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Corruption, dirty tricks, let's stop pussy footing about

Vendors are coming in for a hard time again. But are analysts any better?

Three loosely related posts caught my attention the last 24 hours.

Ray Wang implies dirty tricks and corruption among sourcing advisors.

Vinnie Mirchandani carps on about the lack of balance among those who comment on the enterprise space.

Finally, there is Vijay Vijayashankar defending the sell side position while attempting to find some balance among those who comment on this space.

All these folk are people I happily call good colleagues but in each of the pieces they fall short. On back channels and email they will say which companies they are referring to but lack the nuts to say so in public. This post will attempt to rectify that problem - at least as far as I can without libelling anyone.

Let's be very clear: the enterprise apps space is highly lucrative. Margins at 85-95% would be attractive to any industry but are particularly attractive to software vendors since the marginal cost of service delivery is pretty much zero. When margins are that high then there is a great temptation to cut corners, abuse statistics, engage in negative marketing, diss competitors both publicly and in sales cycles. If you want to know a dirty business then welcome to the real world of enterprise app sales. Despite protestations to the contrary ALL the major vendors engage in some or all of these practices to a greater or lesser extent. Let's pick the arguments apart - or rather augment them.

Ray complains that:

....in the past few months, we’ve uncovered several new techniques that cross the line on both objectivity and transparency.  These approaches include both formal and informal contractual guarantees across three major areas:

  • Number of blog posts or written research about a vendor. Sourcing advisors commit to writing certain amounts of research in exchange for a contract with the service provider.  In some cases, the research may require editorial approval by the service provider.
  • Number of invitations to bidders conferences. Sourcing advisors commit to inviting the contracted service provider to a short listed group of candidates.  Some contracts even include a tiered scale for greater payouts based on the number of invitations to deals.
  • Kick backs and referral fees for closed business. Sourcing advisors collect a financial reward for recommending a buyer to a service provider.  Fees work similar to referral models with alliance partners.

There is NOTHING new here except perhaps for the final paragraph. Pay for play is well understood and if my contact with buyers is an indicator then they are alive to the situation. If Ray is correct - and there are plenty of cases on file to indicate he is on the right track - then isn't is time to name names and call it for what it really is...corrupt practices? That's what Oracle was found guilty of recently in relation to government contracts. Does anyone think for one minute that it stops there? From Legal Pad:

Oracle America Inc. will pay $46 million to settle claims that Sun Microsystems Inc., which merged with Oracle last year, paid kickbacks to consulting companies in exchange for recommendations that federal agencies buy its products, the Justice Department announced today.

Next to Vinnie. He says:

I have also been hearing from my Enterprise Irregular colleagues of a “review before publish” policy a large vendor is requiring of analysts which cover it. Not fact-check, review. Talk about believing your own marketing – and making sure no one interprets it any other way.

Guess who we're talking about? But again, this is not new. Along with fellow ZDNet'er Brian Sommer I am about to conclude a report on SAP Business ByDesign. As I write this I am in Germany to get an update from SAP. It will only be fact checking. SAP has no lock on what we have to say. You can choose to believe that or otherwise but both Brian and I will stand four square behind what we say.

Now to Vijay:

Software Vendors have to sell the product - and hence have little reason to show their product in less than favorable light. However, this does not mean that these vendors are out to cheat you outright. There are definitely some things that vendors should be doing better. One such case is the hyper inflated list price. As most experienced buyers know - almost no one buys anything at list price, and there is plenty of room to negotiate. But when the difference between list price and actual price gets ridiculous - customers will think that Vendors don't have their best interests in mind. This is not a new phenomenon - but for whatever reason, Vendors don't seem to care. I suppose it is just a matter of "who blinks first" amongst competing vendors. There are many many more - but lets move on to next party, the analysts.

This is the first of many statements Vijay makes. Did he perchance miss the piece in InformationWeek about software pricing insanity where the authors said:

I understand that our software vendors must earn returns that support continued investment and innovation. But how much time and effort would be saved by both parties with simpler, more transparent licensing methods? It's time for a change.

Vijay is right but which among the vendors is prepared to step up to the plate? Oracle produces a price book but working your way through it is a devil of a job. SAP's price book is one of the great mysteries of the world. Microsoft is a lot easier to parse but even there we find hurdles.

Vijay goes further complaining that:

The general idea is that analysts are impartial and hence will give the customer some great unbiased advice. If you go to any Vendor event - you will find a large number of analysts. Of course they need to go there to get some information on what the Vendor is up to. But I have a serious issue with their source of information - Vendors should not be the primary source of information for an analyst. That information should be verified with customers, SIs and academicians to make sure it holds water. For the most part, I don't see that happen. In this day and age - every reputable analyst has a public blog. And most of them openly disclose affiliations to vendors. This is commendable - however, what is kind of funny is that well known analysts take potshots at some vendors when it is well known that they have affiliation with a competitor.

It is a valid point and swings back nicely to what Vinnie says about other compensatory data points. But please - if you're going to make those accusations then at least name names or show the examples. Pointing the finger is not enough in an age where we want greater transparency.

All of us who operate as analysts, bloggers, commenters...whatever, are inevitably conflicted in some way or another. It is almost impossible not to be unless you plan on excluding yourself from the vendor community altogether by telling vendors you simply don't trust them. That would be folly. The question then is the extent to which you are prepared to be bought and sold in a consolidating market.

On an individual level I sense most analysts I engage with would be mightily offended with the thought they can be bought in the manner described. It is an altogether different matter at a firm level. It is perhaps an indication of renewed vendor arrogance that at least one company believes it can exert pressure in the manner Vinnie describes. It takes fortitude and resolve to say 'no' and mean it. Especially when there are potentially millions of research dollars on the table. But if you want to resist that sort of temptation then that is exactly what the research companies need to do - en masse.

One problem I do perceive and again it is not new but which is harder to manage these days than perhaps at any time in the past. The vendors always know more than buyers. It is therefore incumbent upon buyer advocates to state their allegiances up front and be prepared to show the buyer examples of success. In that sense Vijay has a good point when talking about taking broad opinions. But he is wrong when talking about taking buyer references with the grain of salt he proposes:

While generally it is a good idea to check with some one who has gone through this before, it will be naive to think that you will get to know "everything" that happened in that project. The other customer probably might tell you everything that is wrong with software - but might withhold some crucual context where they may fear will show them in poor light. And their contract with vendors might explicitly prevent them from disclosing everything to you.

Buyers know best what works for them and yes, they misinterpret for all the reasons I have stated. I have seen it happen in recent case studies where facts were skewed or out of whack with what the vendor claims happened. But...it is the perception of value delivered that matters and well informed buyers understand that aspect much better than Vijay gives credit. So - where to from here?

We commenters grumble and groan yet very few are prepared to put their money where their mouth is. If we expect vendors to behave transparently then we should do the same. If we see examples of poor practice or participate in negotiations that surface less than fair dealings then should we not say so in the public domain rather than pussy foot around?

We cannot expect vendors to act according to one set of standards and then fail to live up to those same standards. That really is hypocritical.