Thursday, November 23, 2006

Software Trials: Beta Watch Out

Lately, I find myself spending more and more time negotiating the terms of what should be relatively simple affairs - software evaluation agreements. To me, this is like debating the terms of a coupon or gift certificate. How does this stimulate sales? I have no answers, but it seems to me that reviewing how these deals can unfold might provide some insights.

Here's how evaluation licenses more or less work for most software solutions:
  • Customers who wish to try before they buy receive a limited term license to trial the software, free of charge, without any warranty or other protection from the vendor.
  • The evaluation, or "eval", license is a quick way to get the product in the hands of the CTO/IT group without having to first agree to price or other terms.
  • The customer may also agree to make a deposit that will be applied to any professional or technical services it may ask the vendor to perform to assist in the evaluation.

The theory is that: (a) both parties are mutually incented to get to a final license in place before the trial runs out if the software turns out to be useful, and (b) since the value of the software has already been proven, the vendor has better leverage in negotiating price and support following the trial.

That's the theory. Here's what often happens when the vendor is a startup looking for its first sales:

  • The customer insists on running the software on production servers, instead of in a controlled, or lab-like environment. This means, should anything go wrong, the vendor is exposed for business interruption, lost data or other damages to the customer's business that may result from running the trial. All before the vendor has received a cent.
  • Because the software is now in a live environment, the customer insists that the eval license contain protections and indemnities that will compensate the customer if there is a problem.
  • To mitigate the chance that a problem will occur, the startup then goes for the full court press, providing whatever installation, training and other support is necessary to secure a deal. It attempts to expand its eval agreement to specify the precise services and the value being provided, and (in anticipation of future price discussions) to make clear what is included in standard support and what would be an additional charge if a sale results.
  • The customer's lawyer then wants to make sure that it will own any improvements or know how resulting from these services that the vendor has agreed to provide. (Even if they don't buy your application, they sure as heck want to own the interface between their system and yours.) Further debate ensues.
  • The startup waives any deposit, or reduces it to a token amount (within the signing authority of the person trialing the product). To avoid any suggestion that installation was free, further clarifications are made.

You get the picture. Soon, the legal fees for a free license rise and I'm finally buying the Sub Zero fridge everybody's bugging me about.

Sometimes, the value of simple concepts is lost through too much elaboration. Offering evaluation copies to some customer is one instance. Here's another: personal care products for men. It's one thing to sell cleanser and toner to men, but quite another to provide holiday dazzler makeup kits. I need to wake up knowing there's a fighting chance I might be the prettiest one at my next board meeting. I don't want to live in a world where men have equal access to bronzer, eyeliner and body glitter.

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