the watchword is now caveat venditor – let the seller beware.

Some studies indicate that as much as half the traditional selling cycle is complete by the time a salesperson learns of a new opportunity.  Today the buyer can easily scope out product information, viable suppliers, sample RFPs, evaluation models, vendor scorecards, checklists, and service-level agreements from the internet with relative ease.  Conference calls with colleagues from other companies, user group meetings, and buyer conferences can also be on the menu to the more determined.  And all before the sales team is called – if they are called at all.  This “new reality,” as one Silicon Valley head of sales terms it, is forcing sales teams around the world to reevaluate how they engage with customers in everything from small-business marketing campaigns to key account sales management.  The selling strategies and tactics of just a few years ago are proving to be increasingly out of date.

However, while having access to more information may take away the specter of the lopsided barroom brawl, knowing what to do with that information is where the high-value payback occurs.  As one insurance industry executive described the rollout of their vendor management office, “This is where the heavy lifting takes place.”

The goal, however elusive, leads back to a principle that even the theoretical economist George Akerlof would agree has real-world value: “fully informed, rational actors making decisions in their best interest.”

Steve Gutzman is a senior advisor at ICN and a 33-year veteran of the high-tech industry.  You may contact him at


Versions, Editions, Downgrades Are Key to Microsoft License Compliance


This is a Part 1 of 2 by Rob Horwitz, Directions on Microsoft

Customers who acquire a license for a particular product version and edition may deploy an earlier version or different edition in its place under certain circumstances. These licensing rules, called downgrade rights vary not only by sales channel where the license was purchased but also by the particular product line, including which specific version and edition was licensed. Organizations that understand downgrade rights as well as other rules associated with product versions and editions can minimize risk by avoiding common license compliance issues and save money by averting unnecessary license purchases.

How Offerings Are Categorized into Version and Edition

Generally, when a customer licenses Microsoft software, the license is for a specific version and edition of the product.


  • A version is a major release of a software product, denoted by one of the following:
  • A year (for example, Windows Server Standard 2012)
  • A release number appended to an existing version (Windows Server 2008 R2)
  • A sequential number (Windows 7, Windows 8)
  • A new naming designation (Windows XP).

In addition to new features and various technical enhancements, a new product version is often accompanied by changes to the product’s use rights, licensing model, pricing, or packaging (edition lineup).

Minor updates to a particular product version—typically delivered in the form of patches, security updates, and service packs—are usually provided for free. However, the right to use new versions, regardless of whether they are acquired via perpetual or subscription licenses, involves a fee.

Perpetual licenses, the most common license type, grant the purchaser the right to use a specific product version in perpetuity. The latest version of a perpetual license can be acquired through purchase of a new license or by virtue of having active Software Assurance (SA) on a preexisting license as of the date a new version becomes available to volume licensing customers. (SA is an add-on to perpetual licenses that offers version-upgrade rights and other benefits in exchange for an annual fee based on the underlying license.) If a new product version is licensed via a subscription rather than through a perpetual license, the subscription always includes rights to use the most recent version available, as long as the subscription is active.


Microsoft commonly offers several variations of a product (or product suite), called editions. Each edition offers a different collection of product features or use rights and is sold at various price points. When a new version of a product ships, all associated editions are usually released at the same time. Some editions of a product may be specific to a particular sales channel; for example, an edition might be available through volume licensing programs only.

Common names used for editions of client-side (desktop) applications or application suites are Standard, Professional, and Professional Plus. In the case of Office suites, the main differences between editions are which individual applications, such as Access and Outlook, are included and the presence of a few specialized server integration features, such as the ability to automatically archive Outlook data to Exchange Server. Common names used for editions of server software are Standard, Enterprise, and Datacenter. What differentiates various editions of server products can vary widely depending on the particular product and product version, but common differences include technical features of interest to IT professionals rather than end users (such as scalability, high-availability, and security capabilities), use rights associated with virtualization, and, occasionally, the licensing model. Sporadically, Microsoft literature misuses the term “edition” to distinguish between the various Client Access Licenses (CALs) associated with a server product, such as the Standard CAL and Enterprise CAL for Exchange Server. (Directions considers this a misuse of terms because edition-related concepts, such as step-ups and edition downgrades, discussed below, aren’t applicable to CALs.)

Customers with active SA coverage on a lower-level edition license can exchange it for a higher-level edition license through the purchase of a Step-up License. The Step-up License fee is equal to the difference in edition license prices plus the difference in SA fees for the period remaining on the current, lower-edition SA term. (In the absence of a step-up option, a new higher-edition license would have to be purchased in full.)

Version Downgrade Rights

Version downgrade rights entitle the owner of a product license to install and run an earlier version and equivalent edition of the same product in its place; for example, allowing a customer with a Windows 8 Pro license to use Windows 7 Professional instead. By downgrading, a customer does not forfeit the right to switch to the licensed (more recent) version at some point in the future.

Version downgrade rights are important because Microsoft typically stops selling a product version once a newer version becomes available; therefore, buying the latest license and exercising version downgrade rights is often the only option for licensing an expansion in deployment of a noncurrent version. This is often important for maintaining standardized configurations. For example, today, a customer wanting to deploy a new server running Windows Server 2008 Standard edition would purchase Windows Server 2012 Standard edition (the current version) and exercise version downgrade rights. (Note that for products licensed under the CAL licensing model, if a customer downgrades the version of the server software, the CAL version need only match (or exceed) the running version, not the version of the server license. For example, if a customer with a Windows Server 2012 Standard edition server license exercises downgrade rights to run Windows Server 2008 Standard edition instead, clients need only Windows Server 2008 CALs to access this server, not Windows Server 2012 CALs.)

When downgrading, customers are responsible for finding installation media, although Microsoft’s Volume Licensing Service Center (VLSC) site generally provides at least the two prior versions of each business-related product.

Volume Licensing Offers Greatest Flexibility

The degree to which version downgrades are allowed depends on the distribution channel used to acquire the license.

Volume licensing. For licenses acquired through volume licensing programs, version downgrade rights generally provide the ability to substitute any previous version. This applies to CALs as well—for example, a SQL Server 2012 CAL may be used to license access to SQL Server 2008 R2, SQL Server 2008, or any previous version.

OEM and retail. OEM licenses for Windows Professional (and Windows Vista Business) generally confer downgrade rights to the two prior versions. For example, Windows 8 Pro licenses supplied by OEMs include the right to downgrade to Windows 7 Professional and Windows Vista Business, but not Windows XP Professional. Organizations that purchase PCs with Windows 8 Pro licenses and deploy Windows XP Professional in its place are at risk of license noncompliance. To remain compliant, the customer has a few options, including enhancing version downgrade rights by adding SA to new Windows 8 Pro PCs or purchasing new computers with Windows 7 Professional OEM licenses instead of Windows 8 Pro (an option that should be available until at least mid-2014).

Rules for other OEM licenses as well as retail licenses vary, with licenses for server software generally providing permissive version downgrade rights and licenses for client-side applications, such as Office Home and Business edition, providing no version downgrade rights at all. However, volume licensing rules allow SA to be added to many types of OEM and retail licenses within 90 days from the date the licenses are acquired (for example, to Windows Professional and Windows Server OEM licenses). If SA is added to such licenses, volume licensing’s more liberal version downgrade use rights apply.

Edition Downgrade Rights

The edition downgrade use rights, sometimes referred to as down-edition rights or cross-edition rights, allow a customer to install and run a different (generally lower-level) edition than the one purchased. Edition downgrade rights are provided for only a few Microsoft products—the most prominent being Windows Server and SQL Server. They are commonly used in conjunction with version downgrade rights to allow a customer to deploy an earlier version of a different edition of the product. One example is running a SQL Server 2008 R2 Standard edition instance on a computer that is assigned a SQL Server 2012 Enterprise edition license. There are two major reasons why edition downgrade rights are occasionally provided.

Edition eliminated. Sometimes Microsoft removes an edition from a product’s edition lineup. Since the company typically ceases sales of all editions of a product version once a newer version becomes available, buying the latest license and exercising edition downgrade rights (combined with version downgrade rights) is often the only option for licensing expanded use of an old edition. For example, with the introduction of Windows Server 2012, there is no longer an Enterprise edition; customers can run past versions of Enterprise edition (such as Windows Server 2008 R2 Enterprise) by acquiring Windows Server 2012 Standard or Datacenter edition licenses and exercising edition downgrade rights.

Simplify virtualization. The second major reason for providing edition downgrade rights is to simplify licensing for virtualization scenarios. Often customers want to consolidate new as well as legacy server workloads by running multiple instances of a product on the same physical hardware, with each instance in its own virtual machine (VM). Higher-edition Windows Server and SQL Server product licenses (or sets of licenses) combine the right to run multiple instances of the software within VMs on the licensed hardware with edition downgrade rights so that customers do not need to be concerned with which particular edition is running within each VM. For example, a server licensed for Windows Server 2012 Datacenter and SQL Server 2012 Enterprise can be used to run VMs that are a mix of new and old Windows Server and SQL Server versions and editions.

Part 2 of Versions, Editions, Downgrades Are Key to Microsoft License Compliance will be out on Tueasday of next week.

Thanks to Rob Horwitz and Directions on Microsoft

The Challenge with Buying Technology

By Steve Gutzman

  Technology – information or otherwise – has always been a tough subject to discuss, to explain, to comprehend, to predict, and most important, to buy.  Why is that?  One reason is that it is very difficult to predict its usefulness, longevity, or value over time.  Even the people who develop technology have a tough time with this.  Some examples …

“The world potential market for copying machines is 5,000 at most.”  These are the words of an IBM executive in 1959 to the eventual founders of Xerox, saying the photocopier had no market large enough to justify production.

“There is no reason anyone would want a computer in their home.”  Such is a comment from Ken Olson, the president, chairman, and founder of Digital Equipment Corp., a manufacturer of big business mainframe computers, as he argued against the personal computer in 1977.

“There is practically no chance communications space satellites will be used to provide better telephone, telegraph, television, or radio service inside the United States.”  This was Thomas Craven, Federal Communications Commission member, in 1961.  The first commercial communications satellite went into service in 1965.
But there have been some predictions that proved to be pretty accurate and quite relevant to our industry.

Moore’s Law, which was coined by Intel co-founder Gordon Moore in 1965, states that the number of transistors on a chip doubles every 24 months.  It has been the guiding principle of the high-tech industry and explains why that sector has been able to consistently announce products that are smaller, more powerful, and less costly than their predecessors – a price-performance curve that other industries can’t come close to.  The interesting thing about Moore’s Law is that it is not a law of physics.  Rather, it is just an uncannily accurate observation on what engineers and computer scientists, when organized properly, can do with silicon.

Gilder’s Law, named after the visionary author George Gilder, states that bandwidth grows at least three times faster than computer power.  This means that if computer power doubles every 24 months, then communication power doubles every eight months.  The backbone bandwidth on a single cable is now a thousand times greater than the average monthly traffic exchange across the entire global Internet five years ago.

And finally, Metcalf’s Law, named after Robert Metcalf, an originator of Ethernet and the founder of 3Com, states that the value of a network is proportional to the square of the number of users; so, as a network grows, the value of being connected to it grows exponentially, while the cost per user remains the same or is even reduced.

Whether examined separately or collectively, these three laws are driving our industry to new heights.  But they also present some big challenges for those of us who are in the “buying trenches,” for we have to figure out how to put all this breakthrough technology to good use.

What we know about the world doubles every 10 years, and information technology is leading the way.  Magnetic nanodots will soon enable storage of over one billion pages of information in a chip that is one square inch in size.  This will be followed by imaginary interfaces, iMAX at home, content-centric networking, massively parallel cortical simulators, and quantum computers.  The pace of technology invention is accelerating exponentially, and how we buy it must keep pace.  And as we will see, not only is technology changing rapidly, but our vendors are also more sophisticated in how they bring their solutions to the marketplace and in the selling techniques they use.  Therefore, we cannot rely on the old tried-and-true buying techniques of yesteryear.  We must continually upgrade our buying skills, techniques, and processes.

Remember, if you don’t have a plan on how to buy technology, you will default to the vendors’ plan on how they sell technology.

Steve Gutzman is a senior advisor at ICN and a 32-year veteran of  the high-tech industry.  You can contact him at .