This document provides guidance on negotiating cloud software deals to maximize value and leverage. It highlights key risks like opaque pricing, overbuying, eroding discounts, and agreement traps. Strategic preparation is important as vendors have formal sales strategies and expertise. Negotiation opportunities exist around pricing structures and discounts, future price protection, implementation costs, agreement terms, and leveraging vendor quarterly and annual deadlines. The document provides advice on negotiating various contract elements like storage costs, shelfware, ramp-ups, services, audits, and true-ups.

1. Negotiating Software
Deals in the Cloud
Creating Value Where it’s Needed Most
www.ITnegotiations.com

2. Every Vendor’s Strategic Direction is
Cloud:
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3. Where are the Risks?
• Opaque / Bundled Pricing
• Over-buying Shelfware
• Eroding Discounts Over Time
• Agreement Traps and Pitfalls
• Growth, True-ups & Renewals
• Unfamiliar Territory Disadvantage
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4. Software Costs are Enormous!
• No Transparent, Set Pricing
• Vendors Take What They Can
• Unlocking Value Requires Preparation
• Vendors Do This Every Day!
• Recognize the Potential Negotiating Disadvantage
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5. Strategic Planning and Preparation:
• 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
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6. Zone
of
Consideration
Vendor
Presentations
Vendor
Selection
L
E
V
E
R
A
G
E
TIME
IT Vendor
Non-Profit
0%
100%
Leverage:
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RFP
Launch
RFP
Response
Legal
Drafting
IT Vendor
Non-Profit

7. Price-Points & Issues to be Negotiated:
• Pricing
• Future Price Protection
• Systems Implementation Charges
• Term of the Agreement
• Ancillary Charges (Storage & Transactions)
• The Legal Terms (SLAs & SOWs)
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8. Leverage & Revenue Recognition:
• 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
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9. Pricing:
• 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.)
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10. Pricing:
Subscription A Pricing:
List Price
($)
Discount
(%)
Net Price
($)
Volume Clip Levels: (Adjust as needed)
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)
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)
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11. Potential Price-Traps:
• 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
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12. Future Pricing Tactics:
• 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
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13. Other Pricing Opportunities:
• 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
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14. Leverage Vendor Deadlines:
•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
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15. Storage in the Cloud:
• 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
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16. Shelfware:
• 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
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17. Ramp-Ups:
• 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!
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18. Vendor Revenue Recognition Rules:
• 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!
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19. Professional Services (PS):
• 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
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20. The Legal Agreement
• MSA – Master Service 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
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21. True-Up Changes: What to Count:
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…
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22. Audit Language
• 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
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23. Wrap Up
• 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
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24. Phil Downe
phil.downe@ITnegotiations.com
416-804-7445
www.ITnegotiations.com
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