Chad Sakac recently tweeted about some issues EMC were having with VMware and there was a predictable and rather pathetic dig from NetApp about perhaps this being a result of EMC having too many product lines and having too much to QC. Leaving alone the issue that all software has bugs, even NetApp; this led me to look back at recent RFxs that I’ve been involved in and who had been invited to respond.

EMC have been invited to respond to all storage RFPs, whereas NetApp have only been invited to respond to about half of them.  Why? Well, EMC have a much better coverage of the whole storage domain with their many products, whereas NetApp have but a single answer to every question that I ask.

Who wins the greater number of RFPs? Well, honours are pretty much equal but I would argue that in being invited to respond to all my RFPs, EMC are developing a much greater understanding of my business and my challenges, this long term has to have value to both myself and EMC.

Now, do EMC have too many products and NetApp too few? Actually, I reckon honours are even and the answer to both questions is yes! But arguably it is easier to consolidate product lines than it is to develop new ones.

Of course IBM and HP have a even greater understanding of my business as they can cover pretty much the whole stack; if EMC are sensible, they will use Acadia as a vehicle to develop a deeper understanding of the businesses that they deal with.

And yes, I could of used several other vendors as examples of companies with but a single answer.

© Martin for Gestalt IT, 2009. | Too many or too few?
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Stephen has a post here about pricing, about getting close to your vendor and developing a relationship with just a few trusted partners. Nice idea but in any relationship there needs to be some tension to keep it fresh and alive; otherwise you find yourselves doing something because you have always done so, it becomes comfortable.

Now comfort is all very well at home and in your personal life but when you are spending lots of money (your lots will vary) with a vendor, comfort is not good. I have walked into situations where the position has been far too comfortable and ultimately it becomes dangerous for both parties. You need to shake things up once in a while.

1. Single vendor relationships are not good to drive value. Competition is key, this does not mean that every bid should be competitive, there aren’t enough hours in the day and everyone gets tired. But every eighteen months, pick a technology area and review it. Do both a technology review and a commercial review. Your review cycles may be shorter, it depends on your work load.
2. Review street prices regularly; there are a variety of sources for this, some formal, some informal. Vendors do not like it but they know it happens. But it is important to understand why prices differ; it could be size of organisation or it could be a prestige thing. Let your sales-man know that you are paying above street price and that you are reviewing things.
3. New requirements need to go competitive. A sign that things have got too comfortable is that you simply default giving new business to the incumbent.
4. Be aware of the market, talk to the incumbent about competitive products; let them know that you are aware of the competition. Attend trade-shows; talk to other vendors, I know sales-guys are irritating but when the incumbent phones up and finds you are in a meeting with their rivals, there will be a moment of doubt.

And when you are doing the deal, here’s a few tips and thoughts. I am not a procurement expert but I have spent a few million here and there on storage.

1. List price is meaningless; discount levels are meaningless. Vendors should produce a cost of manufacturer and then try to negotiate a premium on this. Vendors also hate breaking things down by line-item as it reveals that you are paying massive amounts for commodity items. Do not let a vendor flannel you with a cost for a solution, get it broken down and understand what you are paying for.
2. Maintenance; you should always be able to negotiate improved maintenance terms. Hardware maintenance is pretty easy to get extended gratis, software is often harder. Review maintenance regularly; if a piece of software is at or close to it’s terminal release, consider dropping the maintenance. If you really need it at a latter point, you can often re-instate, you’ll have to pay the back maintenance but you’ll likely not need it anyway. Make sure this is contractually agreed.
3. Technical refresh/take-out; if you are refreshing with the current vendor, only pay maintenance on one lot of kit whilst the refresh is happening. If you are refreshing with a new vendor, agree that the new maintenance/warranty period only starts when the migration is complete. Always try to negotiate a trade-in.
4. Software licensing; try to negotiate a pay for the amount you use as opposed to the pay for the whole frame!  And always try to agree that software licenses are transferable between frames.
5. A vendor TCO model is worthless unless they are willing to guarantee it without caveats. If they think their kit will save you money, skin in the game is key!
6. Training; I have had teams which have had more training than any other team in a department because I ensure that any deal is sweetened by the provision of training for ‘free’. Big deals should come with free training and I am amazed at the number of people who do not leverage this.
7. One-off-deals; one-off-deals, you know the end of quarter/year specials? We all do them, we all regret them at times. Plan your one-off-deals, you know they’re coming but treat them like a normal deal. You know when the vendor quarters/year-ends are; so try and align your procurement cycles if you can. And I’ve never had the pricing on a one-off-deal pulled because I have missed the cut-off.
8. Guaranteed price decline, the cost of kit goes down all the time; ensure that you’ve got a guaranteed price deflator on a quarter-by-quarter basis to reflect this.

You will not get all of the above but at least vendors will know that you are serious, that you are thinking about things. And if your sales-man agrees any kind of special, non-standard terms; get it in writing and keep the evidence. Sales-men move around a lot and the next guy may not honour a verbal, gentleman’s agreement; get the evidence.

I am sure there’s more tricks that I have forgotten or not even be aware of; please share!

© Martin for Gestalt IT, 2009. | Deal or No Deal?
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The third rail of an electrical subway system carries the current - touch it and you're dead

See Martin’s response, Deal or No Deal

Every field has its untouchable “third-rail” topics: The metaphor is often used in American politics to describe things like social security, taxes, gun control, and the role of traditional allies – things that cannot be debated or discussed. In business, salaries and bonuses are often kept secret due to the same fear of upsetting apple carts.

The third rail of enterprise IT is the shockingly opaque and flexible pricing schemes applied to hardware, software, and services. How much does a high-end switch or storage array cost? Are you getting ripped off on your maintenance contracts? Which bundled software modules are required and which are pure profit? You’ll get no help in answering these questions from mainstream sources like technical media, trade shows, or corporate blogs.

The pricing game

Truthfully, all high-end IT purchases are priced on a case-by-case basis using rough formulas, spiffs, and secret targets that most buyers will never see. Pricing is ever-changing: Expensive items can literally be given away one quarter to create demand the next. Margins are often made up in other areas, like services, contracts, or required upgrades.

Software is especially prone to pricing flexibility, since there is no per-unit fixed cost: Microsoft’s incremental cost for each copy of Windows Server 2008 is very close to zero. But hardware, financial services, and professional services are not free. EMC, HP, IBM, and the rest certainly pay top dollar for quality components, steel, and plastic moldings. And technical engineers get paid a pretty penny (though perhaps not what the best are worth!)

Specificity is a major issue, too. The question is not how much a product costs, but what exactly a given product is! Surely one can buy a plain Nexus 7000 chassis from Cisco, but what good is that? A solution includes a complete set of cards, power supplies, cables, mounting brackets, software licenses, maintenance, and integration services, not a bare chassis. How much does that switch cost again?

Storage folks have long chattered about the cost per gigabyte of a storage array, but this can be gamed just as surely as a standardized performance test. It happens all the time in RFPs: A customer whips up a list of his requirements and a half-dozen responses come in. The oranges come in at half the price of the apples (Apple is never cheap!), but are they really comparable? A vendor can easily “accidentally” leave out a few line items to be added back in once the selection is made.

What is one to do?

Consider how you would respond, knowing all this, if someone demanded to know the list price for a new array, software package, or switch. Suddenly vendor pricing games don’t seem so nefarious, do they? But what can customers do? How can they compare solutions if not on price?

Truthfully, there is a time, once the solution components are finalized, that pricing is fixed. But by then it is usually too late to meaningfully negotiate, let alone switch the buying train to a different track. IT purchasing normally comes down to a qualitative analysis of various solutions followed by a leap of faith with one vendor’s offering. The “you made your bed” moment comes later.

Perhaps this is how it must be. Can an RFP ever truly reflect the total value and cost of an enterprise IT solution? Following this line of thinking, the best option a buyer has in this scenario is to develop a solid working relationship with just a few trusted sales reps, solution engineers, and companies and leverage these to deliver the best result. This is exactly what so many buyers of IT systems wish they did not do, but perhaps they should just accept it as the best option. This is the approach my friends at GC Marshall are taking, for example.

Back to the rail

But certainly there are items that are exempt, and a time for pricing discussions. When EMC introduced enterprise flash drives (EFDs, or solid-state disks) in their high-end DMX storage array line, they claimed that the high cost was justified by the extreme performance of these devices. But no one could say just what that high cost was! Now we hear that prices have dropped “by over 75%“, but are given no quantitative information.

It is one thing for a vendor to offer flexible solution-based pricing for a complete system and quite another for them to make cost justification claims with no real data. If a vendor wants to claim cost-effectiveness, then they must provide supporting pricing information. This is by no means aimed at EMC alone – every expensive new item includes a statement of cost, and these are often baseless.

Buyers ought to accept a close relationship with a vendor, complete with flexible solution pricing. But when it comes to groundless marketing claims, enough is enough. Give me the cost or give me a break!

© Stephen Foskett for Gestalt IT, 2009. | Let’s Talk Pricing
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