The best time to prepare for a possible change in the ownership of your software vendor is before you buy the product. "If you plan ahead and anticipate contingencies, you are not dealing with disaster," says Guardian Life's Callahan. He likes the attractive terms he got from PeopleSoft, and he believes he's getting the best software for his purposes. "We were incented to make the deal, and we do believe that PeopleSoft has been preeminent in the insurance industry for good reason." But Callahan didn't leave the future to chance. Instead, he negotiated terms that he feels will protect Guardian no matter what happens to PeopleSoft. "We have terms and conditions in our contracts to deal with acquisitions," he says confidently. "The world changes, but obligations continue."
Guardian negotiates each technology deal separately, and that strategy has paid off in the past. For example, the company uses a system for administering its variable-annuity offerings that was developed by a small vendor that PeopleSoft had at one time considered adding to its application suite. When PeopleSoft decided not to market the product, Guardian was able to go ahead with its own implementation because of the terms won by Callahan. "We had the rights," he says.
Large companies have long used their clout when dealing with small vendors offering cutting-edge products. They may lack as much influence with more established software companies, which are less likely to guarantee something such as access to source code in the event of an acquisition or bankruptcy. But customers need to press for favorable terms, especially if the trend toward larger acquisitions emerges. "Get every right you can in a contract," says Lewis. "That may not be ownership of the source code, but it can include reset provisions for the contract, or renegotiated terms."
Understanding your own needs at a particular moment is another critical element to dealing with vendor change. Vail didn't consider new financial software after the Oracle bid, says Silvera, because its recent upgrade to PeopleSoft 8.8 gives it room to grow for some time to come. "The functionality we need for our business exists in the product we have," she says. "There is a lot of functionality we have not had the opportunity to take advantage of, and even if development is stagnant for a while, I still have three years or so of business improvement built into what we've got."
But as Silvera looks ahead to possible add-ons in the future, such as a corporate performance management application, her commitment to PeopleSoft wavers. "I would have more hesitation in considering a newer module that has not established itself in the marketplace," she says. "At that point, I'd consider going with the current best of breed instead of just staying with the same company."
Support for acquired products often runs hot and cold under new owners, says META's Doane. He notes that some legacy customers of J.D. Edwards felt under-loved by PeopleSoft for a couple of years, but were mollified by more recent policies that increased spending and support. Now they find themselves wondering how well Oracle will follow through for their software. "Oracle is being very reassuring," says Doane. "Those words are not legally binding, but a maintenance contract is. Then again, maintenance contracts don't include upgrade calendars and roadmaps." In other words, don't count on the letter of the law alone to protect your investment.
Every deal is different from the deals that precede it, and CIOs need to get a handle on the specifics that pertain to any acquisition. Netegrity customers, for example, are nervous because Computer Associates has a "reputation for acquiring companies and then taking advantage of long-term support contracts while providing little in the way of product innovation and development," writes Burton's Lewis in his Weblog. One large Netegrity user responded by saying, "CA would have to prove to me that they have the cultural acumen to innovate after not doing it for such a long time. Corporate culture is extremely hard to change."
But Lewis counsels Netegrity customers to consider the CA acquisition on its own merits. "CA's reputation precedes them, but you need to look on a case-by-case basis," he says. "I think CA acquired Netegrity to gain market share, and it stands to reason they won't kill it off."
For its part, Computer Associates says it is approaching the Netegrity deal differently than it has past acquisitions. "I think our process has evolved," says Bilhar Mann, CA's vice president of product management for identity and access management tools. "We went into this acquisition with our eyes wide open and did analysis up front on what customers were concerned with. We looked at successful and unsuccessful acquisitions, talked to CIOs and other people down to the level of tech support." As a result, CA has promised no changes from the customer point of view for at least six months in terms of licensing and pricing. "Customers are unhappy if things change too rapidly," he says.
Netegrity Marketing Vice President Stephanie Feraday, who will stay on at CA, says CIOs were put at ease by careful communication from both companies. "A key problem in these deals is uncertainty about the future of the products," says Feraday, who has gone through several acquisitions. "You can ameliorate the concerns customers have by letting them know that the intellectual property, the software and the people will remain intact."
This article was originally published on 12-01-2004