11 June 1998: Last week at the UKCMG user conference in Torquay, IBM lifted the lid on some of the tough practices used by some software suppliers to squeeze more cash out of users. Karl Schneider reports.
Roy Hunt of IBM's software business listed 10 examples of real situations faced recently by UK firms. Most are examples of what is known as 'stiffing'. This is when a software supplier waits for a customer to do something that it can argue takes it outside the licence terms: for example upgrading the hardware restructuring the company or extending the software to new users. The supplier then demands a huge price for a new licence to cover the changed circumstances – or offers to drop the demand if the user signs up to a long-term contract under worse terms and conditions.
• You license six products from a supplier one of which you have stopped using. Your three-year contract which is coming to an end does not list prices for each product just a single price for all six. How much of a reduction will you get for a licence that covers only five products? None – in fact there will be a 25% increase because says the salesman the product you no longer want was thrown in for free and now that you are using fewer products you qualify for a smaller discount.
• Your licence which has two years to run limits you to a ceiling of 140 millions of instructions per second (mips). You want to upgrade from a 75 mips processor to a 120 mips machine – still within the licence. But you need to run the two processors in parallel for a few days' testing before switching over production to the new processor. For that short period you are running a total of 195 mips. The contract simply refers to the total number of mips installed whether or not the product is running on all processors. Your annual licence fee is £90 000 but for running over your mips ceiling for those few days the supplier asks for an extra £320 000. Of course there is an alternative: sign up for a new five-year licence at a higher mips ceiling and with worse terms and conditions.
• The planning people say you will need more mips in about six months. You start talking to hardware suppliers in good time and finally decide on the best upgrade option. Unfortunately some of your software suppliers shrug and say that route incurs the biggest increase in your licence fees. By now it is too late to change the strategy so you have to pay up.
• You've implemented IBM's parallel sysplex sharing resources across two or more processors. Soon afterward the software salesman contacts you to say that while you are still within your mips limit you are not licensed to run his software on a parallel sysplex and must pay a higher licence fee to reflect the extra benefit you are enjoying. The cost? A cool 400% increase.
• You decide to integrate your stand-alone development machine into the existing parallel sysplex running production work to take advantage of IBM's parallel sysplex pricing. You explain this to the third-party software salesman pointing out his products will be used in exactly the same way as before and will not run on other processors in the sysplex. But the salesman insists you must license all products on the development machine to run on the entire sysplex. The extra cost runs into seven figures.
• You have finally moved to a CMos processor cutting your hardware and software costs. Within weeks the software salesman is in touch to say your licence does not cover CMos (in fact it doesn't mention processor technology at all). As you are now deriving more benefit from the products running on a CMos machine you must pay more – double in fact.
• The company is restructured to run as two firms. And you are still running the same software on the same processors as before. But as soon as the change is announced your software salesman calls to say that neither of the two 'new' firms are licensed to run his software. It may be possible to transfer the old licences to one of the new firms at a price but you will need new licences for the second firm – under new terms and conditions.
• Your company sells off one of its divisions to a German firm. The deal is announced but the salesman doesn't call until contracts have been completed. He asks if you plan to transfer data from your computers to the German firm. When you say the IT functions will be transferred over a three-month period he says you are breaching the terms of your licence by using the software to do work for another company. He gives you a choice: pay a seven-figure sum to cover the new licences for 12 months; or stop using all his company's products by Friday. Of course you cannot unplug the software at such short notice – you have been stiffed.
• On outsourcing your tele-sales operation to an outside firm you employ contract staff to handle the increase in workload in your finance department. Within weeks your system software supplier is in touch to say that both the outside firm and the contractors are separate companies which are benefiting from its products and therefore need new licences.
• You buy a new advanced software product from company A but to get the most out of it you need to integrate it with a product from company B. It is only about a week's work so you ask company B for access to source code and names of firms that could do the work. But company B has its own rival to A's product and wants you to buy that. You decline. Company B then says only one firm is licensed to integrate the new product into its software – the fee is a non-negotiable £250 000.