Category Archives: Technology
An Enterprise Software Buying Guide, Part VIII: Contract Definition & Management
In this, our final post in this intial series on the successful acquisition of enterprise software, including e-Sourcing, e-Procurement, and other Supply Chain Software Solutions, we discuss the contract review and performance management steps.
7. Comb the Contract
The legal minds behind traditional software vendor contracts excel at including all kinds of seemingly benign terms and conditions that can turn out to be big cost gotchas if you’re not careful. My personal favorite is the mandatory maintenance clause that states if you stop paying maintenance, you lose the right to run the software. Sure you still own the perpetual license you paid big bucks for up front, but you’re not allowed to use it unless you pay maintenance, which usually has you paying the entire cost of the software every 4 to 5 years.
Other good examples of “gotchas” that you need to watch out for include:
- The mandatory upgrade on the vendor’s schedule
The vendor will usually try to insert a clause along the lines of “you must upgrade within 90-365 days or lose support” if you’re not careful, regardless of how long they say they will support an older version. - The free lunch
There’s no free lunch. Someone always pays … and in enterprise software, that someone is YOU! Either the “free” training, support, or modules are included in the price or being offered as an incentive to lock you in for a long term that will ultimately increase the vendor’s margin and salesperson’s commission. - The toothless SLA
The majority of SLAs are designed for one purpose — and one purpose only — to give you a false sense of security that causes you to overlook the fact that the wording was carefully designed by the vendor’s legal counsel to insure that the vendor gets to keep your money for the length of the contract, no matter what. - The Escrow
You get the code if the vendor goes belly-up. Whoopee. Unless you have a large team of expert software developers in house that can quickly familiarize themselves with an application that contains (tens of) millions of lines of code and get you up and running again quickly, escrow is pointless. What matters is that you have guaranteed complete data access 24x7x365 and that the vendor is required to give you 30 days warning and a complete data export in a standard, product neutral, format before a material change in operations or ownership, so that you can shunt your data into another system and keep on truckin’ if, for some reason, the system stops working for you.
8. Manage Performance
You can do everything right up to the time you sign the contract and still have everything go to hell in a handbasket (and your costs go through the roof) if you don’t carefully manage vendor delivery and support throughout the contract lifetime.
It’s critical to create a project management team who will mange the implementation, monitor uptake, collect feedback, quickly identify issues, and work with the vendor to get those issues resolved in a timely manner. Otherwise, you might not get the uptake, utilization, productivity improvements, and savings you expected to get.
That’s it for this initial series on how to successfully buy enterprise software. I hope you found it useful. And remember, if you’re planning on acquiring RFX & e-Auction,
Spend Analysis,
Optimization,
Contract Management,
e-Procurement,
Supplier Networks & Catalogue Management,
GPOs & Marketplaces,
Market Intelligence,
Strategic Sourcing Services,
Trade Data Management,
Supply Chain Optimization, or
e-Payment platforms, a good starting list (that you can customize to your needs based on the outputs of Step 2) can be found in the X-emplification series. Have fun!
Making Sense of Web Stats: Hits, Page Views, Sessions, Unique Visits, and Unique IPs
What’s the most popular site? Is the most popular site the highest-ranked in Alexa? (Not likely.) The site that lists first in the search engine? (Not necessarily.)
Unless you have the traffic logs, and you know how to read them, you’ll never know.
This post attempts to explain the difference between the different types of web statistics out there. It’s important to understand which statistics, and which combination of them, are most relevant, and which statistics are least relevant. More importantly, it’s useful to know when a site is overestimating its audience (which is easy to do if the site’s owner doesn’t know how to configure or convey those stats correctly).
- Hits
Simultaneously the most popular statistic and the most misleading, a hit counter tracks every URL load, including accesses from spiders, bots, and reloads in a session. Depending on how your logs and/or statistics software is configured, it might even count every load of every css file, script, and image referenced by, and included in, the page. If it does, that could (falsely) give you a 10 for 1 reading on every site access. Although hits are a great gauge of bandwidth utilization, they are a very poor indicator of site popularity (especially if the site is the target of an overactive bot, a DOS attack, or a small group of loyal followers who like to reload it dozens of times a day to take part in chatter or gossip).
- Page Views
Probably the second most popular statistic. If used properly, this will represent the total number of times a page was (re)loaded from the site. It’s a better statistic than hits because, when used properly, references and includes are not counted and spider traffic is partially excluded as well. However, like hits, it can significantly overestimate the unique traffic experienced by a site.
- Entry Views
Used mainly with blogs, this counts the number of specific post accesses, as opposed to the number of times the main page was accessed.
- Sessions
One of the less popular statistics, and used mainly with portal and commerce sites that require login, it refers to the number of unique accesses of a site by a unique user identifier. It’s equal to the average number of unique visits times the number of unique visitors, and it’s a better indicator of site popularity than page views for a site whose visitors, on average, don’t visit more than a few times during the spanned time period.
- Unique Visits
Similar to sessions, except it refers to the number of unique accesses by IP. The difference is that if multiple visitors from the same IP access the site in the same time window (through a proxy server), the number of unique visitors could be under-represented.
- Unique IPs
Counts the number of unique IP addresses that accessed the site, and acts as a lower bound on the site’s popularity (since multiple individuals could access the site through the same IP address).
- Combination of Page Views and Unique IPs
Combined, one of the best, measures of a site’s popularity. You know the site has at least as many unique visitors as IPs and you know, based on the page views, about how many pages a unique visitor accesses in a given time period.
- Combination of Unique Sessions/Visits and Unique IPs
Combined, the other best measure of a site’s popularity. You know the site has at least as many unique visitors as IPs and you know, based on the sessions, about how many times a unique visitor visits the site.
So what are SI’s statistics? Over the past month:
| Hits | 149,030 |
| Page Views | 49,910 |
| Entry Views | 17,705 |
| Visits | 24,855 |
| IPs | *10,825 |
What does this mean? It means that at least 10,825 people visited SI last month, an average of 2.3 times each, visiting 4.6 pages each. Since about 34% of traffic is search engine traffic, which is mostly accesses of a page or two, we can exclude this traffic. Revising our statistics, we can then estimate that 7,145 people visited SI an average of 3.5 times each, visiting an average of 7 pages each. Furthermore, given that about 39% of traffic comes from external referrals (SI has over 10,000 incoming links from numerous sites all over the internet that link directly to it and redistribute its feeds), and that this traffic displays irregular patterns (and accesses SI approximately 50% as much as regular readers), we can estimate that, last month, there were:
- 2925 regular readers who visited about 9.2 pages each in 4.2 visits
- 4220 irregular readers who visited about 4.6 pages each in 2.1 visits
- 3680 new readers who visited a page as a result of a search engine query
Finally, it is very important to justify the numbers. They must all be consistent. If the numbers don’t make sense, or if they are internally inconsistent, you are dealing with a site that really has no clue at all as to its traffic. The above numbers make very good sense since, while some readers will visit almost every day, my representative reader (who has no time to leave comments) is too busy to visit every day, but makes a point of visiting two (to three) times a week (often on Monday and Friday, which are the peaks of SI activity).
* Lower bound. This is one statistic I’m not able to retrieve by time period from the native blog stats tool, so it was extracted from one of the three third-party stats tools I also use, which rely on (java)scripts that can be cached or blocked, and therefore cause some hits/IPs to be missed.
An Enterprise Software Buying Guide, Part VII: Negotiations
In our last two posts, we discussed the creation of cost models that would allow you to approximate, at least to a well-defined order of magnitude, the total lifetime cost of ownership of the software solutions under consideration, which can then be refined during negotiations to understand the true cost of each proposal put forth by avendor. Today we discuss the process for formulating your objective and negotiations.
5. Define Your Objective
Your objective is defined as a price-performance goal based upon your identified needs, your cost models, your budget, and your ROI expectations. Your objective will be to obtain the solution required to meet all of your key functional requirements, along with as many of your nice-to-have but non-critical functional requirements as possible, at a specific price-point with as much support beyond a minimum level as you can negotiate.
You’ll go into each vendor negotiation with an identified solution blueprint, a support requirement, and a maximum price that you’re willing to pay and be prepared to walk away (and move on to the next solution) at any time if it looks like your minimum objective is not obtainable. This keeps you focussed on your goal and prevents you from getting lost on a vendor led joyride through the backwoods byways which ultimately lead to gator infested swamps.
6. Negotiate Professionally
Traditionally, enterprise software has a lot of margin and even more empty calories. This means that there is usually a significant opportunity to reduce the price through a serious negotiation.
If the purchase is over a million, it’s critical to have someone from procurement lead the negotiation, backed up by the cross-functional team, and if the purchase is over two million, you should strongly consider bringing in a professional deal architect. A skilled negotiator in the enterprise software market can undercut the range every time and save you as much as 40% off of “best-price” on multi-year deals that include significant maintenance and support requirements.
After all, professional enterprise software negotiators are used to the vendor tricks and rhetoric like we have never accepted that price point or legal clause that the vendor sales representatives are trained to deliver at the start of every negotiation. They know when thy vendor is using the “partner” ploy. They know when a vendor is trying to blind you to their failings by pointing out their competitor’s failings. They know that a market quadrant or wave ranking is pointless if the solution doesn’t do what you need it to do at the price point you need it at to get ROI. In fact, they know all the standard stupid salesperson tricks and how to combat them to get you the best deal.
And they’ll be watching out for the Big Lie, which happens when a vendor says “yes, we have that capability” even though they don’t, and don’t plan to, and then price the missing capability ridiculously high in hopes you’ll decide you don’t really need that capability and buy their product anyway.
Tomorrow, in our final post in this initial series on enterprise software buying, we will discuss the importance of carefully reviewing any contract put before you, some common “gotchas” that vendors will try to hide in the fine print, and the secret to long term solution success.
An Enterprise Software Buying Guide, Part VI: Cost Model Calculations
In our last post, we talked about how you defined lifetime total cost of ownership models and what the key cost components of each major software delivery model were, reviewed below. In today’s post, we discuss how you will usually calculate each of the cost components.
| On-Premise | Hosted ASP | (True) SaaS |
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Based on these model requirements, you can build a spreadsheet that allows you to calculate and capture each cost component using all of the information available to you. These spreadsheets can then be modified during negotiations to capture the true total cost of ownership over the projected lifetime to understand the true cost of each proposal put before you, or your expert negotiator. Each of the costs above can be calculated as follows:
- License Cost
The license cost will either be a fixed price or an annual fee. In the first case, it’s a simple input, and in the second case, it’s the annual license fee times the number of years you intend to use the solution. (It’s a good practice to also calculate the costs for a range of years in multiple columns. If you think you’ll use the application for 10 years, calculate values for at least an 8 year and a 12 year ownership term as well to understand how costs change over time.) - Maintenance and Support Cost
This is usually a percentage of the license cost each year. As such, it’s easily modeled as a percentage of the license cost multiplied by the number of years you intend to use the solution. - Dedicated Server Costs
You’ll likely have to add servers to support your new acquisition. The cost will be the number of new servers required times the expected server cost. (Note that tough times will get you great deals on hardware using a reverse auction.) - Supporting Software Costs
Many enterprise applications require database licenses and application server licenses (and some will require middleware licenses as well). These applications generally have license fees, maintenance fees, and per CPU and/or per seat fees. If you are lucky enough to already be licensing the supporting software, the cost will just be the costs to support the new application, calculated either as the number of new CPUs times the per CPU cost or the number of new seats times annual seat cost. If not, you’ll have to add in the license costs and the annual maintenance costs of the supporting applications as well. - Implementation & Customization Costs
In the world of enterprise software, there really is no such thing as “it works out of the box”. At the very least you have to load your data. Usually, you’ll have to bring in a hired gun to install it, customize it, and get it working efficiently on your systems. If you’re lucky, this will be a reasonable fixed fee. If not, it will be a by-the-hour fee (and you’ll need to ask current/past customers to get an idea of the number of person-hours that will be required.) - Integration Costs
If you need your new system to talk to, or work seamlessly with, other systems, you’ll likely have to do some integration. You’ll probably have to consult with a third party integrator to get an idea of project size, which will determine what will likely be a day rate based quote. - Training Costs
Although it’s getting better, most enterprise software is still a long way from “Web 2.0” and your staff will generally need to be (extensively) trained to take full advantage of the system. This will usually be a fixed rate per course or student. - Internal Support Costs
Even if the vendor installs and configures the software and includes “support” as part of maintenance, the support will generally be limited to bug fixes. You’ll still need internal IT resources to manage the instances, manage the servers, and support your users (and the required operating environments). The annual cost will be the estimated number of annual resources required times their average annual salary. - Software Upgrade Costs
Depending on the vendor, every 2 to 4 years they’ll release a major new version of their (on-premise/ASP) solution and discontinue support for an older version around the same time. This means that, every 2 to 4 years, you’ll have to upgrade, for a hefty fee, or risk losing support. This cost can be estimated by looking at the vendors historical major release cycle and average upgrade cost as a percentage of previous system price. - Hardware Upgrade Costs
Every 3 years, your hardware will need to be replaced. Even though the cost per performance unit continually decreases, you’ll need a more powerful machine at upgrade time as your users will be using the system more heavily, the software upgrades will demand more computing power, and you’ll need to support your (hopefully) growing business. A safe bet is to expect the upgrade costs will be roughly equal to the initial hardware costs.
In our next post, we will tackle negotations and how you should go about defining your ultimate objective.