In this webinar, IT contract specialist Phil Downe of Relations Management Group explains how to do cloud-based software negotiations with confidence. The webinar answers the following questions: How can you avoid vendor captivity and software traps? How can you prepare for a negotiation, including leveraging and timing the deal? How can you draft a contract and prevent contract ambiguity?

1. Negotiating Software
Deals in the Cloud
Creating Value Where it’s Needed Most
Presented by: Phil Downe

2. Every Vendor’s Strategic Direction is the Cloud

3. Opaque / Bundled Pricing
Over-buying Shelfware
Eroding Discounts Over Time
Agreement Traps and Pitfalls
Growth, True-ups & Renewals
Unfamiliar Territory Disadvantage
Where are the Risks?

4. No Transparent, Set Pricing
Vendors Take What They Can
Unlocking Value Requires Preparation
Vendors Do This Every Day!
Recognize the Potential Negotiating Disadvantage
Software Costs are Enormous!

5. All Vendors Have a Formal Sales Strategy
 They Have Deep and Consistent Expertise
The “Level-Playing-Field” is Rare
 They Have a Step-by-Step Sales Process
Opaque Metrics & Complex Terms
Products & Rules Change Constantly
Insist on Pricing Transparency & Clarity
Strategic Planning and Preparation:

6. Zone
of
Consideration
Vendor Presentations
Vendor
Selection
L
E
V
E
R
A
G
E
TIME
IT Vendor
Non-Profit
0%
Leverage
RFP
Launch
RFP
Response
Legal
Drafting
IT Vendor
Non-Profit
100%

7. Pricing
Future Price Protection
Systems Implementation Charges
Term of the Agreement
Ancillary Charges (Storage & Transactions)
The Legal Terms (SLAs & SOWs)
Price-Points & Issues to be Negotiated:

8. Cloud is Dominating Traditional SW Sales
A Subscription (Sub) = 1 User/1 Sub /Month
Higher Discounts for 36 to 60-month Commitments
Vendors Recognize the Total Sale:
 End of Q1 & Q2 – Buyer has Good Leverage
 End of Q3 – Buyer has Very Good Leverage
 Q4 (Year-End) – Buyer Has Excellent Leverage
Vendor Year-Ends are Buying Opportunities
Leverage & Revenue Recognition:

9. Vendors “Bundle” to Hide Price-Points
No Price-Points = No Benchmarks
Price-Protection Needs a Starting Benchmark
No Price-Protection, then…
 Full List-Price Add-Ons
 Full List-Price Renewal
Clear Price-Points for Every Subscription Type
 (Full-Use, Restricted, Read-Only, etc.)
Pricing:

10. Pricing
Subscription A Pricing:
Volume Clip Levels: (Adjust as needed) List Price ($) Discount (%) Net Price ($)
50 to 100 $250.00 50% $125.00
101 to 200 $250.00 60% $100.00
201 to 300 $250.00 75% $62.50
etc. (add lines as needed)
Subscription B Pricing:
Volume Clip Levels: (Adjust as needed) List Price ($) Discount (%) Net Price ($)
500 to 1000 $100.00 50% $50.00
1001 to 2000 $100.00 60% $40.00
2001 to 3000 $100.00 75% $25.00
etc. (add lines as needed)

11. Clear Initial Price-Points Facilitate:
 Add-on Sub Pricing During the Term
Growth Leads to Additional Subs
Renewal Price-Protection
 No Protection? Assume Full List-Price
 Vendors Shun Price Transparency
 Vendors Discount Only When Necessary
Establish Objective Criteria for Future Negotiations
Potential Price-Traps:

12. Get Clear Sub List Prices
 Most Subs are Priced for a 12-Month Term
 Paid in Advance
Negotiate Increasing Discounts for:
 Multiple Types of Subs
 Longer 36 or 60-Month Commitments
Insist on at Least two 12-month Extensions
 At the same Sub price
 Avoid Automatic CPI or Fixed-Rate Increases
Then Negotiate Bigger Discounts for Longer Terms
Future Pricing Tactics:

13. Migrating On-Premise Software to Cloud Subs
 Get a Credit for Past License Purchases
 Reduce Annual Support Charges
For Existing Cloud Deals:
 Have Excellent Price-Protection, or
 Re-Negotiate Early
Don’t Buy into Vendor Excuses for Short Notices
Other Pricing Opportunities:

14. Salesforce YE - January 31
Oracle YE – May 31
Microsoft YE – June 30
Adobe YE – December 1
SAP YE – December 31
Vendors Cannot “See” Beyond the End of the Quarter
Leverage Vendor Deadlines:

15. Data is the New “Oil”
 AI & IoT Produces Data – Lot’s of It!
 Stored Data Will Double Every two Years
Re-Selling AWS Storage is a “Cash-Cow”
AWS charges US $0.023/GB/Month
 For up to 50 TB
Vendors Charging $1.00/GB/Month is 43X Higher!
Do Your Own Storage Deal
 Always Keep 100% Control of Your Data
Storage in the Cloud:

16. Vendors Over-Sell Subs:
 Vendors Promote – Buy for Growth
 Vendors Promote – Elite Subs Over “Good-Enough” Subs
Good Price-Protection Avoids This Trap
 Buy Only What’s Needed – Price-Protect all Future Subs
Price-Protect Ancillary Module Extensions
 If it’s a Potential Add-on Buy – Price-Protect it!
Add Swap-Language
 Trade Sub Over-Buys for Useful Subs
Shelfware:

17. The Vendor Wants Immediate Payment to Book Revenue
 Sub Pricing Always Starts on the Signature Date
Vendor’s Can’t Book Revenue Until “the Subs are Delivered”
 The Buyer Doesn’t Need 100 Subs on Day 1
 Negotiate Further Discounts for the Shelfware
Alternative:
 Add 3-Months Subs Free – Keep the Vendor Financial Quarters in
Play!
Ramp-Ups:

18. There Must be Compelling Evidence of an Agreement
The Pricing Must be Predictable
Collectability Must be Reasonably Assured
Software Delivery Has Occurred
Threaten the Vendor’s Rev/Rec & You Have a Problem!
Vendor Revenue Recognition Rules:

19. Time & Materials (T&M) or Fixed-Price?
Complete Requirement Definitions are Critical
 An Early Requirement Costs $0.5X
 After-Signature Requirements Cost $2X
 After-Go-Live Requirements Cost $3X
Get a Detailed Implementation Plan
 Know Who is Doing What/When to Control Costs
Consider $200/Hour is $400K a Year
The A-Team Always Sells – F-Troop Usually Delivers
Consider Milestone-Payments
Professional Services (PS):

20. MSA – Master Subscription Agreement
Addendums, Schedules & Exhibits
SLA – Service Level Agreement
 Credits for Failure to Meet the SLA
SOW – Statement of Work
On-Line Terms, Terms of Service, (TOS), Privacy Policy, etc.
Product Order Forms
 Often with New Binding Terms
The Legal Agreement:

21. Previous Terms: New Terms:
Enrolled Affiliate must submit an annual
true-up order that accounts for changes
since the initial order or last true-up order,
including:
(i) any increase in licenses, including any
increase in Qualified Devices or Qualified
Users and Reserved Licenses; (ii)
Transitions (if permitted); or
(iii) Subscription License quantity
reductions (if permitted).
Enrolled Affiliate must submit an annual
true-up order that accounts for any
changes since the initial order or last order,
including:
- Enterprise Products…
- Additional Products…
- Online Services…
- Transitions…
- Subscription License quantity
reductions…
Risks in Terms

22. Anticipate Software Audits
 They will occur
Restrict Auditors Motivated by Perverse Incentives
Add Conflict-of-Interest Language
Add an Auditor NDA Requirement
Insist on a Definitive Timeline
Audit Language:

23. Start Earlier Than You Think
Competition & Alternatives Drive Savings
Time the Deal for Maximum Leverage
Identify Your Interests:
 Set Priorities
 Set Targets
 Always Negotiate Your Renewal Options
Wrap Up:

24. Presented by: Phil Downe
www.ITnegotiations.com
phil.downe@itnegotiations.com
(416) 804-7445