Fewer software vendors means fewer contract protections.

One impact of software “aggregators” buying system providers is that price competition has decreased, so the prices paid have increased. A more ominous impact is that the contracts of the survivors now offer fewer protections to distributors - not that they really offered many before they bulked up on rivals. 

Here are some of the issues that must be addressed in any system contract that protects a distributor. Addressing them involves adding specific performance guarantees to the vendor’s agreement.

  • Viability. No software company can afford to market, support and enhance several different software packages. Sooner or later, the stable will contain only a few packages. But it’s not safe to assume that the package with the most user companies will be one of the survivors; nor is it safe to assume that the most feature-rich package will survive. Even the continued release of enhancements does not guarantee that a package will remain viable.

  • License transfer. Long before software companies started buying up other ones, distributors started buying up other distributors. This trend is likely to continue, but some system contracts give the system provider the right to deny or restrict the transfer of licenses to an acquiring distributor. Such preclusion could result in a potential buyer walking away from the deal to buy a distributor who wants to sell.

  • Installation services. People who use online auction sites like eBay know that sellers get more money by selling at a low price but over-charging for shipping. Some software companies play a similar game by underestimating the number of hours needed to assist a distributor in changing from the old system to the new one. It’s like handing the vendor a blank check. Similarly, some software companies excessively increase their annual support fees.

  • Third-party software. Even though the large software companies own many software packages, there are some functions not found in any of the owned packages. These functions are handled by third-party software packages that a software company provides. Some of the third-party packages work well with some of the owned packages, and others don’t work so well. Some of the third-party software packages were not designed specifically for distributors, and may not address the needs of distributors. And because third-party software was not created by a system vendor, what would happen if a distributor is sued for misuse by the author of a third-party software package?

  • Help with problems. When the system is down, or some critical function stops working properly, what kind of help would be provided? If the vendor’s people accidentally corrupt the data in the system, who pays for restoring it to its proper form? How quickly would the problem be resolved? How can business be conducted if the system is down or corrupted for a week? Do you want to stake your business on best efforts promises?