Software Licensing & Master Service Agreements : Chicago Software Licensing Lawyer & Attorney : Sam Conforti Law Firm : Master Service Agreements, Negotiations, Outsourcing : Cook County, Illinois

EU Competition Commissioner Neelie Kroes remarked, “Talk is cheap. Flouting the rules is expensive”, after the EU announced the largest fine against a single company in EU history. This latest action brings the total fines levied against Microsoft in its lengthy antitrust dispute with the EU to $2.5 billion. The record breaking fine stems from Microsoft’s defiance of the 2004 sanctions placed upon it by the EU for charging “unreasonable prices” to software developers trying to develop compatible products for the Windows operating system.

The fine comes less than a week after Microsoft said it would share more information about its products and technology in an effort to make it work better with rivals’ software and meet the demands of antitrust regulators in Europe. See post in this Blog on February 21, 2008, Microsoft Opens Up its Operating System for Developers

The heart of the EU’s allegation is that Microsoft’s refusal to reveal crucial interoperability information for desktop PC software amounted to predatory pricing practices and was a scheme to force its way into a new market and damage rivals.

Read the complete MSNBC report EU fines Microsoft a record $1.3 billion - Regulators: Software giant has defied 2004 antitrust ruling for the details surrounding the history of the antitrust matter. Msnbc.com is a joint venture of Microsoft and NBC Universal.

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So you want to know the hot areas in ERP. If so I highly recommend to my readers Forrester Research’s R. “Ray” Wang’s Op-Ed piece 7 Trends in Enterprise Software Adoption for 2008. In it Wang discusses the latest survey that finds the trend for IT Decision Makers is for upgrades, collaboration, and knowledge management. Wang’s article is comprehensive and includes detailed bar graphs that enable the reader to clearly follow his text and assists in understanding the salient points.

I’ll list out these 7 trends with a brief explanation/summary, but check out his article for the full impact of the findings:

1.     Software spending budgets for 2008 nearly identical to 2007:  There actually is a slight up-tick of 9% planned for 2008. Although enterprises will be spending on licenses, operations, and development, there still is quite a lot to be spent on maintenance.

2.     There is a need for Long Term App Strategies: Companies are laboring under the disjointed approach of the past (i.e. a little upgrade here, a little BPO there, with a little project integration thrown in for good measure). As we move to a Service Oriented Architecture (“SOA”) enterprises will take advantage of this and begin to implement long term strategies. Integration of applications is the number one priority.

3.     A move toward packaged applications: Due to a possible economic slowdown, enterprises are focusing on operational efficiency and compliance as their main business drivers. Interest in BI is closely followed by CRM. There also will be major upgrades of ERP suites.

4.     Web 2.0’s time has come: Enterprises are slowly recognizing how these tools improve collaboration and productivity, but are still reticent about security.

5.     A majority adopt SOA: This supports the enterprise’s integration projects.

6.     SaaS adoption grows by 50% in 2008: Pricing, ease of deployment, and minimal IT involvement are the key drivers for adoption.

7.     Software investment in collaboration and content management: Enterprises allow access to new stakeholders such as suppliers, partners, and customers.

Wang concludes his article with a list of three recommendations and urges enterprises to develop a long term app strategy:

·         Don’t delay: No need to buy all the new technology today. Plan ahead with an eye on use of existing technology and investment in future apps.

·         Take an inventory of existing apps:Organize these apps by business process.

·         Ongoing review of your apps strategy: Gauge progress and adjust accordingly.

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I recently came across a very interesting article. The article begins by stating what most of us already know, (i.e. more than two-thirds of companies outsource their IT services and India gets a large chunk of that business). Be patient while reading this article and get through that first bit of rehashing the already known facts. The article sites some very interesting and reputable statistics which puts the current situation into a different perspective. It brings into question what I alluded to in the title of this post, when you come right down to it will the infrastructures of India keep pace with the massive rate of growth of the IT service providers or will such infrastructures collapse from India’s inability to repair and replace or build new infrastructures.

Let’s start off with some one of those facts from recent studies:

The number of developers in India who service primarily US markets is 250,000. In the United States there are about 500,000 developers, where roughly half are in product development. This makes the Indian programmer pool equal to the available domestic programming pool.

Indian software exports alone exceeded 17 billion last year, representing a four billion increase in one year (Gartner Group).

Bangalore has built a sort of Silicon Valley a few miles out of town. However experts are beginning to wonder if the Bangalore infrastructure can hold up under the intense pressures put upon it from the ever increasing expansion. Continuing on with some more of the facts:

Now Indian IT professionals, with their newly found wealth, have continually been buying motorcycles and cars adding 900 a day to the already overcrowded streets (The Bangalore Paradox).

Other problems include “a water shortage, inadequate sewers, and an erratic power supply” (The Bangalore Paradox).

As a user (or should I say hostage or victim) of the Chicago metropolitan highway system, the next fact I can particularly empathize with the IT professionals of Bangalore:

The poor road systems make a small 7 mile drive take roughly an hour to complete.

The Gartner Group reports further that:

A survey of 25 large organizations with a combined $50 billion in outsourcing contracts found that 70% have had negative experiences with outsourcing projects and are now taking a more cautious approach. One in four companies has brought outsourced functions back in-house and nearly half have failed to see the cost savings they anticipated as a result of outsourcing” (Gartner Group). Also, a reported 20% of outsourcing deals do not produce cost savings while 10% of those deals actually wind up increasing costs. In 2005 alone, 50% of all outsourcing projects will not deliver their expected value and will be labeled unsuccessful (Gartner Group).

Others see the outsourcing possibilities as endless. 

General Electric’s “70-70-70″ plan is an example of this. GE plans to outsource “70 percent of its head count, push 70 percent of that outsourcing offshore and locate 70 percent of its workers in India.” (Gartner Group).

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I recently had a fellow practitioner, Tim Nuckles, ask me to review an article he had written. As the title above suggests, his topic is very current and provides some very insightful suggestions. In keeping with my stated goal for this Blog, I highly recommend it to me readers. 

His premise begins by stating that the IT worker shortage, as most IT Directors and HR departments can attest, is real. Nuckles lists and analyzes some very real and helpful alternatives to help the “Tech Buyer” navigate through this present condition.

It follows that a tight IT worker market affects not only the organization seeking such workers, but also the outside vendors who employ these workers in great numbers and count on them for their “engagement capacity and growth opportunities”.

Nuckles suggests the following when deciding to use outside vendors for IT projects:

1.     RFI/RFP process:  Streamline the response time. Tailor your RFI to the specific requirements of the project. In order to obtain more responses in a faster time, layer your RFI’s by making them subject to amendment and supplement. Request only the most detailed information from the most qualified vendors. Put all standard procurement terms in an attachment or direct the vendor to a website.

2.     Pricing: Now may not be the time to squeeze a vendor on their rates. The alternative is to leverage the vendor’s refusal to discount to extract better fee holdbacks, software buyback options, creative testing and acceptance models, and penalties for milestone delays.

3.     Bundling: The prospect of future revenue for future products and/or services may incentivize the vendor on current pricing or lock in the future rate.

4.     Get the Vendor’s A-Team: Identify those resources through referrals, demos, and test cases. The on-site presence of such individuals assures the project will move forward at a faster pace. Be cautious about demanding a fixed fee arrangement. Such arrangements cede more control to the vendor and as cost margins grow the A-Team will get pulled and put on more profitable projects.

5.     Offshore Outsourcing: This may have its pricing benefits but comes at a cost in other areas.

6.     Off The Shelf vs. Customization: Consider changing your requirements to match the OTS functionality as much as possible.

Nuckles discusses all of the above keys issues in greater detail in his article.

Tim Nuckles is a Wisconsin technology attorney whose practice is dedicated to technology transactions and the workout of troubled technology projects. You may visit the firm’s web site at www.nuckleslaw.com.

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Monday afternoon February 11, 2008 at approx. 3:30 EST MSNBC pick-up the following Associated Press story:

BlackBerry smart phones have lost service across the United States, wireless carriers said Monday.

In a statement, AT&T spokesman Fletcher Cook said the disruption is affecting all wireless carriers. Cook said the company first learned about the problem from BlackBerry maker Research in Motion about 3:30 p.m. EST.

There was no word on the cause or how widespread the outage was.

And some users reported being able to access their service Monday afternoon.

"This is not an issue with AT&T's wireless network," Cook said. "Customers could experience difficulties using their BlackBerry devices. RIM has not given us an estimated time of when this problem would be fixed."

Verizon Wireless spokeswoman Brenda Raney said RIM also confirmed the outage to the company.

Research in Motion did not immediately return a phone call.

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SaaS is no longer solely for the start-up software firm. Enterprise software developers have heard the call from their customers and seen the competition latch on to SaaS and are now offering mainstream applications. Software developers, big and small, face many demands and constraints placed upon them by the market. Their customers seek rigorous specifications.  The application development process comes with a whole new group of constraints, and the competition is fierce and ever present.

Gary McAuliffe, in his article Excelling in the Evolution of Sass, points to the Managed Service Provider (“MSP”) as the “great equalizer”. 

Managed Service Providers engineer infrastructure for reliability, resiliency, and security, in some cases offering 100% network uptimes. 

McAuliffe lays out a detailed analysis of the value MSP’s bring to the table. He describes how using an MSP can get your product to the global market faster. The other advantage is what McAuliffe labels “optimal user experience” (i.e. customer satisfaction). This customer satisfaction could potentially reap rewards downstream as opportunities for selling licenses present themselves.

The benefits are not solely for the external market. McAuliffe adroitly states:

Internally, partnering with a Managed Service Provider can provide software companies with a plethora of benefits. The capital expenditures to provide and maintain everything the business requires to launch and sustain itself from the application, developers, system administrators, to any commercial software required to run the application, along with a full infrastructure pose daunting barriers to overcome. A MSP will deliver those harsh capital expenditures over a more tolerable operational cost structure allowing software companies to reinvest their upfront capital into software where it is more beneficial in the overall well being of the firm.

If this has sparked your curiosity, then perhaps you might also be interested in Jeff Kaplan’s article Top Ten Reasons Why On-Demand Services Will Soar in 2008. I’ll whet your appetite and list out the ten reasons. You’ll have to read his whole article to get the benefit of his wisdom and predictions.

The Top Ten Reasons are as follows:

1.     Services are Recession Proof

2.     Everyone’s Going Virtual

3.     Amazon, IBM and Google Bet on Utility Computing

4.     Nick Carr Returns

5.     SaaS Solves SOX

6.     Managed Services 3.0, Unified Communications Services and Service Automation (Hint: The key for Kaplan is the “3.0” in the title)

7.     Carriers and Channel Companies Find Success With New Services

8.     Failure Doesn’t Matter

9.     IT Discovers Services are the Solution

10. Wall Street Buys Into Services

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The maker of Blackberry has teamed up with software developer LiquidTalk and will be providing the capability for audio-visual content right to their multimedia-enabled devices. My post in this Blog of December 26, 2007 entitled Future of Wireless Devices discussed the coming next generation (“4G”) of handheld devices.  It seems the future is upon us.  This latest development for your smart-phone utilizes a web-based portal and will allow ‘Road Warriors’ (i.e. frequent business travelers) and other users the ability to access tutorials and podcasts.  Chicago Tribune's, Wailin Wong, reports further that:

Employees can catch up on recorded training sessions while stranded at an airport, or technicians can view step-by-step video guides while they're making service calls. LiquidTalk users can also take content with them to use in presentations. The company's first client used LiquidTalk software to put video testimonials on iPods that could be played during sales pitches.

Read the full article LiquidTalk makes solid gains and follow LiquidTalk’s Founder, Dave Peak, through the birth of his idea while mired in rush hour traffic, through his trials and tribulations, and eventual success.

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As a practicing attorney involved in contract drafting and negotiation, I know the value of checklists. As I am sure my fellow legal colleagues can relate, one of the things we dread is a client who asks “Did you consider …?” or, “What about …?” If our only response is something like, “Let me check that contract again and get back to you”, we’re in trouble. Contract drafting is an attempt to anticipate as many reasonable consequences as possible. When I was lecturing in Contract Law, I would tell my students that contract drafting anticipates litigation (i.e. if you do or do not act in the following manner, then the liability shall be as follows). Robert Bell has created an IT outsourcing checklist in his article 31 Risk in Offshore IT Outsourcing Contracts: Or Buying Promises.  I cannot vouch for its completeness, but I thought it a good idea to post it here as a tool to be used in your decision making process. In order to reprint this checklist, I must follow the “Reprint Guidelines” and publish the entire article, which follows:

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My stated purpose for this Blog is to discuss current developments in the software industry and other nuances that may affect the industry. I do not intend to become a daily reporter, but when something big happens in the industry I believe I should include it in this Blog as a service to my readers. I did such a post yesterday, January 31^st ,regarding the cut undersea cables affecting the bandwidth in India see post on 1/31/08. And now this:

MSNBC has picked up an Associated Press story regarding Microsoft’s bid to purchase Yahoo, the search engine pioneer. The complete story follows:

BREAKING NEWS

REDMOND, Wash. - Microsoft Corp. is offering $44.6 billion in cash and stock for search engine operator Yahoo Inc. in a move to boost its competitive position in the online services market.

The unexpected announcement Friday comes as Microsoft, the world's biggest software company, seeks new ways to compete more effectively against the search and online advertising powerhouse Google Inc.

In a letter to Yahoo's board of directors, Microsoft Chief Executive Steve Ballmer said the company will bid $31 per share, representing a 62 percent premium to Yahoo's closing stock price Thursday, and emphasized that the deal isn't subject to financing.

"In February 2007, I received a letter from your chairman indicating the view of the Yahoo board that "now is not the right time from the perspective of our shareholders to enter into discussions regarding an acquisition transaction," Ballmer wrote.

"According to that letter, the principal reason for this view was the Yahoo board's confidence in the ‘potential upside’ if management successfully executed on a reformulated strategy based on certain operational initiatives, such as Project Panama, and a significant organizational realignment."

"A year has gone by, and the competitive situation has not improved," Ballmer added.

Under terms of the proposed deal, Yahoo shareholders could choose to receive cash or Microsoft common shares, with the total purchase consisting of 50 percent each cash and stock.

Microsoft said it sees at least $1 billion cost savings generated by the merger and intends to offer significant retention packages to Yahoo engineers, key leaders and employees. The software giant said it believes the takeover would receive regulatory clearance and close in the second half of 2008.

© 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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