Gartner analyst Gayla Sullivan provides advice for dealing with ‘new guard’ of suppliers
As large businesses get to grips with trends such as mobile, social, cloud and big data, many are starting to move away from the traditional ‘mega vendors’, and engage with less familiar suppliers.
The advantage of this approach is customers have access to the agility and innovation of the ‘new guard’ of technology firms which have appeared on their radars in recent years, such as Apple, Amazon and Google.
Speaking at a recent analyst event Gayla Sullivan, Gartner research director, outlined some of the best ways to deal with the changing supplier landscape.
“We are seeing that [the traditional suppliers] are disappearing a bit and being replaced by vendors that are a little more innovative, edgy and younger-feeling – they are the hip new crowd and they are starting to replace some of the old guard that has been out there,” she said.
“You need to be realistic and think: do you need the supplier in your environment as a necessity or just a desire. Are they really bringing something of value and bringing that innovation?
“Embracing who they are and working with them realistically is the way to go.”
New vendors, different problems
The ‘new guard’ of suppliers share a number of characteristics, which can have both advantages and disadvantages for those dealing with them. For example, they are able to be more agile than the established players in many respects.
“These are companies that don’t have a huge history of legacy baggage behind them, so they are able to be very entrepreneurial in working with their client base and with their plans for future platforms and innovation,” said Sullivan.
However, while there is a strong background of consumer service in most cases, dealing with these vendors is not necessarily any easier on an enterprise-wide scale.
For example, these suppliers are less open to entering into negotiations for a variety of reasons such as the low margins they might run on. As Sullivan points out, Oracle, SAP et al may not be renowned for their flexibility, but there is generally some room for movement during their contract talks.
Furthermore, support agreements are not as comprehensive as with the established suppliers, and sales teams tend to be smaller. This means that large customers used to engaging directly with the vendor may have to do business through channel partners.
“The global direct sales force – apart from AWS – is pretty much non-existent. We will see that the suppliers are focused on country-by-country approach. A global sales force for them doesn’t make sense – they are all about the local relationship,” said Sullivan.
And while the incumbent suppliers may have bent over backwards to meet the needs of customers, Sullivan warns that “throwing more money” at most of the new suppliers will not convince them to adapt their practices.
So, given these challenges, Sullivan revealed tips for how to manage relationships with the most disruptive players in the supplier landscape – namely Apple, Google, Amazon and Workday – and identified some of the potential pitfalls.
In recent years, Apple has grown its presence within the enterprise largely thanks to the popularity of its consumer devices such as iPhones, iPads and laptops among staff. This has forced IT departments to get to grips with demand for mobile device strategies within a corporate setting.
But while Apple has benefited from – and helped create – trends such as bring your own device (BYOD), it has done little to court large corporate customers. In fact, Apple is “probably the most complex and difficult to deal with” of the four firms from an enterprise perspective, said Sullivan. In general, it has little interest in wooing CIOs if it is the end result is that its end-user clients are impacted in any way.
For example, security is a major stumbling block for many which want more control over Apple devices.
“If you need to remote wipe devices or if you are a heavy user of MDM, this is probably not going to work for as well you,” Sullivan said.
Furthermore, the culture of secrecy which is partly responsible for the feverish consumer hype around product development means that businesses will not be able to gain insight into roadmaps or influence development – no matter the size. Apple is open to feedback from customers, but it is unlikely to be a two-way street.
One of the best strategies is to connect with like-minded clients in the same industry, and work with them collectively: “If you gang up on Apple, that strategy has proven to be effective – when you have a large enough voice from that user community.”
There are also specific verticals targeted by Apple – such as media, science, and education – which might make negotiation easier than those in other areas such as military and government.
Apple can be more flexible on price when, particularly with those spending over €250,000 a year, though the best discounts are likely to be around eight percent. Buying through channel partners which hold sway with Apple is also recommended, with established partners favoured.
Technology support can be limited for what enterprises are used to, with Sullivan anecdotally pointing to customers using Apple Stores for maintenance.
“We find more enterprise clients using the store and the Genius Bar than the AppleCare contracts. It is a mindset change to think about taking devices into a store compared to traditional maintenance and support practices.”
Google also lacks a historic enterprise focus, with the search engine giant geared more around driving revenues through user data. However the company has had success with its Google Apps cloud productivity software over a number of years, as well as launching its Google Compute Engine infrastructure as a service (IaaS) platform.
It has started building out its enterprise sales team to support this, though this is still in its early stages comparatively, and won’t be as seamless as those of SAP or Oracle. Furthermore, Sullivan warns that its siloed organisation can lead to “selective amnesia” among sales staff when buying multiple products, resulting in customers missing out on a potential discount.
Like Apple, it is a company that is reluctant to reveal details about roadmaps, but there can be opportunities to engage with the company on products at its developer conferences.
With regards to contract negotiations, Sullivan said that customers should be wary of price rises, and should negotiate clauses to prevent the vendor upping the price.
“We have seen some outrageous price increases, even mid-contract, so make sure your pricing is fixed during the course of your deal, and even into the renewal. We do recommend setting a cap such as three percent.”
Firms are also advised to read exit terms and termination clauses, as Google has the right to terminate its service after 15 days notice – not enough time to complete a migration onto another email platform for example.
Online retailer Amazon launched its IaaS cloud in 2006, with its Amazon Web Service (AWS) business quickly becoming the leader in the field. It has been keen to highlight its benefits over ‘legacy’ vendors, but its own ability to operate within the enterprise has been questioned.
This is something the company has attempted to address in recent years with its products and service delivery, and it offers a more extensive global direct sales force, with account managers for clients.
However, there can be little room to negotiate on price. The company runs on razor-thin margins and operates at high speed, which can be a challenge for customers.
“Amazon is a sprinter. They like to move very fast, they often have less than two quarters between when they first have engagement with the client and when they are implementing,” said Sullivan.
“They don’t really have a lot of time for the cost cutting discussion or cost optimisation – they really want to focus on getting up and running very quickly, and they are not going to want to negotiate a lot on pricing.”
However, agreeing on clauses such as limitation of liability is recommended, with AWS having the scale and “deep pockets” to make this worthwhile, compared to smaller cloud providers.
Changes to contracts at renewal or before are also less of a concern than with some others, but customers should still be wary. “They do make changes to contracts over time, but they won’t make changes to things like SLAs and security terms and conditions – and a lot of people have concerns over IaaS from a security perspective.”
Cloud human capital management (HCM) provider Workday differs from some of the other new guard vendors in that they come from a more traditional enterprise background. However it also stands out from the incumbent suppliers as being both a disruptive force, and one that has not been acquired by one of the bigger players.
“Oracle took over PeopleSoft and SAP acquired SuccessFactors, so you have competing products that are now part of the mega-vendor world, but Workday is competing head-to-head with them and winning, so it is a very disruptive newer player,” Sullivan said.
Workday has gained a good presence in America and is moving into EMEA markets, which are responsible for 15 percent of its sales.
Supporting its fast growth is a sales force that focuses on selling through the HR department. IT buyers need to be aware of this as it can significantly reduce purchasing power, resulting in up to a 30 percent difference in cost.
“These guys love to go directly to HR because HR loves the features and functionality that they get. The strategy has paid off for Workday and they are going to continue using it,” said Sullivan.
“So if you know that there is an RFP coming up where you are looking at changing out your HR software, get ahead of this by talking to leadership within HR about how this could be a big risk to the business in terms of pricing, and work with them up-front on the negotiation side.”
It is possible to have more of an influence on product roadmap with Workday than some of the other ‘new guard’ firms, and there is a growing online community to engage both users and technical staff. “Workday doesn’t have big communities like Oracle or SAP for their HCM software, but they do read the community boards, which are run by the product managers and leads. So if you have feedback there, they will see it.”
Other points to negotiate include making sure that price is fixed due to potential increases at renewal, and improving reimbursement agreements in the event of outages during contract talks.
“They will do improved SLA credits – the credits as they stand are not that great, as you have to go through two months or errors and outages before you can even get 10 percent back, and they max out their credits at 50 percent.”
Gartner also notes that, despite its assertions to the contrary, the possibility of a takeover of the firm in future should not be discounted by those looking to partner with the firm: “They claim they are not for sale, but they could be at the right price,” Sullivan warned.