The return on intellectual
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Vendor partnerships are predicated on the belief that a software vendor will emerge from the deal with something of valuebesides your money.
SAP routinely engages in what it calls "strategic development projects" with customers, typically in exchange for a 50 percent reduction in the custom development costs, according to Harald Stuckert, senior vice president and general manager of Custom Development Worldwide at SAP.
In early 2004, SAP and Coca-Cola Enterprises Inc. announced a deal to co-develop an elaborate mobile system for moving bottles and cans of soda from factories to vending machines and retail stores, with less reliance on distributors.
Atlanta-based CCE, at $18 billion in revenue, is the world's largest bottler of Coke (it's 36 percent owned by the Coca-Cola Co.), and the company is contributing its expertise in beverage marketing to help SAP improve the mobile capabilities of its mySAP Business Suite for a wide range of food and beverage industries that use a process known as direct-store delivery, or DSD.
(Executives at both CCE and SAP declined to comment on the specific financial arrangements or the progress of the development project, which is targeted for rollout in 2006.)
SAP's typical 50 percent discount pales in comparison to Colorado Access's freebie, or the occasional deal in which the vendor pays a royalty on future sales to the customer that helped develop the application.
America's Growth Capital, a boutique brokerage and investment bank based in Boston, is negotiating with its CRM software vendor to earn a royalty stream on software it co-developed that integrates the CRM application with its Cisco Systems-based VOIP (voice over IP) system.
"I think this is something they could up-sell across their entire customer base," maintains Bob Lamoureux, the bank's chief technology officer.
For incoming calls, the custom application recognizes a client on the line, extracts key account information from the off-site CRM system, and delivers it to the screen of one of the 50 bankers who will take the call, even before he or she lifts the handset.
"In five years voice over IP will be the dominant enterprise-class communications system," Lamoureux predicts. "Why wouldn't people want to have [their phone and CRM systems] integrated more tightly?"
Even without revenue from the vendor, customers can realize cash flow from a well-executed vendor partnership.
Colorado Access is a nonprofit that relies on government and private grants to defray the costs of assisting the state's most needy residents.
Its work with Thomson Medstat (part of Thomson Corp.) provides a different kind of payback.
"We don't see it as a revenue source from a royalty standpoint," said CIO Bach. "I get a product that I need, I get recognized for what we added to it, and then I'm able to use that recognition to go out and get grant funds. That's my revenue source."
Yet cost savings and bottom-line boosts aren't the only benefits, and in many cases not even the primary reasons CIOs are partnering with their software vendors.
Early access to the new application, influence over its feature set and entrance to upper-echelon support are all common dividends customers earn on their intellectual capital.
|Customer Name||De Lage Landen|
|Deal||Joint development of a risk management framework that integrates budgeting, planning, reporting and consolidation.|
|Vendor Benefit||Live data and customer expertise in financial services to help build a powerful selling point across the financial services industries.|
"We're not doing it because it's a great price," says Frank Gillman, director of technology at Allen Matkins Leck Gamble & Mallory LLP., a Los Angeles-based law firm.
"We're doing it because we think it's a great tool for the type of work we do, and therefore it's a tremendous advantage to have some say in how software we need is developed, designed and upgraded over time."
The 220-lawyer firm, with offices in five California cities, has helped a number of vendors build products aimed at the estimated 3,500 midsize (those with between 50 and 250 lawyers) law firms nationwide.
The list of products Allen Matkins has adopted early and helped tailor for other law firms includes FrontBridge Technologies Inc. anti-spam and e-mail management software, WAN appliances from Riverbed Technology Inc., Softlink's Liberty3 library automation software, LexisNexis' InterAction CRM software and Thomson Corp.'s Hubbard One suite of law firm management applications, called FirmConnect.
"The practice of law is all about making a deal, so it's tempting to maximize the value of the projects we do," Gillman notes.
"We are getting the benefit of effectively having our solution delivered to us, without us having to develop it ourselves," says Brian Arculus, CIO of De Lage Landen, a Dutch provider of leasing and vendor-financing services.
Earlier this year, DLL entered into a partnership with Hyperion in order to integrate modules of performance-management software and create a risk-management framework for the financial services industry.
"If Hyperion is successful in selling exactly the same concept elsewhere, we don't get a penny of it, but we're getting enough benefit out of it because we're getting it first and getting it our way," adds Arculus.
Development partners also gain access to their vendors' top technical resources and decision makers, not only during, but often long after the custom software development is done, CIOs note.
The more vital the custom software is to the organization's business, the more valuable this bonus is.
"If it's a vendor we've worked with for years, helping them out also means that when Allen Matkins has a problem, we know that we'll be right at the top of the food chain in terms of support," Gillman added.
"To me that's the most critical [advantage]. I love the fact that when I have a problem with any of the products we use, I can pretty much call right to the top. It makes usITlook like we have access to a much broader network of resources than we do."