Enterprise Content Buying—The New Landscape
It is not news that the global economy is in a major crisis: a recession. We see it when we turn on our televisions, access the internet, or read a newspaper or our favorite weekly magazine. It is affecting everyone in some manner. We personally, or people we know, have lost jobs, retirement accounts, and homes.
All the TV pundits keep asking if we have hit bottom, wondering when the economy will start to turn around, when we will come out of it. As a result, we are all spending less, in the budgets that we manage at work as well as at home.
The use of content and data, a major expense item for many companies, is no exception. Usage and spend levels for data and content are under close scrutiny, being reviewed by many levels of management. It can be said without any reservation that many companies are reviewing and reducing their spend levels for content.
I was recently at Information Today, Inc.’s Buying & Selling eContent conference, where our company facilitated an Enterprise Content Buyers’ forum. The objective of the forum was to sit down with enterprise content buyers and sellers and licensing experts to identify and discuss the challenges and opportunities that exist in the current marketplace and, more specifically, to focus on the impact of the recession and what has changed in the last 12–18 months. The 30 forum participants, who all had their own points of view of what was and what was not working, were in agreement on one point, namely that the content marketplace is in a state of flux and going through difficult times.
The New Focus on Content
One concern was immediately identified: During the past year, there has been an increased focus on content, primarily regarding the cost and management thereof. While this has always been an area of interest and a part of most companies’ annual expense review processes, the focus is much more intense as compared with prior years.
Why is there a sudden increased focus on content and information costs? Simply put, content is both a key ingredient for business and a major expense. Our market research shows that the investment in content and data is generally one of the top expense items within a firm. For some firms, within the financial industry, for example, content costs are the second or third level of expense behind the cost of employees.
While there has always been a focus on content, what to use and how much it should cost, the past 12–18 months have been different. Cost controls and reductions have become a priority—in some cases, even keys to survival. This has resulted in a new focus on how content is used.
The following is a summary of changes regarding content considerations.
1. Mandated cost reductions. Many firms are mandating significant cost reductions. This is coming as a directive from senior management and, in some cases, even from the board level. What is different is that in the past, firms initiated a cost review and reduction project periodically as a way of generally keeping an eye on costs; now it is a mandate. We know of a number of cases in which firms have stated that the current costs have to be reduced by a fixed percentage, no discussion. The level of reduction varies from firm to firm. However, 20% is a common target.
2. Reduced requirements. In the current marketplace, firms have reduced content and data requirements. This is as a result of staff downsizing, changes in market focus, and the cancellation of content products that are seen as noncritical for the operation of the firm.
3. Acceptance of reduced service and usage level. Companies, in an effort to meet the cost goals set by management, are accepting that they have to work with less. Often, the level of targeted cost reductions cannot be met by price negotiation alone, so services are being reduced. In a number of cases, managers are being forced to make a choice: whether to reduce staff or to reduce content sources. It is easy to see why content suffers.
4. Have to have/need to have/nice to have. Companies are taking a hard look at what is required and what is important in their quest for company efficiency. This is resulting in the elimination of “nice to have” services and a significant reduction in the usage of “need to have” services.
5. Review of ‘like’ suppliers. Companies are doing a review of suppliers that have similar product/content offerings. Products that look and feel like other products are being reduced or eliminated, particularly if cost reductions can be achieved. Products that have a particular “niche” value to limited users within a firm are being eliminated, reduced, or sourced in a different manner.
6. Change in user habits. Companies are accepting the fact that, to meet cost-reduction objectives, they may have to change user habits. This can include moving access levels off of the desktop and over to information centers, reducing the number of IDs and using sharing as a way around the reduction or by moving access to a “kiosk” model, thus reducing the number of users and related costs.
7. Level of influence. There is a new level of influence about which type of content is bought and used. In the past, these decisions often were made by information professionals and market data managers. Now, central sourcing groups with multiple layers of senior management review have become involved in content decisions. This has forced a different level of price negotiations.
8. Change in point of contract. As a result of the market downturn and staff reductions, as well as the current focus on cost reductions, there are new people managing supplier relations and handling contract negotiations. This has resulted in modified loyalty factors for suppliers and their views regarding the importance of their products/services.
9. Changing management mandates. The current financial crisis has resulted in the constant review of a firm’s financial status. Consequently, management is resetting cost-reduction objectives, often in opposition to the negotiation strategies with content suppliers. We are aware of a number of cases when a “deal” has been reached only to be set aside because senior management has targeted or reset higher cost-reduction goals.
10. The last critical change: funding approval. Getting funding approvals for supplier agreements has become much more difficult. We have seen a number of cases in which contracts were negotiated based on user requirements and preagreed funding guidelines, which were later set aside because of revised funding guidelines. There are now new layers of funding requirements that often include senior staff people who would not have been involved in this process in prior years reviewing the request.
The New Focus on Negotiations
The financial crisis and the impact on content usage and sourcing practices have mandated changes in how the buyers are working with the suppliers.
The main objective is to pay less for the same services. This has always been a goal, a part of standard cost-containment practices, but never with the focus and intensity as is currently the case. In the past, this was discussed as part of the negotiating process; now it is often stated as a requirement, a part of the mandate that the negotiator has been given by his or her management.
Companies are willing to do with less. This constitutes a major shift in the negotiation approach. Again, this has always been talked about and used as a negotiation tool. But in the end, most companies, based on user and business requirements, maintain or even grow the usage levels. Companies in this economy are downsizing, both in the number of people they employ and in the range of products and services they offer to the marketplace.
A number of our clients are taking the approach of offering their users a mix of “good enough” content, insisting that they live with lesser-quality data. Others are taking a serious look at “low pay” or, in some cases, “no pay” internet sources, with the goal of reducing or eliminating high-price enterprise content agreements. An example is a financial sector client that is moving 100 of what it defines as “casual” internal users from a first-class priority product that costs about $250 per month to Yahoo! Finance, which costs $150 per year. This would not have happened a year ago.
Usage guidelines, the rules around how the data or content is being used, are also getting close scrutiny. Companies are asking for wider usage rights and expanded volumes for the same or lower-expense levels. We have seen several cases in which companies have expanded usage with one supplier and eliminated like suppliers. The majority of the suppliers sees this request in a positive way: It is easier to give away additional products/usage/value than to take reductions in the total spending level on the part of the client.
The following are some trends we are seeing as the focus on negotiations increases:
1. Mandate price reduction, often with the understanding that usage levels will have to be reduced as well.
2. Ask for “incentive” offerings as part of contract renewals. This can be a period of “no pay,” additional product usage, or other benefits.
3. Expand usage levels for the same level of expense. This increases the value perception of the vendor and products.
4. Negotiate longer agreements with benefits or incentives in the short term.
5. Change the payment schedule, reducing the level of payments in the early term of the contract, generally the first 12–18 months.
6. Remix the firm’s usage of vendors and products. The goal is to set a new mix of products that costs less money and still meets the business requirements of the userbase.
7. Develop templates or standard content product offerings for user roles based on job requirements. What do users need to have to perform their jobs? Remove any products that fall outside of the standard offering.
8. Reduce or eliminate usage of some content suppliers. This is becoming prevalent with “nice to have” suppliers or suppliers that look and feel like others.
The level of success with some of these approaches will vary based on the industry you are in and the mix of your suppliers. Some suppliers, often the aggregators who repackage the content from other sources, are more of a cost-reduction target than other suppliers who write and develop their own content. Other considerations that impact the value and price level can be the importance of the search functionality, modeling tools, or other factors.
It should be clearly stated that price reduction cannot be achieved with all suppliers. All of us have and use suppliers that are the only source for critical data and content sets. In these cases, the level of success for price reduction will be less; however, the supplier may be a candidate for usage reductions based on other factors in your firm. But it can also be stated that in the current marketplace every supplier is being looked at in some manner, either for price renegotiation or usage reduction.
The Long-Term Outlook: How Does Everyone Survive?
A longtime business associate of mine uses a statement that she makes at the start of any negotiation: “At the end of the day we all need to keep our jobs.” I think this is an admirable goal, delivered at the right time, and pertinent to the issues we are all dealing with in today’s economy.
Content buyers (user firms) have no choice but to reduce costs. But at the same time, suppliers must maintain a level of business that allows them to survive. Some suppliers, based on their product offerings, are doing fine, maintaining a high level of business retention and, in some cases, even increasing their sales levels. Others are not so fortunate; they are experiencing a material drop in sales levels. I know of several suppliers who have a current sales retention level between 60% and 80%.
Buyers are asking suppliers to negotiate in different ways. The level of spending is coming down, and the payment terms are being redefined. Suppliers are being asked to be open-minded and innovative in ways that are new to the entire industry. What appears to be critical and a measure of success for the suppliers is the ability to make concessions in the short term in order to retain positive relationships with clients for the long term. It is difficult for any supplier to try to do business as usual (although there are some who can).
In the same way that the sun rises every morning, there will be an end to the financial crisis. The pundits on our favorite talk shows seem to think this will be in 12–18 months. There have been some major casualties along the way, the most obvious, of course, are Lehman Brothers and Bear Stearns. But everyone has been or will be impacted at some level. In the interim, content buyers and suppliers have to innovate, work together, and focus on the long-term opportunities.