Updated: Mar 25, 2020
The novel Coronavirus has created global uncertainty for B2B technology vendors. In light of the outbreak, we are beginning to observe a shift in deal behavior from both buyers and sellers in efforts to mitigate future risk.
Compiled below is a list of changes in deal activity directly related to the COVID-19 global outbreak. This information was aggregated by our analysts and account teams based on real-time case observations:
1. Termination Rights:
Companies are evaluating the execution of Termination for Convenience clauses or renegotiating their outsourcing contracts to cover them through the next 3 months. However, we do not expect Force Majeure clauses to be triggered by the pandemic unless courts liberalize the interpretation for market realities if the performance is truly impossible under the contract. We see this issue being most prevalent in services contracts in the near term and not in Cloud-based service contracts (ie. Public Cloud, SaaS, etc.).
2. Deal Acceleration:
Suppliers will use the uncertainty about effects to the supply chain to try to pull deals in earlier. We have seen hardware sales reps provide short windows on the validity of discounts citing a fluid supply situation, and the need to sign immediately in order to guarantee delivery. We should be mindful that this is more likely a sales tactic than a true representation of the supply chain, and that this scenario has been playing out in China since late last year. Cisco, for example has recently announced that they are starting manufacturing again in China. Our case volume across hardware-related practices (Storage, Server, PC, Network) has increased year-over-year, with little concern or mention from sales reps until very recently. However, since supply chain challenges such as transportation, assembly, customer service and logistics may now extend to the U.S. we are continuing to monitor the situation closely.
3. Failed Financial Expectations
Many IT suppliers will not make their numbers for the next two quarters at a minimum. This will create opportunities for clients who are purchasing new products or expanding their contracts. In particular, we have seen Salesforce again aggressively try to close business this quarter. We know they were behind their number at the end of their fiscal year and they have demonstrated recent behavior that they are trying to close as much business as they can in Q1, which ends in April.
4. Aggressive Renewal Increases
On the flip side, we expect IT suppliers to take advantage of their favorable renewal terms if clients don’t have any leverage as suppliers know that customers will be just as challenged to make changes during the crisis. Many sales reps, unsure of how to navigate this climate, will stick to the playbook and burn the clock where they don’t see any opportunity against their quota.
5. Free Trials of Product
Many suppliers have begun to offer extended free trials for some for some of their products. There may be instances where leveraging some of this technology can help in crisis situations, but barring this scenario, we suggest proceeding with caution. All leverage is lost if the software becomes integrated into employees daily workflow, with no contract or pricing protection in place.
6. Supplier Layoffs
IT suppliers will not be hiring for the rest of the year and in many cases there will be layoffs. In particular, the IT Services business, which often depends on physical interaction with clients, will struggle to keep employees productive and billing. This will lead to more resources and competition being available for work that can be done remotely that clients should prepare to leverage.
For more information on how your supplier relationship may change as a result of Coronavirus, please contact your ClearEdge representative.