Enterprise X.0 - Written by Julien Le Nestour on Friday, November 14, 2008 - Comments - Permalink

Pilots are not for profit-making. And we’re not playing games.

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This post is the first of the vendors series, exploring client-vendors partnership considerations. They’re all tagged and you can find them here.

James Gardner has a post up explaining how he and his team are looking at vendors coming to them with a new technology to try out. He makes a series of good points and I would encourage every vendor to read them closely. I can relate to all but one:

Some people, of course, will argue that this kind of thinking means that smaller companies (who simply don’t have the money to invest without commitment) are locked out of deals with a larger organisation. That probably true, and its too bad.

We actually seek innovative small companies, but that doesn’t mean we will pay for doing pilots either. Let me expand this point on pilots.

Here’s how we look at the value proposition:

We can be contacted by vendors, but often we contact them, especially when they are small and not mature for the enterprise market. As James said, we won’t even consider paying for a proof of concept or any other activity that requires us to spend resources (could be money, but more often time) to just see the light and be convinced of the value your product can add: this is your job and responsibility as a vendor. Your “cost of doing business”. So don’t ask anything at this stage, we are already spending an increasingly valuable asset on you: our attention. If we talk with you, especially if we called, we are genuinely interested, so don’t blow it up.

Assuming we know how we should, in theory, create value from your offering, we’ll need to test it, in our own specific and unique ecosystem. Your technology can be creating value for any other companies, if it doesn’t for us, then it’s of no use. That’s why we do pilots: to confirm that either the business value will be realized or that the technical risks can be mitigated (at a realistic cost).

A pilot is a small-scale deployment of the technology considered. It will often be similar to a full deployment technically, but we will offer it only to a limited set of users. Exceptions exist: for example when we think the value potential is important, but we are unsure how we will be able to realize it in our organization. We might want to do a full pilot here, open to any volunteer willing to try out. But in general, a pilot is a full deployment, used by a small subset of users and limited in time.

The point I want to make here is the pricing: we won’t pay for all this. But we are ready to offset the costs. Let me explain.

A pilot phase is an investment phase for both the vendor and the organization buying the product. The vendor is investing time and money to demonstrate the capabilities of its software in a unique ecosystem. The organization is investing a lot of time and money as well to deploy it internally, configure it, set up the pilot phase with business stakeholders, configure the tool, etc. It costs both sides, but as a rule it’s generally costing us more.

Pure investment, for both sides. Then hopefully the pilot is successful and the project moves to a full deployment. And both sides start reaping the benefits: the vendor as revenue, the organization as enhanced productivity.

What about small companies? Well, in our case, we are ready to offset the cost of the pilot. But we mean real cost. If you need to buy hardware, fine. If you want to bill us consultants’s time, nope.

The insistence of making profits right away is a good signal of how much value the product brings. Confident vendors are all too happy to provide all the support for the pilot for free, because they know we will want to move on to a global deployment. They are confident and jump on the occasion. If you’re trying to make a quick profit right at the pilot phase, then that tells us you are not confident you will bring value and want to book a quick profit. So yes, we use those attitudes as a signal to judge the quality of the product. It served us well.

Why expanding on all of this? Well, to drive home this point James is making for similar reasons:

I often wonder, when I sit across the table from a potential partner whether they realise this, or think we’re playing a negotiation game. I can assure you we’re not.

Believe us. We are not trying to play hardball. We just need to work within a large structure which adds some overheads. The cost of doing business with large companies is high, but then again the rewards are higher and we take part of the risk off the table by offsetting your cost. And don’t forget when you ask us to demonstrate commitment:

Here is another term I sometimes hear from vendors: “we will do something but you need to have skin in the game”. Since when did investing our time and resources in working with you not become skin the game? We have skin in the game from the first meeting.

Source: The proof of value

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Viewing 5 Comments

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    Julien,

    Well said. I definitely agree pilot should not be profit makers. I think small fees offsetting the costs for "ecosystem" customizations helps quite a bit for small vendors. More importantly, it creates partnership model and trust early in the game rather than antiquated supplier/vendor relationships.
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    By the way, big enterprises contacting small vendors is a very progressive strategy. More companies should be like that :)
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    Interesting perspective, and I can understand where you are coming from. I think the main danger here is that you end up with product vendors, who can cash in on licenses for little or no up-front cost, rather than solution providers, who might have higher up-front costs but greater long term value. In fact it may be worse than that - this logic is probably what leads many IT departments to sleep walk towards Sharepoint rather than work with partners to create something better. The problem is, not all larger companies are as interested as you in working with smaller vendors, so the risk is often very lop-sided.

    It is great that you share your thinking like this. I wish more IT-side people would do it, as I think both they and the vendors have to much to gain from a productive and honest conversation. Well done!

    Right now, I think the value in the vendor space is mostly with best-of-breed tools like Socialtext, Confluence, Newsgator, Jive, etc. The problem is that none offers a full E2.0 solution like IBM Connections, and of course there is no such thing as a one-size-fits-all solution. Each enterprise case is quite different.

    I expect a lot of innovation and consolidation in 2009 around these issues, and I am hopeful that cost-cutting in a recession will finally be the motivation IT departments need to think beyond their current ways of working.
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    Hi Lee -

    Thanks for commenting. I'm coming from the strategy side and still new to IT: the value of being open about my expectations and openly discussing where we see value hugely outweigh any (if any...) drawbacks.

    Regarding solution providers, the same logic can be applied with the trio clients / vendors / solution providers (SP). SP could work with vendors along the logic outlined in the post, and agree beforehand how they will handle pilots. It should be easy to obtain pilot licenses for free from the vendors.

    SPs would then provide the solution to their own clients, for some of the costs associated to building the solution. For clients, if the pricing is done well, there should not be a major difference between offsetting the costs of vendors and those of the SP.

    Of course, solutions will vary along the fully custom / "productized" axis, with costs varying accordingly. But this should also be for SP an investment. As outlined in the post, once large companies embark on a pilot, it's usually to make it work, not merely to taste the waters. So SP and its client should be well aligned in making the pilot a success and turning it into a full deployment.

    I believe solutions providers have in fact a very important brokerage role to play. I'll go deeper on that aspect in another point, with Sharepoint considerations. I agree with the dynamics you observe, but for me they stem mainly from an immature pricing and segmentation strategy from vendors.

    Thanks again for your comments!
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    BTW - I would like to add that I find your blog intelligent and stimulating, so please keep it up!
 

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