Menu
​Are Enterprise Software Agreements a critical foundation for SaaS adoption success?

​Are Enterprise Software Agreements a critical foundation for SaaS adoption success?

“Consider that the SaaS subscription enterprise deal has the potential to be the last negotiation of it’s kind with any degree of buyer power."

As application software publishers progressively transition their business models to SaaS subscriptions, conventional licensing programmes and contracts remain a key mechanism for clients to agree commercials and commitments beyond a single year.

“Rather than being put out to pasture EA, ELA, ETLA and their unlimited cousin the ULA live on and may be more important for clients than ever,” observes Stephen White, Research Analyst, Gartner.

Whilst publishers take advantage of subscription annuity and associated renewal rates in their SaaS models, White believes the high value multi year contract model provides a one-off opportunity to leverage buyer power and negotiate required terms.

“In the perpetual model where optional maintenance prevails, many organisations have re-evaluated inclusions leading up to renewal, a shift to subscription however means the buyer’s approach leading up to renewal will change significantly,” White explains.

“One might position the impact of losing scope to drop maintenance as an outcome of a ‘Subscription Treadmill’, given potential for consumption to create dependence and the ongoing cost characteristics of subscription models.

“Accordingly, the initial commitment and negotiation of SaaS terms will likely be more critical than any similar enterprise software negotiation.”

White believes decision makers and stakeholders must be mindful not to ‘sleepwalk into the cloud’, a phenomenon where initial minor commitments without negotiated terms expand gradually or even exponentially with limited buyer protection, inherent risks of escalating costs and one sided contractual terms.

Actions classed as ‘Shadow IT’ are a well documented example of this phenomenon, however transnational procurement and licensing models also contribute to heightening this risk.

“The scale of commitment of an EA or similar contract provides exposure to the degree that sign off levels required may lead to a more considered decision,” White adds.

“An assumption that decision will be appropriately made does not necessarily follow however, it is now even more critical to allow necessary time to evaluate options and impacts.”

White says negotiation of the contract provides an opportunity to craft agreement terms, but agreement characteristics may lack scope for clients to leverage all cloud computing attributes as shown in the diagram below, principally bi-directional elasticity of costs and metered pay per use.

Where quantities in the agreement are not eligible for reduction through the entire term, the risk of unwanted shelfware increases, White adds.

“Adobe pivoted much of it’s business from perpetual to cloud subscriptions, and may act as a prototype for other vendors to follow,” White says.

“Adobe’s ETLA contract with it’s non-reducible up-front standard commitment being an example where terms and pricing have been negotiated by clients, however the paradigm of benefits delivered by that negotiation is very much dependent on matching commitments to genuine requirements.”

Similarly, White believes full year commitments without scope to pro-rata reductions and publisher bundling strategies all can lead to costs in excess of usage.

Given each of those elements contribution to cost risks, preparation and prioritisation must allow for detailed analysis of usage - facilitated by a project which works through metering data for the existing on-premises / perpetual solutions being replaced as well as forward looking projections of usage.

“Consider that the SaaS subscription enterprise deal has the potential to be the last negotiation of it’s kind with any degree of buyer power,” White adds.

“Be sure to avoid over-committing and make use of your leverage before moving forward. In short - make it count.”


Follow Us

Join the newsletter!

Or

Sign up to gain exclusive access to email subscriptions, event invitations, competitions, giveaways, and much more.

Membership is free, and your security and privacy remain protected. View our privacy policy before signing up.

Error: Please check your email address.

Tags CloudSaaSGartnerenterprise

Featured

Slideshows

Reseller News kicks off awards season in 2019 with Judges' Lunch

Reseller News kicks off awards season in 2019 with Judges' Lunch

The 2019 Reseller News Innovation Awards has kicked off with the Judges Lunch in Auckland with 70 judges in the voting panel. The awards will reflect the changing dynamics of the channel, recognising excellence across customer value and innovation - spanning start-ups, partners, distributors and vendors. Photos by Christine Wong.

Reseller News kicks off awards season in 2019 with Judges' Lunch
Reseller News welcomes industry figures for 2019 Hall of Fame lunch

Reseller News welcomes industry figures for 2019 Hall of Fame lunch

Reseller News welcomed 2018 inductees - Chris Simpson, Kendra Ross and Phill Patton - to the third running of the Reseller News Hall of Fame lunch, held at the French Cafe in Auckland. The inductees discussed the changing landscape of the technology industry in New Zealand, while outlining ways to attract a new breed of players to the ecosystem. Photos by Gino Demeer.

Reseller News welcomes industry figures for 2019 Hall of Fame lunch
Upcoming tech talent share insights at inaugural Emerging Leaders Forum 2019

Upcoming tech talent share insights at inaugural Emerging Leaders Forum 2019

The channel came together for the inaugural Reseller News Emerging Leaders Forum in New Zealand, created to provide a program that identifies, educates and showcases the upcoming talent of the ICT industry. Hosted as a half day event, attendees heard from industry champions as keynoters and panelists talked about future opportunities and leadership paths and joined mentoring sessions with members of the ICT industry Hall of Fame. The forum concluded with 30 Under 30 Tech Awards across areas of Sales, Entrepreneur, Marketing, Management, Technical and Human Resources. Photos by Gino Demeer.

Upcoming tech talent share insights at inaugural Emerging Leaders Forum 2019
Show Comments