Updated: Feb 22
Season’s greetings, dear clients!
As the calendar year comes to an end, each of us turns to our own way of celebrating the holidays and taking stock of the past twelve months. We at ClearEdge have an annual tradition of “playing Santa” and we create a Naughty Vendor List, composed of IT suppliers that have behaved badly towards customers and, we feel, deserve to be called out for it. Considering the annus horribilus known as 2020, we found such naked avarice particularly disgraceful, but thought it all the more important to poke fun at the offenders. To wit, the 2020 list:
1) ServiceNow has established itself as the poster child of the Naughty Vendor List for (1) being impervious to clients who need relief due to COVID-19 related budget cuts, and (2) constantly changing their product and licensing environment. Unlike some other SaaS vendors, ServiceNow makes very difficult for customers to lower run rates unless they are reducing a substantial amount of licensing volume. For those customers that had the audacity to ask for financial relief due to the pandemic, ServiceNow issued a letter that denied help because it would present “unacceptable legal and accounting risks for ServiceNow”! Clients without renewal pricing protections continue to face 10%+ renewal uplifts from ServiceNow, far from competitive when compared against ServiceNow competitors. One of the most glaring examples of ServiceNow’s nettlesome approach to product and license designations is the recent license changes for clients with IT Operations Management in their environment:
The managed IT Resource Types changed from physical and virtual servers (nodes) to subscription units, and results in ServiceNow suggesting a higher usage of the product.
Clients are being forced to True-Up mid-contract if they migrate to a new release family -- even if they are still on the old product SKU.
You’re a mean one, Mr. ServiceNow.
2) Adobe seems utterly immune to the financial stress the pandemic has caused customers and kept to its excessive renewal pricing. With a monopoly in the creative application space and a lack of protections in its agreements, Adobe forces renewal increases north of 30%, even in situations where customers are experiencing growth. Most companies don’t budget for this level of increase for renewals, and proposals usually don’t come from Adobe with enough time to renegotiate. We urge clients to begin planning Adobe deals early, 8-12 months to prior to the renewal date, to allow for multiple rounds of negotiations and enough time to ensure internal alignment. Clients are advised to know their footprint and not let Adobe push unneeded licensing on them; prepare to go several rounds; push back if the vendor is cagey about sharing information; consider leveraging key dates; and negotiate renewal protections in future agreements.
3) Microsoft has been increasingly reluctant to honor precedent-level discounts on EA renewals --even if a client is purchasing new software -- and hiking prices on many of its products. We have observed clients that were used to 35% discounts now receive list pricing (no discount). Considering the average ClearEdge client deal size with Microsoft runs in the millions, this change in behavior results in substantial cost increases. Microsoft gets away with it because it enjoys a favorable incumbent position in most customer environments.
In addition, clients are being forced to buy Unified Support, an unlimited support program that replaced Microsoft’s Premier Support. Now, instead of paying for a bucket of needed support hours under the Premier Support model, they pay a fixed percentage of the EA bill for Unified Support, which typically results in massive increases due to the large size of many organizations’ EA agreements. In short, customers are paying lots more -- whether or not they need the “unlimited hours” of support offered in the new model.
4) Dell EMC is offering an ultimatum to customers who are due to renew storage maintenance deals: pay up to five times your current maintenance run rate or enter into a Transformational License Agreement (TLA). Since a 5x increase is not a very attractive choice, many customers opt for the TLAs, which are large multi-year software licensing agreements (mostly subscription-based, or what Dell EMC calls term-based). These agreements come with potentially even more financial risk because they lock customer into Dell EMC storage, severely limit a customer’s ability to use 3rd-party hardware support (which is way cheaper than Dell EMC’s), and limit the feasibility of making the switch to a competitive, alternative storage vendor. That is definitely not nice.
5) After SAP recently announced dismal Q3 earnings, its market value immediately plummeted by $41B. Not surprisingly, SAP sales reps are now being extremely aggressive, and not in a “discount-y” good way. The vendor is on the prowl for easy revenue opportunities and compliance issues. SAP is questioning many of our clients about usage and indirect access, with hopes of finding slip ups that would justify an audit. In addition, SAP is capitalizing on the lack of protection in some older customer agreements, and in one case, we saw SAP hike prices by a staggering 1000% in a deal they claimed initially contained “special pricing”. Special pricing, indeed.
6) This year, IBM increased standard renewal uplifts from 5% to 10%, and eliminated Relationship Suggested Volume Pricing (RSVP) on most of its SKUs, resulting in price increases up to 20%. The move is meant to force customers over to SaaS/Cloud SKUs, which prove to be more risky and costly over time. Also, customers are no longer allowed to convert monthly license charges (MLC) to one-time charge perpetual licenses (OTC/VUE). MLCs are not price-protected at renewal, and IBM is trying to eliminate any discounts at renewal time, which helps move customers into more costly IBM ESSO agreements (IBM’s ELA equivalent).
Furthermore, the vendor is heavily promoting the IBM Authorized SAM Provider (IASP) program, which offers customers a real mixed bag of “audit protection”. IBM claims the program makes the customer exempt from traditional audits, eliminates audit fees, and reduces the need for IBM SAM tools, but in essence, it allows IBM’s authorized audit partners to come in and review usage (a.k.a. to audit you) every single year! In other words, instead of grabbing millions of dollars from you for noncompliance issues and upgrades every two, three or four years, they can do it annually. We suspect that whoever invented the IASP is HoHoHo-ing all the way to the bank.
7) Alert: Workday recently “updated” the renewal language in its agreements to include a year-over-year increase based on the Consumer Price Index (CPI) plus 5%. Previously, the vendor would impose increases of CPI + 2-3% at renewal time, and if you had a multi-year term this would only occur at the end of the agreement period. Now, customers can expect annual increases of 7%+ when accounting for CPI (usually around 2-3%), regardless if they have a long-term deal (3-5 years) or not. This means that if you have a 3-year Workday deal, you could experience compounding annual price increases each year, totaling 20% or more by the end of the term.
8) Broadcom likes to acquire software providers and quickly gauge as much money from the new customers as possible. After Symantec was acquired, its customers were made unhappy with Broadcom, as it immediately hiked prices by 10%, failed to focus on email security, and announced plans to cut more than $1B across Symantec’s enterprise security unit. Customers say Broadcom is not helpful with support issues, even though the vendor claims to offer “seamless transitions that require zero customer action”. In addition, Broadcom is forcing these customers to sign subscription-based deals and will no longer offer perpetual licenses. As a result, many clients have moved away from Broadcom in favor of other security vendors like Proofpoint and CrowdStrike. Proofpoint has recently migrated about 3 million mailboxes from Symantec email security.
The vendor behaved in a similar fashion when it bought CA, whose customers were used to 10% increases at renewal, but in 2020 were hit with increases ranging from 100% to 450%, got no flexibility on maintenance and support, and no ability to sign one-year deals. Not nice at all.
9) Java continues to vex Oracle customers, as many still struggle to understand how to license it correctly and achieve compliance. Clients report that it’s very difficult to “untangle” one’s Java environment and figure out how Java is used exactly; to assess an environment and clean it up takes more than a year; and there’s an aversion to spend a lot of money on something that used to be free and its value proposition is obscure. Meanwhile, the vendor is pushing customers to the negotiating table to buy more Java licenses, and senior sales executives are applying pressure on customers to share technical specifics and fill out questionnaires about their environments where Java is running. Spoiler alert: These tactics are a ploy to gather information they can use against you in an audit or scare you into buying an overinflated a Java ULA.
We recommend that clients exercise extreme caution about revealing information to Oracle and align internally on the go-forward strategy and messaging before entering any discussion about Java. You would be wise to focus on understanding your Java environment, explore alternative options (Azul Zulu), and if you decide to buy the Java subscription, peg it to a conservative product demand in which you have high confidence. After you execute a Java deal, you are safe regarding compliance, and you can take the time needed to clean up your environment.
10) Since being acquired by Salesforce, Tableau has been shifting to a subscription-only shop. The company has consistently offered list pricing on perpetual license renewals to move customers to their subscription offerings. Tableau announced they will cease to offer new perpetual licenses in May 2021, though customers can stay on their existing perpetual licenses for the time being. We recommend that our clients with an expanding perpetual Tableau environment seriously consider a subscription conversion to achieve competitive precedent pricing before they are forced to make the switch and may not have as much leverage to maintain competitive pricing or terms. For more information about the details of Tableau's recent shift off perpetual licensing, read our recent blog on the topic here.
Attention, Cisco shoppers! Do not make the mistake of assuming that the discounts achieved on an initial Cisco purchase will remain intact at renewal. Cisco commonly takes their Digital Network Architecture (DNA) subscription products and lumps them under your support agreement (SmartNet) at renewal, which is typically discounted at a far lower rate. This usually results in a price hike since most Cisco customers are above the Smartnet discount baseline on their initial DNA subscription purchase.
Citrix has cooked up a trifecta of trouble for customers by eliminating perpetual licenses, forcing them to the cloud, and selling them expensive support. The vendor historically guaranteed customers price protections – for example, a customer could lock in a 45% discount on all applicable items purchased for the ensuing 3-5 years. Now, Citrix is eliminating the 45% discount/price holds, which has resulted in prices increases of roughly 35%. In some cases, customers’ run rates are increasing upwards of 50%. Once the customer moves to the cloud, Citrix jacks up prices again at renewals, and claims the initial purchase price was a “one-time incentive”. Plenty of financial risk here.
Palo Alto Networks (PAN) has historically offered 20% discounts on units of it next-generation firewall’s 3- and 5-year security subscriptions. However, PAN announced they are removing the 20% incentive for multiyear terms, so annual list prices will be the same regardless of term length. Effects have yet to be felt, but customers should prepare for net new purchases to be higher than experienced in the past and get ready for potentially big increases with renewals. The vendor also announced plans to raise the annual (1-year) subscription by 5%. These price changes come on the heels of 2019 list price increases of 5% on hardware due to tariffs, and ~20% to Premium Support on next-generation firewalls, which is the most popular support level.
We wish you all a safe and joyful holiday season and a healthy, prosperous New Year! This blog was accompanied by a webinar that dove into more details on each of these suppliers. To view the recording, click here.
If you've experienced any of the "naughty" behavior outlined in this blog or want to inquire about how you can mitigate future supplier-related risk, contact us today using the form below.
- From your friends at ClearEdge