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 sgutzman@dobetterdeals.com.

 

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Other Enterprise Agreement Choices

by: John Cullen

A traditional Enterprise Agreement (EA), commonly called a “desktop EA,” was designed to license a wide selection of products for on-premises use—especially desktop software and Client Access Licenses (CALs) for server software. This remains the main use of the EA program. However, to meet competitive threats and foster new forms of software delivery, Microsoft has, over the past few years, augmented the EA program to support alternative licensing models for some select products as well as to incorporate new online services. These three extensions to the EA program leverage all or part of the traditional desktop EA contract structure, with two implemented as separate EA Enrollments and one (hosted online services) leveraging the same Enrollment as is used for a desktop EA. (See the illustration “Enterprise Agreement Contract Structure” on page XX.)

Enrollment for Application Platform

As a separate enrollment under an EA, Enrollment for Application Platform (EAP) is another way to license server applications and developer tools, specifically SQL Server, SharePoint Server, BizTalk Server, and Visual Studio.

There are two major reasons to consider using an EAP rather than purchase the same licenses as Additional Products under the desktop EA. First, the EAP provides a way to add Software Assurance (SA) to an old server license. SA grants the customer the right to use the latest version of software and confers other benefits. Customers must normally purchase SA at the time of the original license purchase; the EAP is a noteworthy exception. The EAP allows a customer who previously skipped SA to upgrade server software without buying a new license. The second reason to consider the EAP is license cost savings. If a customer foresees a growing need for these EAP products, license acquisitions under EAP can provide savings of 15% to 40% on new licenses.

The EAP has minimum initial purchase requirements. For instance, purchases of SQL Server require a minimum of five SQL Server processor licenses, or five SQL Server server licenses and 250 SQL Server CALs.

When a customer starts a new EAP, the customer may choose between annual true-up payments (payment made at the enrollment anniversary for software deployed in previous year) and a one-time true up after three years. The annual true-up option works just as it does in a desktop EA. With the three-year true-up option, the customer makes payments at the time of initial order and at the end of the three-year initial term only. However, this option requires the customer to commit to a minimum 20% year-over-year growth in EAP license purchases and a commitment that at least 35% of purchases will be from the EAP premium offerings, which are high-end editions of SQL Server, BizTalk Server, SharePoint Server, or Visual Studio. To date, most enterprises have selected the annual true-up option.

Enrollment for Core Infrastructure

As another separate enrollment under an EA, Enrollment for Core Infrastructure (ECI) is an alternate way of licensing a server machine to run the Windows Server OS, be managed by System Center products, and be protected against viruses and other malware by Forefront Endpoint Protection. All three ECI options include Forefront Endpoint Protection plus the following other products:

  • The Standard ECI Suite includes Windows Server 2008 R2 Standard, System Center System Operations Manager Standard Management License (ML) for monitoring, System Center Configuration Manager Standard ML for software configuration and inventory, and System Center Data Protection Manager Standard ML for backup
  • The Enterprise ECI Suite includes Windows Server 2008 R2 Enterprise and System Center Server Management Suite Enterprise, which offers a superset of the System Center licenses in the Standard ECI suite
  • The Datacenter ECI Suite includes Windows Server 2008 R2 Datacenter and System Center Server Management Suite Datacenter, which offers a superset of the System Center licenses in the Enterprise ECI suite.

The ECI Suites are sometimes referred to as “Core Infrastructure Server” suites, and they are licensed with a per-processor model. This is an oddity considering that some of the included products in the suites, when licensed separately, are under a per-server model. There is a minimum initial purchase requirement of 50 ECI processor licenses of any suite, and if a customer already owns Windows Server licenses with active SA, there are means to transition those licenses into an ECI enrollment. ECI Suites may also be purchased on a subscription basis.

The primary reason to consider purchasing ECI suites is the license cost savings: ECI purchases cost up to 20% less than individual product licenses purchased separately. An added benefit is that the server suites provide some compliance convenience for those customers requiring Windows Server, System Center, and Forefront security technology for their server infrastructure.

Online Services

Some Microsoft-hosted online services for businesses are available under a desktop EA, including Office 365 (which includes Exchange, SharePoint, and Lync, and subscription rights to Office Professional Plus 2010 for customers’ local PCs), Dynamics CRM Online (Microsoft’s customer relationship management service), and Windows Intune (Microsoft’s PC management and malware protection subscription service).

These Online Services can be purchased as subscriptions under a customer’s existing desktop EA enrollment, or a new desktop EA enrollment can be started for the express purpose of licensing Online Services. Microsoft allows customers to either start new users with Online Services or transition existing on-premises users to and from Online Services. A customer may order Online Services through the desktop EA without the purchase of any Enterprise Product (Windows OS upgrade, Office Professional Plus, or the Enterprise CAL or CAL Suites); however, in this case the customer must initially purchase a minimum of 250 subscriptions for users or devices. Different program rules and requirements apply to purchasing Online Services, but these terms are now incorporated into the EA. For instance, customers can convert on-premises CAL suites into Online Services licenses per the license transition rules of the EA.

About the Author:

John Cullen is a Research VP at Directions on Microsoft, an independent analyst company and ICN partner that provides detailed research about Microsoft technologies and licensing policies. Prior to joining Directions on Microsoft, John spent nine years at Microsoft and was a senior product manager for Windows Server.