Software Vendors Often Want TCO Estimation, But Not Willing to Invest the Time To Perform The Analysis

Executive Summary

• After working with many software vendors on creating their own TCO calculation, it is curious and even shocking to see what they intend to invest in the process.

Introduction

Software vendors want to be able to present the case of their advantageous TCO to prospects. However, a major problem with their expectations is how little they are willing to put into the TCO calculation and how much they expect to make an impression with their TCO estimate.

This article describes feedback from software vendors on TCO.

Observing the Flaws in the Typical Expectations of Software Vendor on the Topic of Developing Their Own TCO

Brightwork Research & Analysis is known for our TCO calculators. Because of this, we have been asked by multiple vendors to support their internal initiatives to develop their own TCO estimations. But several problems have repeatedly arisen from software vendors trying to create their own TCO.

Flaw #1: Not Considering the Implied Bias in a Vendor Created Estimate

Software vendors who ask me to explain the credibility of Brightwork’s TCO calculations, which we have for SAP in the article How Credible is Brightwork Research & Analysis in SAP?, will nonetheless never ask themselves the question of their own credibility when they provide TCO estimations to prospects. And they should because it will always be low.

Vendors want to sell their software. This means that any comparative information provided by a vendor will be taken with a grain of salt by prospects.

Should We Accept Automotive TCO Calculations from Automotive Dealerships?

Let us imagine a scenario where the entity selling an item is responsible for telling you the TCO. Is there a car dealership in the world that produces a reliable TCO for its vehicles?

I can get vendors to laugh or at least chuckle at what I just wrote, but the same thing applies to software vendors.

The scenario above is ludicrous. However, when the shoe is on the other foot, software vendors expect their prospects to accept TCO estimates from them. These people in software vendors who expect this would never accept a TCO estimate from their local car dealership when purchasing. 

Focusing on Only Generating the Numbers

Vendors often want to get to some numbers for their estimation but have told me, and it is unnecessary to get very deep into the assumptions. However, any spreadsheet has to have supporting logic.

Let us observe a quote I have made anonymous, which I received during a negotiation with a software vendor.

I was hoping, with your experience, you could just add metrics that capture the cost of managing and building in (REDACTED) on top of we already have.

On top of that, we are continue to add to it based off conversations we have with the clients we’ve signed up so far to evaluate the technology.

Notice that this vendor was not interested in any detailed analysis. However, this vendor admitted that a problem they were facing when presenting their own estimations to prospects is that there was not enough evidence to support them.

What Software Vendors Are Good At Versus What They Are Not

This gets to the central issue that vendors normally only put effort into sales, development, and marketing. They don’t have an interest in outside topics, such as TCO calculation. They are trying to get to the answer (where their solution provides the lowest TCO) as quickly as possible while putting in the bare minimum effort.

They do not realize that a TCO calculation that can’t be supported is not useful, except with only the lowest information prospects.

• One has to be able to answer the assumptions for the metrics to be effective. One may not use the explanations for every assumption on every pursuit.
• This is because you get different questions per account. A vendor may answer questions on assumption #1, #2, and #5 on prospect A, an assumption #4, #7, #10 on prospect B.
• One you need to have all of the assumptions fully fleshed out. Secondly, if the assumptions are not fully researched, what is the validity of the TCO calculation?

I have never come across a software vendor that was also good at research. They also do not employ researchers.

Getting Research and TCO Estimation from Ex Strategy Consultants?

The closest they have to these type of people are strategy consultants who have performed estimation, but who only know how to reverse engineer a conclusion and find the data that fits to support this conclusion. This is how strategy consulting firms work, and why no report by McKinsey has any validity. These are simply not research organizations, and an ex-employee from these companies cannot produce research — they will determine what the organization (that is their vendor employer) wants to hear and then deliver that result. I worked for a software vendor that has a “strategic services” division. The group was 100% fraudsters who provided exaggerated ROI analysis to prospects. They reported up through sales and had zero integrity. I knew several of these people for years after I left the company, and they used to joke with me how they would come up with fictitious numbers, and they got prospects to buy it.

Flaw #2: Not Considering the History of Software Vendors in Developing TCO Estimations

In performing research for the Brightwork R&A calculators, we reviewed all of the TCO calculators that we could find. During that research, we could not find a single TCO calculator that was credible, but we could not find a single TCO calculator that was complete.

Yes, not one calculator included all of the costs that make up TCO.

Software vendor and consulting company involvement in TCO calculators is one of the major factors that has undermined the use of TCO as a method of analysis. However, when software vendors discuss creating their own internal TCO calculators, they normally do not include this history of vendors with TCO into their planning.

Conclusion

Software vendors that try to create their own TCO estimations tend to have unrealistic expectations regarding TCO. In the vast majority of circumstances, the TCO calculation process is controlled by marketing, which has no domain expertise in research or estimation and is trying in many cases with the absolute inadequate budget to conclude where their product can be said to have the lowest TCO. They will not put the work in even to provide a detailed explanation of the TCO calculation assumptions. And in most cases, they have no idea the amount of work that goes into performing TCO calculations.

Secondly, it is exceedingly rare for vendors to recognize the double standard they are applying to how they think their TCO estimations will be accepted. And there is no technical difference between their internally developed TCO calculations for their product, and an automotive TCO calculation provided to them from their BWM dealer.