As companies grow in size, the streamlined individual software license model can morph into something larger and more complex: the enterprise software agreement. The variables to consider in these contracts extend well beyond the basics of price, performance, longevity and support.
Here are four additional dimensions of larger software agreements that you should take into account before releasing that purchase order:
#1 – ENTERPRISE LICENSING ARRANGEMENTS
Determining whether to buy in volume through an enterprise license or to purchase individually on a “per seat” basis starts with a good understanding of your company’s usage model.
- For consistent usage, general purpose and/or large user bases – Some enterprise licenses are offered “buffet style,” meaning for one annual fixed price you can download and use as much as you like across your operation.
The goal here, of course, is to maximize the value of your investment by leveraging the software as much as possible. Microsoft is an excellent example of this model at Avnet, for example.
- For inconsistent usage, specialized purpose and/or small user bases – In this case, a “pay as you go” arrangement might be the best approach, with the software vendor conducting periodic audits to capture usage and true up with the client afterwards.
This works especially well with specific engineering software, financial or legal applications, or tools for designers.
The other aspect to consider with any enterprise licensing is the business relationship with the vendor. Are they a vendor, or are they a true strategic partner?
The larger the engagement is and the more mission-critical it is to your business, the more support, access and consulting services you may need from the partner to ensure you get maximum return on your investment.
#2 – SUBSTITUTION CLAUSES
As software new product rollout cycles continue to shrink, you don’t want to be tied to obsolete software through your enterprise agreement.
Before negotiating your software agreement, take a look at the vendor’s development roadmap first. Does it include options that might align with your own company strategy and future need?
If so, consider adding a substitution clause that allows you to swap out current licenses for those new products if they become available during the duration of the agreement and if they do support your strategy at the time.
Negotiating what is eligible for substitution through the enterprise agreement – and at what value – is highly advantageous in these situations. Be sure to find out:
What products can be tagged for substitution eligibility? Which are not eligible?
Is it a 1:1 substitution ratio, with every old product updated to the new product, or is it 2:1, 3:1 or higher?
What happens if the initiative or software doesn’t roll out as planned? Will alternate licenses be offered, or will the scope of the contract be reduced?
#3 – PORTABILITY
Businesses of all sizes are continuously adding (and removing) personnel based on individual and business performance as well as overall market conditions. So it’s important that your software profile can adapt to the changing needs of your business during the duration of the agreement. The key term here is “portability”.
Portability ensures that you don’t pay double if an individual in your company is let go in Month One of your enterprise agreement and another person is hired to fill that position in Month Two.
A “portable” software license allows that single seat license to be used by anyone who fills that seat, not only the person it was originally activated for.
#4 – THE TOTAL SOLUTION
Some software you purchase will require specific hardware to function properly, or specific platforms come highly recommended from the vendor for best performance.
Purchasing a full solution from the software vendor often leads to better performance and support overall, so it’s not always a bad idea.
However, don’t overpay for that total solution. You don’t have to work in IT distribution to know that hardware margins have been shrinking over the last 20-30 years., so as you negotiate focus on the software pricing.
That’s where the biggest costs will be. But at the same time don’t take your eye off the hardware costs either. If that system pricing doesn’t feel competitive, don’t hesitate to renegotiate.
While enterprise software agreements can be more intimidating that individual licensing arrangements, there’s nothing to fear.
By understanding your own particular use case and taking the four dimensions above into account during the negotiation, you should arrive at an agreement that meets the needs of your growing business for years to come.