This post was updated on February 24th, 2020 to include new information.
Everyone is talking about the move to digital to create a compelling user experience as today’s customer is demanding a new level of interaction and engagement with whom they do business. Most of this narrative is being driven by software vendors, touting how their products’ capabilities will enhance and enable a new user experience level that will maintain and grow their customer base.
To give an example, Oracle’s Head of CX Evangelism, Des Cahill, recently stated “We did some research…and found that one-third of consumers are willing to leave a vendor after one bad experience. But the flipside of that is up to 40 percent of consumers are willing to pay 20 percent more for a better experience.” He went on to say “customer experience is not just an investment, it’s something you have to do. It is a competitive strategy.”
The irony in all of this is that software vendors have not changed the user experience they provide to their own customers. Vendors like Oracle, SAP, Microsoft, Salesforce, and Workday for example, still deploy the same sales tactics and old licensing model rules when selling to their customers, even when it comes to cloud.
While there are many organizations that have benefited greatly over the years by using these software solutions, the one consistent negative we always hear is around the difficult sales cycle and inflexible licensing rules that do not reflect the value received. This does not make for a very compelling user experience for customers interacting with software vendors. Let’s take a look at a couple of areas.
Ease of Doing Business
I am sure that any of you reading this who have negotiated deals with software vendors are laughing right now. The entire process of having a sales team descend upon your organization, trying to establish multiple footholds with various business stakeholders to obtain information and create an expansive bill of materials, can be absolutely daunting at times.
Even when clear instructions regarding the procurement process are laid out, the software vendors are constantly circumventing it to learn who the key decision makers are, what is the decision-making process, and how they can influence it to their advantage. The vendors probe your organization gathering whatever data they can get from whomever will speak with them, and of course, the information gleaned is used against you during negotiations.
The bill of materials keeps expanding based on any hint of a potential requirement or future desire by any of the stakeholders, and if you do not immediately object to the overly expansive bill of materials, then the vendor deems it confirmed and it becomes very difficult to reduce it without a significant negative impact to the discounting and commercial terms being offered.
Further, once the vendor has a hint that a selection has been made or if there is a known or perceived deadline for starting the project, the vendor rejects any further negotiation requests and delays providing responses as a means of running out the clock, knowing full well you will have to sign the deal in front of you when the deadline arrives.
Lastly, the contracting phase becomes all about the vendor’s needs. If you are unable to sign by a certain date, usually end of the quarter, then the deal will be off the table. So now you have to review all of the contractual documents in an expedited fashion, often turning your organization upside down to do so, as well as get legal approval, and funding approval from finance. The vendors send you a host of contractual documents at 9:55 am to review with you on a 10 am call, and then proceed to walk you through the key terms. While your head is spinning and trying to get a grasp of the contractual documents, the vendor assumes that your silence is acceptance of their terms; and if you do muster an objection, then they tell you how difficult it will be to get any exceptions approved by their executives and how the process may take too long and extend beyond the deadline, thereby invalidating the offer. And don’t forget, the vendor will hold you accountable to strict compliance to the terms of the agreement, whether or not you have had the time to read and fully understand them. This means that if a dispute or problem arises later, you and your negotiation team will take all of the blame.
Does this sound like an enjoyable and compelling user experience? And I did not even mention that the vendors require all of their deals to be held in confidence, so you have a very limited ability to know what deals the vendor may have offered to others, nor what a competitive deal even looks like. At least when you shop for a home you can research comps and get a general idea of the market. But the software vendors keep all of this information close to the vest for their advantage. Who wants to sign up for this user experience?
Inflexible Licensing Rules
The only constant in life is change. The whole reason you are even speaking with software vendors is because your business, industry, customers, market, etc., is changing. This makes life uncertain, as businesses go through revenue peaks and valleys throughout their lifetimes in accordance with their ability to navigate this ever-changing environment. But this is not so for the software vendors.
Software vendors have contractual provisions that ensure commitment to the full license fees, whether or not you use the products. They also tie-in support fees by not allowing you to terminate licenses and their support fees on a line-item basis – it is strictly all or nothing when it comes to support fees. The vendors insulate themselves from changes in the market. Even if you are experiencing a business downturn and need to cut back on expenses, lay off employees, or close some locations, you can’t reduce the fees to the software vendors without completely terminating all support fees and thereby putting your continuing business operations at risk.
With respect to cloud, the same holds true but in a slightly different manner. The vendors will tell you that once the term of the cloud deal is up, typically in 3 to 5 years, that there is no guarantee you will renew your subscription and they may lose that revenue stream. But the reality is that switching cloud vendors is very costly and time-consuming, posing many risks to your organization, and the vendors know this. Legally speaking, you have the right not to renew, but your other options are not typically very viable. So, the vendors rest assured that not only will you renew your cloud deal upon expiration, but that they can also raise your pricing and perhaps even get you to add more cloud services to address other requirements.
Also worth mentioning is that even if renewal-term price protections are negotiated in your deal, they are typically contingent upon renewing all expiring cloud services for the same solutions and quantities, and any reduction will require new pricing based on the vendor’s then-current terms. Are we enjoying this user experience yet?
So, for all the talk about enhancing the user experience, it would be refreshing for the software vendors to start by looking in the mirror, putting their customers needs ahead of, or at least equal to, their own, and then using this perspective to modify the user experiences they provide to their customers accordingly.