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Assess risk, forecast for IBM software licensing agreement success

When it's license renewal time, ClearEdge Partners recommends taking stock of the licenses you already have and determining how to allocate spending across your IBM ELA.

Entering negotiations to renew your IBM software licensing agreement can be anxiety-inducing, to say the least. On top of that, the process can be muddled by the many acronyms swimming throughout Big Blue's enterprise license agreements -- and IBM's preference for proprietary metrics doesn't help.

According to analyst Eugene Cho of consultancy ClearEdge Partners, based in Needham, Mass., preparing for the renewal process early can give you a leg up. In addition, it helps to have a good understanding of IBM's motivations as a company and the approaches used by its sales team. You will also want to know exactly what your options are before facing Big Blue at the negotiation table.

To get a better handle on your options for IBM software licensing agreement renewals, Cho said you will need to perform a risk assessment and inspection of your contract, and then forecast and model your current and future requirements. After all, you don't want to continue to pay for software you no longer need. Nor do you want to blow your future IT budget by laying out cash for something you need in the short term but not in a year or two down the line.

Cho, who heads up ClearEdge's Transactional Software and IBM Practice, explained this in the webinar "Managing Leverage in an IBM Deal." In his presentation, he tailored ClearEdge's "leverage management maturity model" to assist clients with enterprise license agreement (ELA) negotiations to IBM-specific software licensing deals.

It is the risk assessment and forecasting and modeling steps of the methodology, Cho said, that clients often get bogged down in. He added that these steps are probably the area where he and his colleagues are asked for the most help by organizations that hire ClearEdge to help with their ELAs.

ClearEdge management maturity model for IBM renewal negotiations
Risk assessment and inspection is all about knowing what licenses you have and how much you want to pay to renew them, while forecasting and modeling focuses on determining how you can allocate spending across your ELA deal. They go hand in hand.

Contract risk assessment and inspection

Risk assessment and inspection is all about knowing what licenses you have and what you want to pay for your licenses going forward. It is also, Cho said, about identifying the contractual levers when removing or adding products. It is, therefore, enormously important to know your deal inside and out when entering IBM ELA negotiations.

This is what IBM likes to do. They like to 'Trojan Horse' clauses in [to contracts] that they know they can leverage at the renewal table if they are not getting the deal they want.
Eugene ChoHead Transactional Software and IBM Practice, ClearEdge Partners

That's not an easy task. IBM contracts are chock-full of acronyms, and they often include a multitude of amendments, special terms addendums, cloud services agreements, IBM Passport Advantage programs, zIPLA (Systems International Program License Agreement) documents and so on, he noted.

"The most common thing we hear from clients is, 'I don't know what is being paid for what. I also don't know what any of these acronyms mean. I have no understanding of what an ACP is. I don't know what a CVA is. I don't know what an STR is, or an STA is, or an ESSO or an SSSO is,'" Cho said. "Peeling back the layers of complexity that IBM adds on purpose is a big deal."

Note: For clarification purposes, these acronyms, in order, refer to Accelerated Computing Platform, Cognitive Value Assessment, Synchronous Transmit-Receive, Static Timing Analysis, Enterprise Single Sign-on and Services Special Option.

Bottom-line deals that intentionally obscure component pricing are especially frustrating, he added. They tend to make it difficult to know how to allocate the software and services the client has paid for -- something accounting rules are often pretty strict about, Cho explained.

Furthermore, IBM loves proprietary metrics. Cho cited the example of how a lot of mainframe software vendors peg licenses to million instructions per second (MIPs) while IBM uses millions of service units (MSUs) and Value Unit Editions (VUEs), "which are, A, incomprehensible acronyms that are not accessible and, B, proprietary and deviate from MIPs, which is the standard mainframe metric."

Eugene ChoEugene Cho

Another thing, according to Cho, is his clients often don't realize they have committed to fairly strict and time sensitive software asset management exercises. This causes them to not have certain reports required by an audit, for example, or perhaps forget to install a piece of software or institute a required protocol -- putting them out of compliance.

"This is what IBM likes to do," Cho said. "They like to 'Trojan Horse' clauses in [to contracts] that they know they can leverage at the renewal table if they are not getting the deal they want."

Risk assessment and inspection help you understand what you have already committed to -- and gotten out of -- your current IBM software licensing agreement. Next, you need to determine what you want to commit to for the future at your pending IBM ELA renewal negotiations.

Forecasting and modeling requirements

Here is where you should ask yourself how you can allocate spending across your IBM ELA deal, and how you intend to come out of the negotiation should its scope change. IBM makes this part of the deal-making process complicated, Cho said.

"We have a colloquialism we use here," he said. "It's called the water mattress game. The idea is as soon as you remove a part, much like a water mattress does when you step on it, all the other areas of your deal, start inflating in terms of price."

Forecasting key to developing your negotiation timeline

Break software spending down into the following buckets when you start developing the timeline for IBM enterprise license agreement and software license renewal negotiations:

Annualized renewal demand forecasting. Know the titles you owned prior to negotiations that you are renewing again. This can be tricky, Cho said, "because clients will come and say my first year looks different from my third year and my confidence in predicting my demand is considerably lower for the third year than the first year." For example, the last thing you want to do is commit to spending money on software subscription and support for licenses for three years when it will be decommissioned in, say, the first six months.

Annualized growth demand forecasting. Understand your growth by determining the licenses you own today that you think will increase during the term of your renewal. For example, say you have an IBM SPSS Modeler tool, Cho said, "If you have 1,000 licenses today, do you expect it to stay flat at 1,000 or do you think it'll grow by 3%, 5% every year?"

Project-oriented net-new demand forecasting. Determine the tools that don't currently exist in your environment. Cho noted how the big boom a few years ago was in IBM security tools, such as Guardiam for database security and QRadar, a security information and event management product.

"A lot of clients were investing in both the security software licenses as well as the security appliances," Cho said. "The reason this is important is a lot of the revenue from IBM can be broken into strategic revenue areas and [that] guidance has changed every year. And if you have an organic need for some of the key revenue areas, you can really get your sales rep on your team because they will realize they will get a commission kicker for that fact."

Cho often hears from clients that they told IBM they wanted to completely decommission a system -- say, their Cognos Di environment -- because they thought it would lower costs. IBM's response was that their price would stay the same regardless of the decommission.

"The thing I think a lot of clients sometimes forget is you manage one IBM deal, [while the IBM] sales team likely manages dozens of deals, and that can work both ways," Cho said. "Sometimes, it means the vendor seems to have more information than you, and more pricing authority, but [it] also means they had their attention spread a lot more thin."

Keep this in mind when prepping for your IBM ELA negotiations. To do that, Cho recommended the following tactics:

Get to know the difference between what you have licenses for and what you are actually using, which may not be what you own in the future. "Having a year-by-year view is important because it helps you understand if you're about to commit to quite a bit of shelfware," he said.

Building your catalog is important. Build your catalog off of confirmed projects with funding and deadlines included, not wish lists. Also, Cho recommended scoping a standard three-year contract for its initial 18 to 24 months.

Know your renewal rights. Ask: Will I pay the same amount whether I renew none or all of my licenses through not-to-exceed pricing? Or, by contrast, will I go with unit pricing per license for budget predictability past the agreement for each specific tool? Lastly, Cho said to be sure to determine which pricing scheme IBM is applying to various licenses.

"We hear this all the time," Cho noted. "Clients will tell us they have WebSphere licenses in their catalog versus WebSphere licenses through an unlimited deal versus WebSphere licenses through renewals from the previous deal. Just know that those three licenses likely have three different prices."

Come to the IBM software licensing agreement and ELA negotiation table with your forecasts and modeling as well as risk assessment and inspection components in hand. "You'll find that a lot of the negotiations go a little more your way than you're used to," Cho concluded.

Next, we discuss ways to help you control the narrative before, during and after your IBM ELA renewal negotiations. We will address three pieces/steps -- information control, executive engagement and messaging development -- of ClearEdge's "leverage management maturity model" that go into making this possible.

About ClearEdge Partners

Founded by senior sales executives from large IT suppliers and informed by current market analytics, ClearEdge enables CIOs and their teams to make more competitive IT investments. By combining rigorous inspection and IT financial expertise, they identify risk and opportunity, align internal teams and maintain leverage throughout the lifecycle of supplier relationships. As a result, their clients maximize the value of their investments by unlocking millions of dollars from legacy spending and redirecting funds toward IT modernization, digital and cloud transformation with confidence and speed.

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