Killing off products after mergers causing huge problems for users

Gregg Davis, CIO at Webcor Builders Inc., became concerned last fall when Oracle Corp. bought Primavera Systems Inc., because Webcor was a heavy user of Primavera’s SureTrak construction scheduling software.

Sure enough, once the deal closed last November, Oracle stopped supporting SureTrak as a stand-alone application and rolled it into the Primavera P6 project management suite, Davis said.

Protests to Oracle from Davis and other construction industry CIOs fell on deaf ears, and Webcor was forced to purchase a pricey license for what he called the “behemoth” P6 package.

He added that Webcor is still evaluating potential replacement offerings.

San Mateo, Calif.-based Webcor faced a similar situation early last year, when the $1.4 billion merger of Dell Inc. and EqualLogic Inc. led to the premature end of life for the EqualLogic iSCSI storage-area network arrays that Webcor had hoped to use for several years.

“We were hoping to get at least five, maybe eight to 10 years out of them,” Davis said. But suddenly, “we were sitting on a dead, discontinued product.”

A Sign of the Times

According to analysts, such incidents are happening more often during today’s hard economic times. Strong vendors see it as a good time to swallow up weaker competitors and cut out what they see as unneeded products and services.

The bad economy can also prompt the unexpected cutting of products and services by vendors not involved in acquisitions, or even the closing of a key supplier without warning, they added.

Related Web Cast: Contract consolidation: a key strategy for managing through a tough economy

Frank Scavo, an analyst at Strativa Inc., a management consulting firm in Irvine, Calif., noted that increased merger activity could provide some benefits to users — such as fewer contracts to manage and more volume discounts. But those are usually outweighed by increased maintenance fees for acquired products, especially those that are difficult to replace, he added.

Scavo suggested that IT managers can often avoid such problems by implementing a policy of purchasing key products from two major vendors. “Always leave the option open to replace one with the other,” he suggested.

Vinnie Mirchandani, an analyst at Deal Architect Inc. in Tampa, Fla., goes even further with his advice: Divvy spending among many vendors, and continually perform benchmarking to make sure contractual obligations are met. “Vendors often misinterpret long-term relationships as a license to pull lock-in shenanigans,” Mirchandani said.

Even solidly profitable, very stable vendors have responded to the economic woes by cutting products and employees in recent months.

For example, Microsoft Corp. has phased out 13 products over the past eight months, according to Matt Rosoff, an analyst at Directions on Microsoft in Kirkland, Wash.

And many of the 5,000 employees the software vendor has laid off since January were in customer-facing field sales, marketing and support positions, he added.

Ray Wang, an analyst at Forrester Research Inc., said that while most vendors know the importance of keeping customers happy in a tough economy, they cite a variety of reasons — some reasonable and others deceptive — when products, services and support staff are eliminated.

“Blame it on the economy, fear of depending on their people or plain greed, but a good number of executives have taken an approach that attempts to enrich their fortunes at the expense” of customers, wrote Wang in a recent blog post.

He suggested that IT executives seek ways to pressure their vendors to live up to contract terms, even in the case of a merger or acquisition. And if technology companies don’t listen to private pleas, Wang suggested that the IT managers take their complaints public.

Users should realize that the poor economy actually gives them some leverage, Wang noted.

For instance, buyers can demand contracts that assure them of working with trusted, effective sales representatives, he said. According to Wang, by threatening to postpone a deployment by a year, one company was even able to get a vendor to retain a consultant whose departure had already been announced.

Contingency Plans

Analysts also noted that companies can guard against the unexpected shutdown of key vendors by working out an agreement to hire companies like Iron Mountain Inc., Escrow Associates Inc. or EscrowTech International Inc. to keep the source code of key products in escrow.

Davis, for instance, chose to implement a construction industry ERP software system from Computer Methods International Corp. only after the Toronto-based vendor agreed to a plan to keep the product’s source code in escrow.

But for many companies, software escrow can be pricey, analysts said. The practice can also lead to legal battles if stored code is found to be defective or if the vendor claims that it is not contractually required to grant its release.

Such obstacles have led some businesses to turn instead to open-source software, though Davis notes that altering open-source technology to accommodate unique internal needs requires in-house expertise that not all companies have.

Moreover, the shutdown of a vendor of open-source software can be as bad as the closing of a maker of proprietary software. Analysts note that communities tweaking the most popular open-source products are employees of vendors that support the products. In those situations, the community “will definitely fade” if the vendor’s business declines, Davis added.

For users of hosted software products, a shuttered vendor means the loss of service, analysts noted. One option is for such customers to use so-called SaaS escrows from service providers like Santa Clara, Calif.-based OpSource Inc., which provides Web application delivery services.

Rather than giving customers access to the hosted product’s code, explained OpSource CEO Treb Ryan, a SaaS escrow basically guarantees customers that they will continue to receive service for two or three months after a provider goes out of business.


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Jim Love, Chief Content Officer, IT World Canada

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