www.softwarespend.com
Negotiating
BATNA "Best Alternative To a Negotiated Agreement”: negotiators talk about this as if it is something magical. Inexperienced negotiators may not see the importance of defining this for
every negotiations. “Why would I spend so much time and effort developing the outcome I do not really want” they think. From a practical standpoint, having a secondary option ready might be
good for business continuity in that it avoids scrambling around to put together a solution if the negotiations fail. Another benefit of the BATNA is that the work of developing it helps you to
better understand what it is you want to get out of the deal you are negotiating - what the value of that deal is to your organisation. However, the real power of the BATNA is psychological. When
you can confidently walk away from the negotiations because you have a well-developed secondary option, the energy of the negotiations change. It may never even come close to the point
where you might walk, but the inner power that comes from having a well-developed BATNA will project power and influence all aspects of the negotiation in your favour.
Advice: always develop a minimum BATNA, and, depending on the importance and the likelihood of not reaching an agreement, develop you BATNA extensively. From a psychological “inner game” perspective, a similar technique is to imagine the worst possible outcome in a negotiation. If everything would go hopelessly wrong… What would that look
like? Who would be impacted? What would it mean for you as the negotiator? When you do this, really go there in your imagination and be with those feelings of failure, hear the criticism from
within your organisation. When you have done this in your imagination and when you realise that it would really not be the end of the world, then the power you can project in the negotiations is
magnified in a similar way as when you have a well-developed BATNA.
Boilerplate contract: this is a term used to describe the software vendor’s standard contract. Depending on the situation (your size as a customer and the value of the transaction) you may
have the leverage to negotiate deviations to a software vendor’s standard terms (see advice on shrink wrap terms below).
Negotiating
Cherry picking: demanding the best parts of a proposal without taking the rest. Procurement people are often accused of this and software vendors will go out of their way to make it clear that
the proposal is a package and all elements must be taken together. This does not stop you from trying.
Licensing
Click wrap: this term is used to describe licence agreements which appear to the user during the installation of the software. The user must click “accept” to continue with the installation.
Licensing
Copyright: is the exclusive right, granted by law, to produce copies and control a product for a specified period of time.
Licensing
Decompilation, disassembly or reverse engineering: generally, this is the process by which computer programmers attempt to translate the object code of a computer program and translate
it into the original programming language. The reverse engineered code will resemble the source code of the program, but, as the notes, explanations and comments contained in the original
source code are lost in the translation from source code to object code, these are not recoverable by reverse engineering the object code. Virtually all licence agreements require the licensee of
the software to agree not to decompile, disassemble or reverse engineer the computer program.
Licensing
EDU/GOV licences: are licences granted to eductional establishments and government organisations. These licences are usually at lower rates that standard end-user or enterprise licences.
Such licences remain restricted to eductional establishments and government organisations and can, therefore, only be sold as such on The Digital Exchange.
Licensing
EULA, (End-User Licence Agreement): is a licence agreement between the software publisher and the user of that software which sets out the terms on which the software can be used.
Negotiating
Higher authority: is used in negotiations to remove power from the other party in the negotiations by saying that only an authority outside the negotiations has the power to make decisions.
Inexperienced negotiators think that it is a sign of weakness to say that you don’t have the power to make decisions in the negotiations. It is not, it is a powerful tool. Ideally you should not put a
persons name to this authority. It works best if it is a vague “review board”.
Licensing
Maintenance agreements: under a maintenance agreement the software vendor provides modifications, improvements, updates, error corrections and bug fixes provided to the licensee of the
software after the delivery of the software program to correct faults or enhance the program. If the licensee has a term or subscription licence, then the cost of these updates is included in the
licence fee. For perpetual licences, the updates to the code are provided via a maintenance offering from the software vendor, which is usually bundled with support. The new computer code
provided under the maintenance agreement forms part of the software product, and so maintenance should be seen as an extension of the licence grant to cover the code released subsequent
to the original licence sale. If the licensee of software, holding a perpetual licence, stops paying maintenance at any point in time, then his/her right to updates also stops, and the licence to use
the software is frozen at the latest version of the software to which that licensee had the right when he/she stopped paying maintenance.
Negotiating
Maximum Plausible Position (MPP): this is the best possible position you could justify to the software vendor. It does not matter how many far-fetched, crazy arguments you need to bring to
justify the position, if it is justifiable, then you should lead with this and explain why. Of course the software vendor will knock down your arguments, but that takes time and effort. Having a long
list of things you want and reasons why you should get them gives you control over the negotiations. You can speed up progress or slow things down by giving concessions at key moments to
control the pace of the negotiations. Devise an MPP, but it is even better if you can justify it with reasons and arguments. If you are putting a number on the table as what you think you should
pay, make sure you have a story around that number, explaining how you arrived at it and why the software vendor should accept it.
Negotiating
Nibbling: this is a negotiating tactic of holding back demands during the main part of the negotiations in order to ask for these later once the deal is agreed in principle. Getting smaller
concessions at the end when the parties are in agreement on the main issues is much easier that asking for everything together. If you ask for everything together, then the other party will try to
negotiate out your smaller demands. Smaller demands are too easily seen as bargaining chips. If you hold these back until the end, then they are more likely to be accepted as the parties coast
towards contract signature. In software contracts in particular, asking for concessions like an expansion in the geographic scope of the licence grant is a good demand to make in the later
stages, as it does not have an immediate cost to the software vendor.
Software
OEM software: is software sold by the software publisher who owns the intellectual property in the software product (i.e. not a reseller of those products or other partner of the software
publisher).
Software
OEM, (Original Equipment Manufacturer): a manufacturer of equipment, products or components that may be marketed by another company.
Software
Open Source Software: is software which is subject to licence terms that require, as a condition of use, modification, or distribution of the software that such software or other software
combined or distributed with such software be (i) disclosed or distributed in source code form, (ii) licensed for the purpose of making derivative works, and (iii) redistributable at no charge.
Licensing
Perpetual licence: is a licence grant to use a software program indefinitely. A perpetual licence can be contrasted with a term or subscription licence which only grants a right to use the
software program for a limited period of time. The perpetual licensing model requires the licensee to make an initial investment to purchase the right to use the software in perpetuity, and
thereafter the licensee will typically pay maintenance and support on that licence. The maintenance and support costs are normally much less than the annual cost of a subscription or term
licence.
Software
Proprietary software: is software which is licensed to users under a licensing agreement governing the user’s rights and restricting rights to modify the source code which is proprietary to the
software publisher. This is contrasted with open source software which is usually also governed by a licensing agreement, but were the user has access to and can modify the source code.
Software
Reinstatement fee: Reinstatement fees are fees which software vendors charge to bring a perpetual licence back under support and maintenance if the licensee lets the maintenance and
support expire. Typically, this is whatever the maintenance and support fees would have been had the licensee not stopped paying. This is the generally accepted industry norm.
Advice:
You will not get out of paying the maintenance portion of this as the maintenance payment entitles you to newly released code over that period. You can try to argue that you should pay less on
the support simply because you did not receive support over that period. Depending on the software vendor, and depending on the circumstances and their desire to have you bring the licence
back under support and maintenance, you might get some milage out of this argument. If you have a poor relationship with the vendor, or if you are bringing the software back under support and maintenance because you have an urgent need for support, then the software vendor
may well try to charge you more than 1 x the period. They may charge you 1.5 x the period, or they may base the maintenance and support cost on a percentage of the current list price of the
licences rather than the net price you paid for your licences. You should try to negotiate this, but it will not be easy. You can threaten to blacken the supplier’s name in the market by talking
about your experience on public forums such as the SoftwareSpend podcast!
Licensing
Shrink wrap: Shrink wrap licence terms are contained in the box (i.e. you need to break the shrink wrapping to see what they are - by which time you have bought the product already). The
term derives from the days when most software was bought in boxes which were shrink-wrapped, but can be used to refer to any licence terms which are only disclosed once the licensee has
paid for the software licence. The terms are always outrageously in favour of the software vendor, and often the software vendor reserves the right to change the terms without notice. Advice:
1. Negotiate mutually agreed licensing agreements with all software vendors from whom you purchase software licences directly. 2. Include precedence language in all your agreements which expressly excludes any click wrap or shrink wrap licence terms and clearly state that the terms of the agreement take precedence
over all other documents unless expressly stated and signed by both parties.
3. Buy all your non-critical and low value software through a reseller. Impose on the reseller the obligation to put your terms and conditions in place with the software vendor. Also, the reseller
will have a bigger commercial relationship with the software vendor than you do and will have more weight with the software vendor to sort out problems.
Negotiating
Stonewalling: Stonewalling is a delaying tactic employed by one party to avoid getting into negotiations too early or to avoid dealing with the key issues early in the negotiations. It is used by
one of the parties to the negotiations on the basis that the other party will feel the effect of time pressure more acutely as the negotiations progress. There are a wide variety of delaying tactics
which can constitute stonewalling: • not responding to emails, phone calls;
• placing great importance on non-important matters and using them to take up time;
• rescheduling meetings at the last minute;
• changing the participants involved in the negotiations etc.
It can be frustrating to be on the receiving end of stonewalling tactics, and finding cracks in the wall can be difficult. The best response is often just to walk away and tell the other party to let
you know when they are ready to come to the table. However, the reason they have deployed stonewalling tactics is often because they know you are desperate to negotiate, so walking away is
not always easy. When software vendors use this approach on you, make sure you have plenty of email evidence of the stonewalling on their part, especially if the licence term is coming to an end and you need
licence keys to keep the software running. When they try to force a deal on you at the last minute with the threat of withholding licence keys, you can pull out a string of emails showing their
lack of cooperation and escalate to their executives to demand a temporary extension.
Software
Support: Support is not maintenance, and maintenance is not support. Although they are often purchased together, and despite some software vendors deliberately conflating these two terms,
you should be very specific about using the word support to mean contact with the software vendor’s helpdesk for resolving problems or requesting service. See definition of maintenance to understand the difference.
Software vendors will often have multiple levels of support. You might want to be able to call their helpdesk 24 x 7 and get your incidents resolved within a certain timeframe. This will typically
cost more (often much more) than the supplier’s standard support offering. Advice: Understand what you need depending on the criticality of the software and the business interruption that might be suffered through an outage. Try to purchase only what you need, even
when the vendor only has one standard support offering - complain that you do not need 24x7. Also, try to measure the number of support calls you make in a year. You may be able to argue
that you are not getting value for money.
Negotiating
Vise: This negotiating technique is used in the early stages of negotiations to get the other party to unilaterally move their position in the negotiations. For example, a software vendor presents
the cost of a new software product and you react by saying “the price is much to high, you will have to do better than that”.
This “vise" technique puts the onus on the software vendor to make a lower offer. The obvious response to the vise is for the software vendor to respond with “well, how much lower would the
price need to be?”
Resist the temptation to put a number on it. Early in the negotiations you are trying to get a feel for the supplier’s willingness to do a deal and the supplier’s ability to be flexible on price (or the
number of licences, or whatever you are pushing to have included in the deal). You want the supplier to reduce the price unilaterally - bracketing comes later.
When using the vise technique, it is important to be able to stand in that uncomfortable feeling when the supplier is pushing you for a number and not give one. Be ready for this. It may sound
silly to repeat yourself multiple times. Don’t worry, just keep saying the same thing with different words “this is too expensive” you can embellish it a little giving reasons why it is too expensive
(no budget, competitors are much cheaper, the value is not clear). However, do not go into too much detail with reasons, as any detail you provide will be analysed by the supplier to try to
understand what price you might accept. If you give specific reasons, then those reasons will later be repeated back to you by the supplier later as reasons why you should accept a revised
price point. So keep it vague, give them your shpeel and then shut up. Leave lots of silence to accentuate the discomfort and let that discomfort do its work to get the supplier to reduce the
price unilaterally before you bracket their price.
If you are negotiating as a team, make sure you brief your negotiating team on what you are doing. Especially if they are novice negotiators. The greater you can build up discomfort in the
negotiations the more effectively this works, but your fellow negotiators need to understand that so that they do not succumb to the pressure to blurt out a number.