Technology changes rapidly, and software licensing must do the same.

3. Technology changes rapidly, and software licensing must do the same.

4. Agenda • Software pricing — what buyers want • The changing technology landscape • Software producers struggle to adapt to changing technology • Two licensing trends with implications for ITsourcing managers • Summary recommendations

5. Agenda • Software pricing — what buyers want • The changing technology landscape • Software producers struggle to adapt to changing technology • Two licensing trends with implications for ITsourcing managers • Summary recommendations

6. Good software pricing is: • Simple • Buyers can understand it and feel in control. • Fair • Vendors are properly compensated, and buyers don’t feel cheated. • Proportional to value • Vendors don’t price themselves out or leave money on the table. • Future-proof • How long does a perpetual license last?

7. Agenda • Software pricing — what buyers want • The changing technology landscape • Software producers struggle to adapt to changing technology • Four licensing trends with implications for ITsourcing managers • Summary recommendations

8. Technology changes are disrupting license models • Software-as-a-Service (SaaS) • Open Source • Tech Populism • Service oriented architecture (SOA) • Datacenter consolidation

9. Interest in SaaS continues to grow

10. SaaS buyer concerns

11. Cloud computing is still emerging

12. Open source adoption varies by country

13. Open source concerns

14. Open source concerns (cont.)

15. Definition: tech populism • An adoption trend led by a technology-native workforce that self-provisions collaborative tools, information sources, and human networks — requiring minimal or no ongoing support from a central IT organization

16. February 22, 2008 “Embrace The Risks And Rewards Of Technology Populism” Information workers use a wide variety of self-provisioned tools

17. Many people prefer LinkedIn to their enterprise’s contact management system

18. Four reactions to technology change Reaction Forrester’s take “Free Internet software will never beat professional stuff.” Web 2.0 generation won’t accept mediocre software. Denial “Ban access to Facebook, LinkedIn, etc.” Don’t prevent employees who are trying to work more effectively. Anger “OK, let everyone use whatever they want.” Some restrictions are vital. Despair “This could be good for my business.” Issue guidelines, check security, and manage vital master data. Acceptance

19. Most software pricing is based on a discrete model • Users use one application at a time. • Server supports one application only. • Software is only loaded on the clients and servers that use it.

20. It’s no longer clear what applications we are “using” Source: Oracle

21. SOA means everyone uses everything — and nothing Enterprise SOA — components Source: SAP

22. Datacenter consolidation eliminates discrete systems • Virtualization • Blades • Multicore processors • Separate storage devices

23. Agenda • Software pricing — what buyers want • The changing technology landscape • Software producers struggle to adapt to changing technology • Two licensing trends with implications for ITsourcing managers • Summary recommendations

24. Vendors struggle to adapt their pricing Vendors rightly charge for use of their IP but go too far, by: • Counting physical resources, even in virtualized datacenters • Treating all integrations as multiplexing • Charging for every component in the stack, even if the customer is using a tiny subset of its full capability

25. Most common approach to licensing virtualized scenarios (buyers and sellers)

26. Software cost of virtualization can be huge Customer needs: 2 DB2 licenses 2 Oracle licenses Before DB2 DB2 Oracle Oracle Customer needs: 4 DB2 licenses 4 Oracle licenses After DB2 Oracle

27. Everyone who uses this Needs a user license for all of these Oracle graphic is used to show an information workplace, not to pick on its policies Vendors’ indirect use policies catch everyone in their net Source: Oracle

28. Component-based pricing is unrelated to value Everyone who uses this Needs a user license for all of these Source: SAP

29. Agenda • Software pricing — what buyers want • The changing technology landscape • Software producers struggle to adapt to changing technology • Two licensing trends with implications for IT sourcing managers • Summary recommendations

30. All metric types have pros and cons

31. It’s time we stopped using hardware metrics Value-based • Data inflation means that demand for processing power grows faster than value delivered. • Hardware resources are increasingly remote from user’s perception of value Simple • Very few buyers understand the various vendors’ rules and how to apply them. Fair • Vendors are rewarded for inefficient design. • Buyers are penalized for accidental deployment. Future-proof • Hardware-based pricing soon becomes obsolete.

32. Business metrics • Software vendors recognize that traditional metrics are obsolete. • Buyers dislike the complexity of multiple metrics across the portfolio. • So do vendors! • Many offer unlimited-use enterprise licenses for an agreed bundle, based on a business metric.

33. Advantages Simpler to track No risk of unexpected noncompliance Price is negotiated Instead of an inappropriate price less a ridiculous discount Customer can focus on getting maximum value from the software, Not worrying about limiting usage Disadvantages Delayed implementation and roll-out Less control for buyer You grow, you pay more Acquisitions and disposals Extending the product bundle Buyer must build some key concessions into the agreement Embrace business metrics, but carefully

34. SaaS / subscription apps offer new way to pay for software • Reduce upfront costs • And have more predictable costs over time • Prove value before committing • And continue to demand value from your vendor • Offload risk to the SaaS vendor

35. Advantages Predictable cost Low upfront cost Quicker implementation and roll-out High control for buyer Scale up or down as needs change Many costs bundled into subscription – including support, upgrades Disadvantages Longer contracts can lock-in price and get higher discounts – but reduce flexibility to scale down or exit the relationship Often a one-size-fits all approach to subscription that does not reflect actual usage levels Risk of price fluctuation at end of contract Cost over time can be more than on-premise model in some cases Subscription pricing trade-offs

36. SaaS contract recommendations • Negotiate price discounts • Longer contracts will generate heavier price discounts • Due diligence is key • Security, Backup, Recovery, Physical Hosting Facilities • Ask for a service-level agreement • Planned maintenance windows, upgrade procedures, uptime guarantees • Be clear about what support is included in subscription • Hours and format (phone, email, chat), what types of requests • Detail exit clause • Fees for early termination of contract, data ownership, contingencies

37. Agenda • Software pricing — what buyers want • The changing technology landscape • Software producers struggle to adapt to changing technology • Two licensing trends with implications for IT sourcing managers • Summary recommendations

38. Recommendations • Support SaaS – but take responsibility for contracts, policies, security, and other “due diligence” • Set policies for “I agree” contracts. • Don’t let vendors’ multiplexing and virtualization policies catch you out. • Resist hardware-based metrics. • Embrace business metrics, but carefully.

39. Thank you Duncan Jones +44 (0)7920.492.913 djones@forrester.co.uk Liz Herbert +1 617.613.6011 lherbert@forrester.com www.forrester.com

40. Selected Forrester research • April 17, 2008, “SaaS Clients Face Growing Complexity” • February 29, 2008, “Best Practices: Negotiating With Oracle” • February 22, 2008, “Embrace The Risks And Rewards Of Technology Populism” • November 14, 2007, “Software Buyers Should Consider Business-Metric-Based Licenses — But Cautiously” • October 4, 2007, “The Components Of SaaS Pricing And Negotiation”

41. Selected Forrester research (cont.) • September 12, 2007, “Effective SAP Pricing And Licensing Negotiation” • February 7, 2007, “What Sourcing Teams Need To Look For When Buying A SaaS Platform”