ROI Lost: IBM Puts the Screws on a Loyal Customer

If you ever thought that the contents of the contract you sign with your IT vendor isn’t the most important part of your technology strategy, read on. And if you ever thought that your vendor would never do anything to overtly screw you, you also need to read this blog.

If you ever thought that the contents of the contract you sign with your IT vendor isn’t the most important part of your technology strategy, read on. And if you ever thought that your vendor would never do anything to overtly screw you, you also need to read this blog. Because the story I’m about to recount is one of the more blatantly egregious cases I’ve run into of a vendor doing wrong, very wrong, by an otherwise loyal customer.

The vendor is IBM, and the customer, for obvious reasons, must remain nameless. Among the reasons this poor customer’s name can’t be printed is the fact that the IT department still has to work with IBM, despite that vendor’s behavior.

The customer in question is a long-time PeopleSoft user, and one that happily ran PeopleSoft on IBM’s DB2 database – running obviously on an IBM mainframe – for a number of years. As a cost-cutting move, this customer decided recently to migrate their PeopleSoft implementation from DB2 to Microsoft’s SQL Server, a move that was expected to yield significant savings.

And it would have been, had it not been for the gotcha that IBM pulled out of the bowels of the contract that some long-since departed employee at the user’s organization had signed seven or eight years ago. The gotcha provision basically stated that the mainframe costs attributed to the original PeopleSoft implementation had been significantly discounted as part of the original PeopleSoft deal, and, as this customer was going to continue to use this mainframe to run other legacy systems, IBM had no choice but to wipe out the PeopleSoft discount in order for the customer to continue to use the mainframe. This effectively tripled this customer’s annual bill for its mainframe, something the customer had no choice but to pay in order not to lose access to the platform that was running another important part of their operations.

This tripling of the mainframe price tag effectively wiped out any possible savings for the database migration, not to mention good will and trust. You can imagine how happy this customer is with its long-term “partner.” And how eager this customer is to do any more business with IBM.

I know that a lawyerly read of the situation is that the customer signed the contract, and therefore IBM was perfectly within its rights to exercise the contract’s terms. But I also know that this customer, like many, was massively outgunned at contract-signing time, and that this kind of gotcha was probably well-understood by IBM, and understood as a gotcha that wouldn’t be very popular if customers really knew what all its future ramifications would be.

So it's pretty clear that IBM neither really explained what this penalty clause could mean down the road, nor did it blink when it came time to exercise this clause. And herein lies my non-lawyerly beef with IBM: exercising this clause is clearly punitive, a punishment for having the temerity to move to a competing platform. It also is clearly stupid, in that it signals that IBM is more interested in making its revenues any way it can, even if that means putting the screws to its customers. And it also puts all IBM customers and prospects on notice: you’d better hire a contracting expert who can protect you from these sharks.

In the end, maybe I shouldn’t be so surprised, this is business after all, and the market’s “invisible hand” will right all wrongs. Which means IBM will get its come-uppance someday. They obviously think they can get away with this: so hopefully that come-uppance would come up sooner rather than later. Playing contract gotcha with customers is bad for the entire industry, and IBM should be ashamed for sinking to the occasion.

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