vendors offer enterprises various software licensing
options. Still, IS managers feel software contracts
have certain shortcomings, and vendors aren't paying
too much attention to customer considerations. by Brian
you've read through the previous story, you're probably
convinced that vendors are flexible when it comes to
software contracts. We talked to IS managers to find
out their side of the story. It was soon clear that
these managers are generally unhappy about the way software
contracts are formulated. Fluctuating license fees,
arm-twisting tactics, poor tech support and hazy AMC
conditions are just some of their woes. These managers
also told us what a contract should ideally include
(See 'What makes a good software contract').
Basically, there are three types of software used in
enterprises: packaged products, partially customizable,
and tailor-made software. Managers experience problems
and uncertainties with all three when it comes to signing
Packaged products are bought off the shelf and cater
to general business automation functions such as messaging,
word processing, spreadsheets, databases, presentations
etc. In this case the customer has very little control
on the licensing policy and the vendor is in a position
to dictate terms. In certain software categories, there
are few or no competing products in the market, and
one has no choice but to deploy what everyone else is
using. In such instances, the vendor enjoys a monopoly,
and may resort to arm-twisting tactics.
Neeraj Bhai, CTO, IDBI Bank cites an example. "A
certain software company recently imposed a two-year
advance upgrade policy on organizations that use its
software. According to this scheme one has to pay up
for software that is yet to be launched, or be forced
to use the outdated version. The cost of the two-year
upgrade license works out to as high as 55 percent of
the cost of the product. As a customer I want the freedom
to upgrade as and when new software is available, and
also in accordance with my business requirements."
Another issue with packaged software is pricing. Many
feel it is unfair to impose international pricing here.
Like other commodity products such as cell phones or
sports shoes, there has to be special pricing for local
markets. "The price of a popular office automation
suite is almost equivalent to the price of an assembled
Pentium 4 PC," says Neeraj.
"How can an end-user afford this? That explains
why software piracy is so common here. The vendor should
offer pricing suitable for the Indian market."
Then there is software which is generic but can be tailored
to an organization's requirement. Such software is usually
specific to a vertical (such as Banking and Finance)
or core business functions (like ERP or CRM). In this
case, IS managers feel there is no uniformity and transparency
in pricing. Since the customer can negotiate the price,
one cannot be sure if one is getting the best deal.
The vendor could have sold the same software to another
customer at a lower rate.
"I want the vendor to be transparent in pricing,
and they should not only publish the price but also
adhere to it," says Neeraj.
And if the software is completely tailored for a particular
business, support becomes a problem and future upgrades
are uncertain. There is no guarantee that the developer
will be around later when one wants to make changes
in the software. "In this case, the software should
be completely documented and I must have full IPR (Intellectual
Property Rights). With this in hand I can train my own
team to maintain the software or outsource maintenance,"
Besides, there are other problems that IS managers face
when purchasing new software or upgrades.
makes a good software contract
Flexibility & choice - The option to upgrade
when new versions/updates arrive and if they
really need it. Also, user licenses should be
available in smaller units.
Pricing - The vendor should offer pricing suitable
for the Indian market.
Pricing - The vendor should offer a transparent
price for the product and also publish it and
keep it consistent.
Sales - Vendors should sell directly to customers
especially for a large number of licenses.
Sales - Distributors, retailers and sales representatives
must be trained well to sell and support the
Support - Vendors should offer stronger commitment
through customer-favorable SLAs.
Support - AMC costs should be fixed upfront
at the time of purchase. The terms of the AMC
should be clear. AMC may include cost of upgrades.
Also, AMC costs should not fluctuate every year.
Support - Vendors must be more responsible in
protecting organizations against unforeseen
problems, such as software interoperability.
They should forewarn IS mangers about possible
problems, so that decisions can be taken to
avert unnecessary expenditure and downtime.
Training - Vendors should offer customers product
training and orientation.
Documentation - Good documentation is essential
in the case of tailor-made software. The developer
should give the customer Intellectual Property
Rights for future maintenance.
A majority of the complaints are centered on pricing
and support. Apart from the imposition of international
pricing, there is also inconsistency in both product
pricing and support.
The product is sold through a two- or three-tier distribution
model (vendor, distributor, and retailer). "At
each tier the company is paying a price," complains
Harsh Kumar, Advisor-IT, HPCL. "The purchase should
be directly from the vendor, particularly where the
number of licenses is large."
Balasubramanium, VP-Information Systems, Hero Honda
Motors Ltd., feels sales representatives lack knowledge
about the product and are unsure about support and licensing
"In many cases, especially for high-end products
like ERP, Enterprise Management Software, or other large
packages, the list price has practically no meaning
and the final price is entirely dependent on our negotiation
skills. Vendors cannot be trusted and we have to call
in competing quotes in order to get some realistic pricing,"
says Balasubramanium. "Some of the software comes
with down-to-earth licensing and upgrade costs. But
in many cases this is not clear. In areas where there
is a monopoly, things are worse."
are pot holes on the support front too. In many instances
the distributor or retailer is inadequately trained
to provide support for the product.
"The distributor or retailer does not know how
to provide support for the product, and if we go directly
to the vendor, he refuses support because we did not
sign a contract with them," says HPCL's Kumar.
Honda's Balasubramanium says in many cases support is
either not available nor is necessary. Moreover, he
feels there is very little commitment on paper as regards
the SLA (Service Level Agreement).
Some feel the vendor isn't providing adequate training
for the product. "The software vendor should check
what percentage of the product features are actually
being used. You may check in any organization about
this aspect for the package they use. You will find
that most of the users use only 20 - 25 percent of the
capability of the package. Therefore, the question that
arises is: 'Is the customer using the new features?'
This is very important to evaluate the performance of
the Tech support team. They should explain how the customer
can leverage on the new features. Unless this is done,
the product is underutilized and money is wasted,"
says HPCL's Kumar.
While an AMC ensures support, the terms of payment are
inconsistent or unclear at the time of purchase. AMC
cost also fluctuates every year due to three variables.
AMC cost is a percentage of list price. The vendor changes
this percentage every year. The list price also changes.
And to make matters worse, there is fluctuation in the
dollar conversion rate.
"Because of this we are paying different AMC costs
each year. Ideally, the AMC cost should be fixed upfront,
before the purchase order comes along," says Mani
B. Mulki, General Manager (Information Systems), Godrej
There are other problems that surface through experience
and one of these is software interoperability. One IT
manager was alarmed to discover that a key application
turned problematic after he upgraded the operating system
and office automation software across his enterprise.
"We use a solution for centralized management of
applications. But we faced a problem with the software
when we migrated to Windows XP and Office XPthe
platforms we chose to standardize on. When we approached
the vendor, they said we had to purchase an upgrade
(which costs between Rs 4 - 5 lakh)," says Godrej's
Some do not subscribe to the idea of selling licenses
per desktop. They feel there should be concurrent licenses
instead of named-user licenses. That is, they want licenses
to be shared among different users in their company
instead of a license being tied down to one particular
user. Also, licenses should be sold in smaller units.
"Why should I buy a 500 user license when I know
that at any given point of time only about 150 users
or so will be using them? In this case the product is
underutilized and we are spending more," complains
Then there is the problem of buggy software and its
impact on business. "Is the software vendor willing
to compensate for business losses affected due to buggy
software?" asks a CTO.
Despite the various complains there are still good examples
of software licenses or contracts. These can serve as
ideal examples for others to follow.
"One of our better experiences was with Microsoft,"
reminisces Godrej's Mulki. "We find their advance
two-year upgrade license scheme beneficial. They also
offer discounts for a large number of licenses. We recently
purchased 1,000 licenses for Windows XP and Office XP,
which are used across our enterprise. We also had a
good deal with Wipro Infotech. The company helped us
in connecting our distributors and the cost and terms
of the deal was good."
HPCL's Kumar who is all for concurrent licenses cites
the example of Uniplex, a British office management
suite. "You can buy 60 concurrent licenses, and
150 users in your organization can use the product as
along as only 60 can use it simultaneously. In this
example, the company saves on costs and the utilization
is high," he says.
"One good example that I can think of is SAP,"
says Hero Honda's Balasubramanium. "They levy a
standard charge of 17 percent as AMC which besides covering
upgrades also takes care of support. Upgrades for ERP
are certainly involved and take several man years of
coding and testing before it is released, and it is
surely worth paying for. In addition, they have one
of the best support systems. When we encounter a problem
we log in the complaint, which is attended by any of
their experts around the world, and the matter is resolved
expeditiously. In addition, we receive various information
updates on a regular basis. The support network and
the services are extraordinary and clearly justifies
their upgrade license policy."
Brian Pereira can be reached at email@example.com