Monthly Archives: February 2012

What Does Free Really Cost? Part II

In our last post we discussed how we can’t go a day without another FREE software solution being offered to our business and that we don’t believe these offers because everything has a price, even if it’s not immediately obvious or we are not the ones to (initially) pay it. Referencing a recent piece on From Free to Fee from ChainLink research which discussed how the definition of value has been redefined in the digital age, we discussed what people now expect for Free and why these expectations are not always in line with reality because someone has to code the app, someone has to maintain the app, and someone has to support and train the users on the app, and that someone will expect to be paid to do these tasks. Also, the app has to run on hardware, which takes power, and be available over the internet, which takes connectivity, and all this takes money. We concluded that using a Free app has a number of costs, and that they warranted a discussion.

So what costs is an organization accepting when it chooses a Free app?

  • Platform Limitations
    All free(mium) platforms have limitations. The best things in life may be free, but the best things in enterprise platforms are not. You’ll be paying for all the inefficiency in your organization.
  • Data Loss Risk
    No money, no guarantees. If your files are lost, and you’re not paying for backup, they’re lost forever. And even if you’re paying, and you’re not using a quality service with off-site backup, you could be in the same boat as the MegaUpload users. You’ll pay dearly when your data goes up in smoke.
  • Service Loss Risk
    Again, no money, no guarantees. The service could be here today, gone tomorrow, and with no escrow, you’re out of service. You’ll pay dearly when you have to scramble for a new service provider.
  • Supplementary Platform Limitations
    The free service may only work will files in a certain format, may only work in IE on Windows, etc. You could be locking in your platform requirements to those that are not the best for your organization. And then when the number of vendors who can provide that platform diminish to few, or one, you’ll be reaped over the coals at upgrade time.
  • Vendor Lock Ins
    Let’s say you managed to negotiate a FREE license to a piece of enterprise software to support your organization in exchange for a big services spend or marketing consideration. This may save millions of dollars in licensing costs, but if that software only works on top of a certain ERP system also provided by the vendor, the vendor has you over a barrel and will more than make up the loss on the Free license to the specialty module with the premium you’ll be forced to pay on the base ERP. And this is true across IT systems. The not-so-bright negotiators at a big University who recently negotiated Free Cloud-based Microsoft Exchange mail didn’t save 2 Million over X years, they locked in probably 10 Million of spend on Microsoft Operating Systems, Office Packages, and Back Office Suites over the next X years as Exchange only integrates fully with other Microsoft products. And how much of a break are they going to get on these products when Microsoft just gave them mail for Free which is, sadly, a service that is already almost Free if you decide to go with something like Pronto on Linux (as your only cost is the cloud computing platform and internet connectivity).

And these are just the obvious costs. There’s no Free lunch in enterprise software or supply management. You always pay in the end. And, if you’re not careful, you’ll pay much more than you save by choosing a Free platform. Remember that, and pay up front, and you’ll avoid rude, costly, awakenings when something goes terribly wrong.

What Does Free Really Cost? Part I

It seems we can’t go a day today without another FREE software solution being offered up for your business. But is it really free? What does it really cost your business to use it? The reality is that everything has a price, and the price for a business is typically a lot higher than the price for an individual. So what is the price? Good question. Let’s start with a recent research brief from ChainLink Research on From Free to Fee.

First of all, the move to ‘Free’ has redefined the definition of value in the digital age, which includes:

  • the value of audience
    visitors, opt-in subscribers, and the ability to mine consumer information
  • the value of the network
    a bigger, better network that matches yours
  • the value of the platform
    that is interoperable, and integrates, with yours
  • the value of human interactivity
    social and collaborative connections

Value that we expect to access for free through free conference services, file transfer, file storage, social networking, and even free ERP systems. Even in the enterprise world where we want to be using apps that millions of people use.

But nothing is free. Everything costs. Someone has to code the app. Someone has to maintain the app. Someone has to support the app and train the users. And that app has to run on hardware, which takes power, and be available over the internet, which takes connectivity. And people, power, and technology take money. And, for some apps, lots of it.

That’s why the big free apps, with enterprise uses, need conversions from free(mium) to paying subscribers. Hence the segmentation of features, basic access for free, more advanced features, like back-up, for money. Free may be a great way to enter the SMB marketplace, but it’s not a long-term strategy to stay there.

And it’s not just because it’s costly for the providers of the free solution, which have to pay their bills, but because it’s costly for the organization — something the article misses.

When an organization accepts Free, it accepts a number of costs that will be discussed in tomorrow’s post.

Have You Outsourced Too Much of Your Analysis?

Over on Deal Architect, Vinnie Mirchandani wrote a great post on the 7 Signs You’ve Outsourced Too Much of Your Analysis that was great. In a Top 10 Letterman style list, Vinnie notes that:

1. The T-shirt collection in your closet, your jar of pens and your collection of USB drives are a gallery of vendor logos.

4. Your most anticipated report or post is a Magic Quadrant, Wave or some other vendor ranking write-up.

and …

7. Even your kids don’t want to join you on your 10th trip to Orlando this year for yet another vendor event!

For the other 4, check out the top 7 Signs You’ve Outsourced Too Much of Your Analysis.

Are You Ready For Name-And-Shame Legislation?

On January 1, 2012, the California Transparency in Supply Chains Act (SB 657) want into effect. it’s an example of “name and shame” legislation, which requires companies to report on specific actions taken to eradicate slavery and human tracking in their supply chain. The idea is that if slavery and human trafficking is in your supply chain, you’ll have to tell the world and the resulting consumer and shareholder pressure will force you to achieve the social goals of doing whatever it takes to eliminate human trafficking and slavery.

If your company

  • files California taxes as a retailer or manufacturer,
  • does business in California as defined in the California Revenue and Taxation Code, and
  • earns more than 100 Million in worldwide gross receipts

then your company must report on five specific points under this act. Summarized by the VACIT acronym, the company must report whether it:

  • Verifies
    and engages in third party verification (that identifies the risk of slavery and human trafficking)
  • Audits
    and engages in independent, unannounced, auditing to check on adherence to company standards
  • Certifies
    and requires its direct suppliers to certify that the materials incorporated into its products comply with local laws
  • Maintains Accountability
    and holds its employees and contractors accountable to company standards and
  • Trains
    employees directly responsible for risk mitigation in its supply chain.

This is not the first example of such legislation. For example, in July 2008 the New South Wales Food Authority passed laws amending existing provisions which allowed the authority to publish details of successful food business prosecutions on its website. And it won’t be the last. At the Federal Level, H.R. 2759 (Business Transparency on Trafficking and Slavery Act) was introduced last August and, if passed, would require publicly-traded companies to disclose on their annual reports to the Securities and Exchange Commission any measures that are being taken to identify and address conditions of forced labour, slavery and human trafficking within the company’s supply chains.

The net effect is that there are not only legal and business issues heading your way as this legislation crops up in other states, and eventually, in other countries, but reputational concerns that will materialize as well. For example, as pointed out in this recent article in Retailing Today on how Name and Shame is the New Supply Chain Game, not only must the company disclose how it is complying with the provisions of the Act on the company’s website, but it must also consider how this will affect its stakeholders, customers, investors, and their view of the company. A less than robust (policy) disclosure can cast the company in a bad light and do considerable damage to the supply chain organization. From a Risk Management standpoint, your organization needs to be ready. Are you?