Over the last few weeks, several Forrester IT sourcing clients have asked us to review and comment on special proposals from SAP that offer an attractive discount and contractual flexibility in return for a large, irrevocable, multi-year commitment. It appears that several SAP sales teams are trying to achieve their annual targets by enticing customers to place firm purchase orders (PO's) now for products and users that they won't need until 2011 or later. This could be a great opportunity for buyers to take advantage of SAP's tough year and get an exceptional deal on software they were going to buy anyway. However, there are risks from over-committing ahead of your roll-out plans, as I explained a couple of years ago in my report, Avoid The Hidden Costs Of Shelfware, which is still as valid today as it was when I wrote it.
The most obvious risk is that delays in the implementation process will mean the licenses you're forced to buy in years 2 and 3 will sit on the shelf for a while until you are ready to deploy them. Worse, you'll be paying maintenance on that shelfware, which could soon cost you more than the extra discount you got on the initial deal.
Less apparent to buyers is the downside of undermining the normal business relationship with your account manager, by giving all the available commission to his predecessor. What happens is Sales Rep A gets paid out on the current PO and then moves on to a new hunting ground. You're given a new 'account manager' – Sales Rep B, say – but to him, you're a dead account. B has no legitimate way to earn commission from you because you have nothing left to buy. Either B ignores you completely, or he looks for other ways to get money from you such as relicensing fees or compliance disputes. I've seen many clients have customer service problems with large software vendors, caused primarily by this dead-account syndrome.
Software companies shouldn't incentivize sales reps to force a customer to place irrevocable PO’s now for license needs whose timing and scope are uncertain – that benefits the current sales rep but may not be so great for the software company or its customer. And buyers shouldn't give in to that pressure, merely so the rep can get a large commission check in January. The vendor can reward its customers for making strategic commitments to it, yet let subsequent purchases match deployment.
Revisit my report, to find out more about this issue. And please let me know if you have one of these multi-year deals on your desk at the moment.