BusinessWeek had two recent stories – one was how quickly the bubble around rare earths has burst. Molycorp has filed for bankruptcy just a short couple of years after the world was fretting that China had a stranglehold on that supply critical for many technology markets.
The other was around how software selling is rapidly changing – nicely phrased as no more “liquid lunches in the cloud”.
I am a bit more cynical of the latter. In two decades of technology negotiations for clients I have definitely seen selling of software and related outsourcing evolve, but it always seems like “two steps forward, one step backward”
In my research for my books around SAP over the last year I have heard from several customers the same old tricks from ages ago with a new wrinkle: Gun to the head – unless you sign up for cloud subscriptions. Business Insider speculates Oracle is doing the same with threats of audits to help push cloud revenue. The irony is customers would have gladly bought cloud solutions from them years ago, but are now hesitant in the face of more available market options.
You hear a different story about negotiations around their on-premise versions (and those from IBM and other software vendors) – where they pretend there is no cloud competition and customers do not know how to normalize TCO. In a recent deal, the five year software on-premise cost was three times as much as the winning competitor cloud bid. The on-premise annual maintenance cost by itself exceeded the subscription cost of the competition — which also included hosting, apps management and upgrades in its price.
Outsourcing partners of software vendors are still mostly stuck in headcount/FTE based business models, even as they market “as-a-service” pricing and they see customers adopt crowdsourcing and machine alternatives in labor intensive processes. Worse, it is surprising how siloed outsourcers can be, and just under the covers, how much partnering and sub-contracting they practice. Nothing wrong with that if it is appropriately disclosed, and if the several parts have worked as a whole a few times before.
Cloud salesmen come with their own wrinkles – tricky new fees, long term commitments, and games to avoid demoing functionality (especially industry specific) they know their on-premise competitors can better deliver.
In fairness, many customer procurement groups are also stuck in the past. Too many detailed RFPs go out when scripted scenarios, due diligence site visits and other techniques deliver far better value. Too many vestiges from on-premise world like escrow clauses raise their heads in cloud negotiations.
Many cloud salespeople were raised at the on-premise vendors and many buyers were raised in (and have scars from) the on-premise world. The enterprise hype cycles last way much longer than those around rare earths.So, it will take a generational change for what BusinessWeek describes to become mainstream.
However, change is definitely coming. Enterprises now have many more technology buckets to worry about these days. Those include making their products smarter (with software, satellites and sensors) and making their customer/channel facing operations more digital.
Those new focus areas are leading to smaller budgets and mindshare for traditional IT contracts. So, guess where the liquid lunches are headed? 🙂
(Cross-posted @ Deal Architect)