Licensing product is fraught with risk. If you don’t read the small print carefully, you can get taken to the cleaners without realising it. What you need to understand from the outset is that there are almost always multiple components to an enterprise licence.
Licence costs are a combination of an entry fee plus a multiple based on the number of seats you are buying, topped up with an annual maintenance charge. This is not as simple as it sounds.
Many vendors like to charge on a per module or component basis. In the case of a complex customer relationship management (CRM) suite, this might easily run into hundreds of discrete functions. Siebel Systems divides its suite into sales, marketing, call centre and service, customer order management and partner relationship managements. It then provides sets of sub-functions like sales analytics, forecasting, mobile sales and so on. Each carries a separate price tag. So when comparing this with competitive offerings from a price perspective, you need to ensure that all companies are offering the same, or similar, total functionality.
Enterprise class vendors like SAP, Oracle and PeopleSoft offer industry specific solutions. In theory at least, these should provide roughly 80-90 per cent of the complete functionality you need, but there will be a premium of some sort to the bog standard product. This is because industry specific functionality has been created using perceived best practices that should deliver value early.
The perpetual licence
On very rare occasions, you will come across vendors who are prepared to offer what is called a ‘perpetual’ licence. This is one where you have the right to modify the code to your hearts content but the supplier will continue to provide upgrades over the life of the product and support your customisations. This is very attractive where you have niche functional needs, which are likely to remain stable over a long period of time. It also works where you need to equip a small number of users for a specific purpose. These licences often carry a peppercorn per seat fee – again attractive – but you will need to pay for annual maintenance.
You will of course also pay for any custom development but it is possible to overcome this where your requirements are so clearly something that is needed for a specific industry that the vendor is prepared to charge a premium, rather than leave you to bear the whole cost.
The thorny problem of per seat pricing is riddled with confusion. Many charge concurrent user licensing so that you can have a total user community of say 500 people, but only licenses for, say, 100 concurrent users at any one time. This works successfully to keep costs down but you have to be very sure about the numbers involved or you’ll breach the deal.
An alternative is to classify your user communities into power, occasional and information seekers. This gets you out of the concurrent user problem and can be cost effective, especially if you have large numbers of users who are not undertaking any real computing but are likely to want frequent access. A good example is self-service for human resources, where employees might look up and book a holiday but are not engaged in ‘real’ transactions.
You will also have to pay between 15 and 20 per cent in annual maintenance charges. Many people view this as an annual application tax but the reality is that when things do go wrong, you need the assurance that the vendor will be around to sort it out. It is not uncommon to find enterprises running multiple versions of the same software, all of which has to be supported by the vendor, and the only way to guarantee that is through the maintenance portion.
When it comes to understanding the maintenance component, you need to know whether this includes upgrades and technical changes. When SAP introduced its web-based mySAP, customers faced real issues over cost. The same was true when Oracle moved its applications to version 10 and 11. The problem in both cases was that the technical changes brought with them new implementation issues and both vendors considered the changes were sufficiently outside the norm to justify a cost. In Oracle’s case, the position was compounded by their announcement that support for earlier versions would be dropped. This is a genuine long-term issue for all suppliers and their customers because there comes a point where it is no longer viable to continue support but it is unrealistic for companies to rip out applications and start again.
The exact amount you pay will depend on your negotiating skills and a careful reading of the small print. You will have to get the legal boys involved because many contracts are bound up in legal jargon but above everything, ensure you are comparing apples and apples.