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Six ways to write better OEM contracts.

David Solomont, president of Business & Professional software, signed his first OEM deal with Apple Computer in 1980. Since then, Solomont's $2 million company has provided graphics and presentation products to a long list of hardware and peripherals companies, including IBM, Xerox, DEC, AT&T, Wang, Pansophic, Genigraphics, Polaroid, and 3M.

After literally dozens of successful (and occasionally unsuccessful) OEM negotiations, Solomont says he's learned that some of the most trivial issues--payment arrangements, acceptance procedures, copyright and trademark ownership--can often make or break a deal that both sides sincerely want to consummate. "The software itself," says Solomont, "turns out to be a very small part of most OEM relationships."

Solomont recently offered a few tips on how to negotiate OEM deals with

large corporate customers:

Put everything in writing. "over the life of the contract, the people you started talking to will probably move on to other jobs. Their replacements won't understand the fine points of the deal if the contract isn't absolutely clear." To make sure his OEM contracts cover essential issues, solomont usually insists on supplying a first draft. "I'm not shy about insisting on this. I tell them it's going to cost me another $10,000 off the front if my lawyer has to read their contract."

Break the project into development phases. Except when he sells off-the-shelf BPS products, Solomont generally sets up deals that have "escape hatches" at key development landmarks. "If the relationship isn't working, either party can get out and know exactly what the implications are," he says. Often, the first phase occurs even before a formal contract exists, with the preparation of a highly detailed set of product specifications (which the OEM customer usually pays BPS to write). For very complicated projects, Solomont says it's often better to plan a two-phased release schedule: One version is designed to generate immediate sales, while the second release incorporates more enhanced features. "when there's money flowing from the market, everybody's a lot happier."

Decide who owns the customer and the brand. "The biggest mistake I made with Apple was not getting my name on the product,' Solomont says. He now tries to get equal billing for the BPS name, and he usually gets to control warranty card and customer support lists. "We definitely want the right to keep marketing to these customers."

Stay on the leading edge of technology. Many of BPS's customers pay an ongoing maintenance fee of $25-$50,000/year that Solomont uses "as a pool of money for making improvements that benefit everybody." solomont routinely ships new drivers and other enhancements to OEM customers who contribute to BPS's R&D fund; customers who don't contribute buy new technology on an a la carte basis.

Take charge of pre-launch manufacturing. Solomont says that software manufacturing doesn't make much money for BPS. But he's discovered that BPS usually gets new titles into production a lot faster than most corporate bureaucracies can. "Our Apple II product was held up for six months because the color on the Apple logo was a little off," he says.

Become a problem solver. Unlike retail-oriented software companies, says Solomont, "we don't invest a lot of effort thinking up new dealer programs. Instead, we spend our time thinking about how Polaroid can make a better film recorder or how 3M can expand its media business."
COPYRIGHT 1989 Soft-letter
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Copyright 1989, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Publication:Soft-Letter
Date:Jun 1, 1989
Words:555
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