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

Now this is the kind of story that not only makes good business sense it also discusses the application of new technology to something most of us find exciting and can understand, “high-stakes” Baseball contracts. The Major League Baseball Players Association (“MLBPA”) has decided to assist player agents get faster and deeper access to statistics and comparative analysis for their contract negotiations with Owners and General Managers. The MLBPA will be using IBM's Cognos BI software to analyze, compare and project player stats, and chart individual players' progress over the course of this year’s baseball season.

Doyle Pryor, assistant general counsel of the MLBPA, released a statement reported by InternetNews.com in its article Baseball Gets a New Data Cleanup Hitter stating, “Our analysis of player performance is as complex and dynamic as the work of high-powered business analysts in Fortune 500 companies, and we need to use the same robust, flexible interface to achieve reliable results."   Joseph Pusztai, IBM Cognos' director of product marketing added, "Once the agents become comfortable with this, they'll be able to leverage the information for their clients in the best way. The ultimate goal is to come up with statistics that shows a player's success. For example, the common stats will show you home runs, but now they'll be able to see how many were hit in the late innings, when it tends to matter more."

 

Phil Taylor, senior writer for Sports Illustrated, commented that, "The stats help both the players and owners make their case during contract negotiations. If a player hits .285 for the year, but he can show that he hit .350 from the 7th inning on in tie games, that'll help his case." Such availability to these kinds of stats can be a double edge sword and be used by the Owners and General Managers to show weak hitting in the later innings as well.

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In my research for this Blog I came across an article that caught my eye. Jeffrey Gordon in his blog licensinghandbook.com posted an article entitled Becoming a better negotiator. Since part of my stated goal for this Blog is to discuss some of the nuances in the contract negotiation process, I felt Gordon’s article was a nice fit. His main advice to become a better negotiator is simply to go out and negotiate. Eventually one develops a style. Don’t be afraid of failure and learn from your mistakes. If I may be allowed to add a bit of fine tuning, I would also encourage one to learn from their colleagues and to ask as many questions of them as you need to become comfortable with the concepts and the eventual outcome of the negotiation. It is never wise, especially in a contract negotiation setting, to ‘fake it’. Ask as many questions as necessary of your opposing counsel during the process.  Your opposing counsel should understand that your goal in the negotiation is to protect your client and limit their risk. If they don’t understand your purpose and take a more adversarial approach to your questioning, do not be intimidated. Such a posture could actually be a negotiation strategy on their part. 

I chose to discuss Jeff Gordon’s article because he includes the results of a study by the US Olympic Committee entitled Reflections on Success. The Top 10 Success Factors for Olympic Athletes from this study are listed below. I found the results of this study particularly interesting, since the number one success factor is something which I wholeheartedly agree. Persistence is the key to success. If any of you have read my case studies which I have included in this Blog, you will see that persistence in the negotiation process is what I strongly urge for my readers. Although I could never be considered an Olympic Athlete by any stretch of the imagination, I do take some comfort in the US Olympic Committee’s validation on this one point.

 

Top 10 Success Factors

1. Dedication and Persistence: 58.1%

2. Support of Family and Friends: 52.0%

3. Excellent coaches: 49.4%

4. Love of sport: 27.1%

5. Excellent training programs and facilities: 22.3%

6. Natural talent: 21.9%

7. Competitiveness: 15%

8. Focus: 13%

9. Work ethic: 11.6%

10. Financial support: 11.5%

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IDC is a global provider of market intelligence and advisory services to the High-Tech marketplace and assists CIO’s and others to make informed decisions on technology purchases and business strategy. You can learn more about IDC by visiting their homepage. IDC held their annual Direction’s conference this week in San Jose, California and their main topic for discussion was the affect the economic slowdown, real or perceived, will have on this year’s IT budgets.


The conference compared this year’s downturn to the last major downturn faced by the industry in 2001 – 2002 and found significant differences. Where the last major economic mess was mainly a business-led crisis due to the over valuation of many dot.com start-ups exacerbated by the terrorist attacks of 9-11, this new economic down turned is basically due to overzealous consumers saddling themselves with mortgages they couldn't afford and affects one sector, the financial services industry.


The collapse of the housing market spread over several geographical areas should not have a direct impact on global enterprises decisions to proceed with their planned purchases of IT. With this in mind, the growth in IT spending for the US and Western Europe will probably be reigned in to 4% growth, half of the 8% growth in IT budgets for 2007, while the BRIC countries should continue in their IT spending unabated with a 10% to 20% growth rate over last year.


Andy Patrizio reports from the conference in his article Which IT Sectors Will Weather a Financial Storm? He includes in his article the following observation:


The hardware most likely to be affected by a reduction in spending, not surprisingly, is PCs, followed by mobile devices -- smart phones in particular. Storage is least likely to be cut, followed by networking hardware.


Software reductions are also anticipated, but at a much slower rate than hardware. Office and operating systems are most likely to get the chop (bad news for Microsoft), while security and compliance software is least likely to be cut.

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SAP took the opportunity at CeBIT 2008, the world leading technology fair, to announce its latest partnership which builds upon SAP’s Business All-in-One solution. SAP has teamed with Intel and will be offering a landmark product on Intel Xeon-based systems via original equipment manufacturers (OEM) and hardware system providers based on SUSE Linux Enterprise from Novell and the database SAP MaxDB. Hardware offerings pre-installed with SAP software is landmark to say the least. The intended benefit for the SME market is a reduction in the Total Cost of Ownership of their IT systems. SAP stated in its announcement:

“The offering targets midsize companies in the manufacturing, service and trade industries and directly addresses the demands in these market segments for quick and easy implementation, and tailored yet scalable solutions at predictable costs."

Ray Boggs, VP of small and medium business research IDC, noted that having the alignment of hardware and software will give customers what they have been looking to do, “reconcile the somewhat contradictory goals of a solution designed to meet their individual needs but in an almost pre-configured fashion to minimize time and cost." SAP plans to continue with this strategy of partnering with hardware vendors to directly address the needs for TCO for its SME customers. For a more comprehensive description of this announcement see SAP and Intel Collaborate to Offer Pre-Installed Business Solutions for Midsize Companies Optimized for Quad Core Intel(R) Xeon(R) Processors.

Of course on the surface this hardware with pre-installed SAP software approach seems to be a winner. Even below the surface it is hard to find fault with this methodology. But I am a simple man. When I see the words “Xeon Processor”, “SUSE Linux”, and “database” in the same sentence my eyes begin to glaze over. I might have a talent for spotting an ambiguous phrase or two in a software license or consulting agreement and perhaps the ability to offer a revision to it to bring the language to a more equitable point of view. However, I wonder if it is reasonable to ponder this new approach from SAP from a slightly different perspective. I almost get the feeling as the Portuguese explorers must have had during their successive voyages down the coast of Africa in search of the riches that lay ahead in the Far East. These aren’t entirely unchartered waters, but one cannot be quite sure what lies ahead. Others, such as Microsoft, have gone down this course before. I have to wonder what obstacles may present themselves in the future. The usual suspects are ubiquitous, (confidentiality, ownership, infringement, anti-trust). I am sure that the right people at SAP and Intel have considered these issues and more and are fully prepared. The cost of doing business is a fascinating journey.

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Byron Deeter, Partner with Bessemer Venture Partners, a founding CEO of one SaaS business and a board member of three other pure-play SaaS companies, has firsthand experience with the on-demand model and is well-qualified to state that CEO’s of pure-play SaaS companies need to change their paradigm.  When one lacks a role-model and cannot find a neatly put together list of best practices, the skillful CEO pulls together his own rule book. Deeter and his team studied both hybrid and pure-play SaaS companies and developed their own list of best practices for the on-demand model. Veteran software CEO’s might want to heed his advice and shift their paradigm. I strongly urge my readers to read Deeter’s article Bessemer’s Top 10 Laws for Being “SaaS-y”. I’ll try to summarize below his ten “laws” for running a successful SaaS business.

1.     Cash is King (i.e. Contracted Monthly Recurring Revenue or “CMRR”): The old model that would value a longer deal with slightly less CMRR over a short term deal with a larger CMRR is out. The new model recognizes the likelihood that renewals will make up the difference. The need for working capital in the SaaS model emphasizes the importance of “customer churn” on this first rule. “The top performing SaaS companies typically achieve annual renewals on a customer count basis above 90% (much of which is often due to bankruptcies, acquisitions, and other events beyond the company’s control), and over 100% renewals on a dollar value basis due to up-sells into this installed base.”

2.     Sales Learning Curve – don’t ramp up your efforts too quickly: Refine your sales model and as it grows think in terms of CMRR.

3.     Once the Sales Learning Curve peaks begin to hire more renewal orientated account managers. These new account managers should be compensated on customer service, renewals, and upsells.

4.     Sell Directly – Channel relationships are unattractive. Without systems integration work nor the need to require huge hardware purchases or vast amounts of software licenses, the old Channel partnership model is not appealing. A new generation of partners and resellers will develop.

5.     Don’t rush to go global - Hold on Europe and save Asia for later. More barriers exist such as service level expectations, data access, and security. Don’t weigh down your company with the costs. Develop a strategy where Europe and Asia will come online as you become a public company.

6.     One datacenter: Studies show one datacenter is sufficient. No need to take on the costs and organizational complexity, at least until your company is public. Invest in backup and disaster recovery.

7.     Design a SaaS product that is single instance and multi-tenant. Multi-instance and single tenant does not apply to this model.

8.     Online marketing is a core competence – Your sales prospects are online. Leverage search engine optimization.

9.     Cash flow is critical due to low monthly subscriptions and so financial management is key. Weigh investments carefully and structure them in a way to allow future CMRR to produce measureable amounts.

10. Have enough investment capital to last at least 4 years. It takes a while to get to breakeven. The SaaS model takes a lot of R&D and sales expense on the front end.

I particularly like Deeter’s eleventh rule. Oh, did I say there were only ten? Here is number 11:

 You can ignore one of the above 10 rules. But only one. Deeter recognizes that there are no absolutes and welcomes a refinement when needed. However, his studies show successful SaaS companies stayed very close to the above best practices.

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