About 17 months ago, COVID-19 upended our world, and forced organizations to quickly pivot and accommodate an all-remote workforce almost overnight. A recent ClearEdge client survey indicates that the top areas of technology acceleration were the adoption of video collaboration software and productivity tools, and spending on personal computer devices, virtual private networks, and security solutions to maintain employee accessibility, performance, and data privacy. Now that workers are returning to the office, IT leaders are being confronted with many new and urgent questions, such as:
1. Do we still need all the added functionality and solutions we bought? Did we rush these purchases, resulting in over-paying and/or over-purchasing?
During Q2 of 2020, ClearEdge observed that 79.5% of deal transactions reviewed had timing that did not favor the buyer, meaning that the deal was either rushed or lacked enough time to complete the necessary negotiation to drive a successful outcome. When organizations chose speed over all else, it is common for vendors to offer standard contract language and subpar pricing compared to deals that were strategically planned and negotiated. IT leaders should inspect and validate whether their purchases have competitive terms, conditions and pricing, so they are not surprised by and exposed to future financial risk, and can plan their renewals accordingly.
Also in this time period, ClearEdge analysts experienced a surge in case load: the number of software deals increased by 30% year over year, security deals increased by 33%, and public cloud deals skyrocketed by 81% as a result of staffs being forced to work remotely. Now that people are returning to the office, IT leaders must ask themselves if they really need all of the additional licensing that they rushed to procure when employees were remote.
Spending on personal computing devices by ClearEdge clients jumped 65% in 2020. Call centers and other businesses that previously used one device for many workers were forced to double or triple their equipment levels to provision their remote workers. Demand for PC and laptops expanded to levels not seen in over a decade, depleting supplies, and exhausting semiconductor inventory around the world.
We believe that the vast majority of these new devices will continue to be used, and going forward, we will see organizations move away from desktop purchases in favor of laptops and monitors (a cheaper and more portable solution).
Another segment where we expect to see a downturn is in the collaboration solutions space: now that people can meet face to face, how many will use their collaboration / meeting tools? IT leaders are advised to inspect utilization based on the first 60-90 days back in the office to determine how many user accounts are no longer needed. These contracts likely commit the company to a certain number of licenses until renewal time, at which point customers can reduce their count.
2. Can we swap products, re-assign licensing, or downturn some of these quantities?
Regarding downturns, swaps or reassigning the added licensing purchased, SaaS providers are strict about a customer’s ability to perform any of these actions. Only when there is specific contractual language in place can a customer exercise these options.
SaaS vendors will not let organizations downturn licensing mid-term of an agreement due to revenue recognition principles derivative of the Generally Accepted Accounting Principles (GAAP) that public organizations need to abide by: any revenue that is billed as a “subscription service” can only be recognized when the service actually occurs. Any other expected revenue from a deal commitment will be accounted for as “deferred revenue” to give the market an indication of the amount of sales that are planned to convert over the deal term. As a result, the vendor will not allow you to downturn licensing mid-term of your multi-year agreement or else it would affect what has already been promised as “deferred revenue” to their investors and Wall Street.
Though decommissioning during the term may not be possible, organizations do have the ability to downturn at the renewal year. However, many suppliers insert specific renewal language that stipulates that if “a customer does not renew 100% of the previously entitled volumes” then they will lose the right to have renewal price increase caps in their contract. This language enables the vendor to hike rates of the remaining licensing after the decommission by any value they choose. Many suppliers increase price proportionally to the amount of licensing downturned, so that annual spend stays relatively flat even though the customer is renewing less licensing.
To protect against this and retain the ability to downturn licensing in the future, organizations should remove any language that limits the ability to downturn licensing. It is rare for customers to completely remove renewal volume commitments, but ClearEdge has seen suppliers be flexible on the requirement to renew 100% of volumes. Obtaining an 80-85% renewal volume commit allows for some decommission ability while still retaining the rights to your achieved renewal cap language.
Aside from these recommendations, a customer can achieve flexibility by using swap or transfer rights, if they are included in the contract. These rights let you swap out unused licenses for different ones that may be needed, or re-allocate them to those who require more functionality.
3. Now that we have largely stopped relying on our printers, can we ditch these perennial cost centers?
One segment that suffered mightily as a result of the shift to the virtual workspace was the Managed Print Services technology sector. Working from home got many of the people still hanging onto paper documents to fully let go and embrace virtual presentations and reports for conducting business. Managed Print suppliers saw revenues plummet, as customers slashed spending in this category.
Managed Print Services contracts are typically priced on a “Cost Per Page” basis, where every print executed charges a variable cost to the customer. However, many contracts require a minimum commitment to certain spend levels. These baselines are continually accruing costs, even though organizations are not necessarily printing anything in their offices.
Organizations must consider long-term plans regarding managed print and map them to business initiatives (on-premise workforce, hybrid, or completely remote workforce). A final word of caution: do not assume you can exit any managed print deals seamlessly. Most companies have long-term, large contracts in place, and may currently be contractually stuck with cost commitments for the foreseeable future. Clients are advised to check contract language for rights regarding the ability to decommission or change contract with MACR/D rights and also, consider accelerating a contract renewal with a refresh to address the enterprise’s current plans and needs.
4. What about all the team members who relocated during the pandemic – did we violate any software compliance rules that stipulate usage in specific geographic locations?
Most software suppliers stipulate where their products can and cannot be used. Considering how many workers relocated due to the pandemic, this is particularly vexing issue for compliance officers. For example, customers of Micro Focus are urged to consider the compliance challenges associated with the HPE products they acquired including LoadRunner, and their geographic restrictions. Customers must inspect the contract language about where you deploy these products because you cannot legally use some outside of country or outside of state, or outside of your headquarters’ address, or another location like a campus, department or even a specific room number in a building. If your workers have moved to a different address with your site license, you are obliged to pay a geographic reload relocation fee and you will be penalized for this in an audit.
The majority of software customers never examine this language or forget that they have moved locations with the product, which is in breach of the contract. When audited, these customers get slapped with fees and penalties for this very common finding. We urge clients to immediately inspect their contracts for these clauses to mitigate risk.
5. Do we have Desk Reservation Software or a Facility Management solution that will help us manage the process of bringing employees back to the office?
ClearEdge has subsequently experienced a recent surge in requests for information about Desk/Office Reservation software and pricing. These offerings are also known as “Hoteling” products and can fall under the broader category of Workplace/Facilities Management Software.
For those looking to invest in one of these solutions, we recommend securing proposals from multiple vendors to compare costs and increase negotiation leverage. There are a lot of vendors, pricing options, and licensing models to choose from, and competition among them is red hot. In fact, we have seen instances of vendors providing a price-matching guarantee when the services provided are similar.
Now is the time to inspect contracts and utilization in order to right-size your next spend and optimize your licensing. Depending upon your portfolio, there may be opportunities in the coming months to re-visit and refresh IT purchases that were made in response to COVID-19.
To find out if you are properly prepared for an upcoming renewal or new purchase, take our Deal Strategy Assessment and our analysts will grade your game plan against other like deals and see where there may be room for improvement. For more assistance, check out our tools for early deal preparation and demand forecasting on our Client Portal, or contact your ClearEdge representative.
Members of the ClearEdge Analytics team and Compliance Practice contributed to this article.