Supplier partnerships are a strategic weapon in the application economy

What being a cloud provider taught me about licensing and supplier relationships.

“Please don’t make me count.”

Just as we were celebrating that we had solved a tremendous business agility problem with our cloud, we were faced with a potential roadblock that threatened to snatch the agility – and many of the other cloud benefits – from our grasp. At the time (about 10 years ago) some of our software vendors were struggling to understand that, though we had tens of thousands of machines – any of which might be running their software at a given instant – a full software license for every machine did not make sense. This threatened to make our shiny new cloud operation unaffordable.

One specific debate brought things back to reality. Our operations team was trying to explain that our environment changed every second, that software use was transient, and at that any instant thousands (or all) of our machines might be configured with an operating system on which the supplier’s software was not even capable of running.

The vendor was holding fast, insisting on full license fees for all machines that might ever touch their software. The price exceeded our budget, and likely the gross national product of some small nations. As things came to a head they demanded an accurate machine count, updated weekly. Every machine that the software touched required a full license. Then our operations director uttered the phrase that finally brought sane and civil discussion back to the negotiation: “Okay. We’ll count. On Saturday.”

It was very unlikely that many – if any – people would be using that software on Saturday. We explained that we would likely be able to count the number on one hand. We would happily pay full license fees based upon that. With the threat of a price that could be paid from a child’s allowance, the supplier understood our challenge, and a partnership developed.

Not all suppliers are partners

Through encounters like these we began to develop a supplier maturity model that consisted of three types:

1. Sales people who were interested only in order taking and collection
2. Vendors who would try to understand our environment and match their solutions to it, but who were still primarily focused on their own offering
3. Partners who saw our success as their success, who worked to understand our true business objectives, and would help us achieve them even beyond the context of their own offerings.

There was a place for each of these vendor types in our strategy, but over time most of the more strategic (high investment) work migrated naturally to the partners. Those partnerships flourished. We shared our strategic short, mid and long term vision with our partners, and they shared theirs with us. This had tremendous benefit beyond the obvious. Our partners knew our plans and they would prepare in advance for our needs. This made it possible for us to be extremely nimble, even turning around “emergency” orders in a day as opposed to a month when our plans changed or when we wanted to take advantage of an opportunity. We were all better for it, and our mutual speed and agility increased as in step with our trust.

Strategic partnerships are more important than ever

Fortunately many, perhaps most, of the licensing and delivery challenges we had to deal with then have been widely addressed as cloud computing has become mainstream. But make no mistake, there is still work to be done.

In addition, I am confident we will discover new challenges as more businesses adopt hybrid and public cloud services, as they create composite applications, and as container adoption rises. So as you prepare for the application economy:

• Think about your supplier relationships and where each supplier currently falls in the maturity model
• Develop strong relationships with key suppliers, and help them move up the maturity model
• Realize that a partnership is a two-way relationship and that your organization may also need to evolve
• Understand that creating a true partnership requires investment and commitment, but that it is worthwhile (some of our best ideas came through collaboration with partners)

George is co-author of “The Innovative CIO.”
This blog is cross-posted at “Highlight”.
Follow @GeorgeDWatt