The British-government-associated educational consultancy Becta recently announced a much anticipated “… new framework agreement to enable educational establishments to obtain software licences.” Twelve IT companies “won” the right to more easily sell into the UK education market. In the United States, this agreement is similar to qualifying for the federal government’s General Services Administration (GSA) price list.

The new Becta framework does not cover learning-specific software, just software used for more general-purpose needs in education offices and administrations. Becta estimates that over the scheduled four-year life of the agreement, about £80 million ($120 million at current exchange rate) in such software and services will be acquired, “delivering significant savings over what could be achieved via ad-hoc procurement mechanisms.”

The IT Channel Is Like the Food Chain

So what can the Becta deal teach IT managers and staffs about realizing significant savings in software procurement? For starters, “services” is a key word in the last sentence of the above paragraph. The list of winners does not include any household name independent software vendors (ISVs). In fact, only a few of the 12 IT suppliers selected “to enable educational establishments to obtain software licences” actually develop software themselves. Only one appears to offer its own unique packaged software; a few develop software on a consulting basis.

The Becta “winners” would be more accurately considered distributors, value-added resellers (VARs) or consultancies. Most distribute or add value to or consult on entire solutions including PCs and other devices. Further, most are not in business specifically to deal with the education market. One seems closely connected to Microsoft and another to Red Hat, but in general, these companies let you “do it your way” in terms of vendor, features, functionality, pre-requisite platform, technology, architecture, license terms and conditions, and the other characteristics that most IT people use to compare and contrast software.

In the jargon of the market, this is “the channel” (see illustration). If you are a small or medium-sized enterprise, especially with very industry-specific IT needs, you probably think dealing with the relatively small providers in the channel is the only way to acquire IT. After all, typically you get your food at a grocer, not a farm.

(NOTE: These observations and recommendations apply to acquiring all types of IT but a short article cannot cover all types of technology so this article emphasizes software.) On the other hand, if you are a larger enterprise or organization, you probably cannot understand why software suppliers such as IBM, Oracle, SAP and so forth — all of whom offer services also — did not make the UK government’s list. The answer, to expand on the food-chain analogy, is that the Becta winners are the Carrefours, Krogers and Royal Aholds of the software industry, the companies consumers depend on for both the safety and economy. By analogy, IBM, Microsoft, Oracle, SAP and so forth are “just” the Archer Midlands, Cargills, Doles and whatever companies deliver Chilean or South African produce to the Northern Hemisphere in January.

The name-brand suppliers most likely did not make the Becta list because they did not try to. They depended instead on their channel partners. And actually that’s “channels” plural (refer back to illustration). The channels through which you choose to acquire enterprise software can provide you with a partner that pays better attention to your industry and size-of-business needs and saves you money.

The History of Software Channels

Historically (and possibly in terms of a census of existing software if one could be conducted), most software functionality in an enterprise is delivered one of two ways: It is delivered as a business service (ADP payroll services being the best U.S. example), and increasingly “delivered” online (software-as-a-service or SaaS). Or it is actually written specifically for the enterprise by its in-house staff or a consultancy. In more detail:

The business service (e.g., ADP) is typically delivering value far beyond software functionality. A payroll or benefits administration service often includes management consulting, tracking of tax-law changes and so forth. These are capabilities that have nothing to do per se with the software. In the Becta case, the “winners” — despite their general-purpose nature — are expected to keep track of UK education-administration requirements and make sure the software they are delivering meets those requirements.

On the other hand, theoretically, enterprise-unique software is providing some type of competitive advantage or meeting some unique enterprise requirement. It is often written by industry-specific consultants. However, the consulting involved often is a matter of turning some generic packaged software into something unique to the specific enterprises business processes, customer/supplier needs or industry/regulatory requirements.

Either way, it is the channel that is adding the value. Packaged enterprise software directly purchased with a perpetual license and used “out of the box” is actually the exception historically, not the rule. It is both relatively new (since about 1980) and will likely diminish in importance over time. Directly delivered software simply gets most of the attention because of the interest in investing in the companies that develop the software.

Let the Software Channel Help You

One lesson from the Becta announcement, whatever channel or channels are best for your IT group, is to avoid ad-hoc procurement. IT buyers need a framework, although it need not be as formal or even as lengthy as the UK educational bureaucracy’s (four years) or the U.S. GSA’s typical arrangement. However, most companies’ or organizations’ standard purchasing policies will not suffice. They only go so far when it comes to IT. One suggestion is to appoint at least one IT staff person to be the liaison to the general purchasing group.

In addition, no matter the type of software delivery, enterprises should judge the value of the software in terms of the per-unit functionality it provides. For example, for payroll processing and similar business services or SaaS functionality, look at metrics such as the entire cost per employee per pay period. For more unique functionality, estimate the cost of the software (packaged, in-house developed, or customized from a package) by the sale, the purchase, the product being manufactured, or whatever other real-life business process the software is supporting.

Another important Becta action was to associate itself with the wider buying power of the UK Treasury Department’s buying exchange, OGS. Depending on your company or organization size, buy through an industry consortia or other similar organization. Unlike Becta, more industry-specific distributors probably make sense as a requirement.

Although there are many good lessons to be learned in the way big IT spenders like governments acquire technology, a final thing to consider in such large-scale procurement efforts is that tying services to software acquisition the way Becta did is a 20th century way of acquiring software. Increasingly this century, software will become a commodity and software that needs implementation or ongoing service should not be making your short list. Even training should become unnecessary. If history is precursor, private enterprises will grasp this sea change before governments.

A second article in this series points out the plusses and minuses of the different types of IT software/service suppliers revenue flows. Even if your channel partner will worry about such issues for you, it is important for you to understand them.