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Management Strategies

03:20 PM
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Amex Signs Innovative Deal With Sun

Licensing pegged to number of employees.

Sun Microsystems (Santa Clara, Calif.) announced that American Express (New York) will use the vendor's enterprise middleware to develop portal applications and enhance identity management services. Of particular significance to the deal, Amex's licensing cost is pegged to its number of employees.

Under the model—which Donna Rubin, senior director, worldwide financial services partner and industry marketing, Sun Microsystems, calls "deterministic pricing"—if and when productivity enhancements allow American Express employees to serve a greater number of customers, the cost of its middleware will stay about the same. This is quite unlike pricing models pegged to the number of customers, processors or other metrics, Rubin stresses.

Per-employee pricing, which Rubin describes as a "breakaway business pricing model," does have obvious advantages for companies that plan to increase their customer-to-employee ratio, whether by reducing head count, entering new markets or finding organic growth. Per-customer pricing, on the other hand, turns software providers into partners on the upside, which could have a negative impact on growth decisions.

Early Bird Special

Early adopters of Sun's per-employee pricing have enjoyed what appears to be a good deal. When pricing for the Sun Java Enterprise System (JES) was announced in 2004, the enterprise license was set at $100 per employee/year, with a cumulative 5 percent price cap on annual renewals. Now, less than two years later, American Express signed its deal with Sun for a reported $140 per employee/year for its approximately 70,000 employees.

Rubin is quick to point out that today's customers get more software for their money, including several identity management components—two-factor authentication, single sign-on and support for federated identity. Also, Sun recently acquired business integration provider SeeBeyond and is integrating the SeeBeyond ICAN suite into JES. This will better enable companies to embark upon technology strategies using service-oriented architectures (SOAs).

American Express has been an innovative negotiator for IT services in the past. For example, in its seven-year, $4 billion deal with IBM announced in March 2002, American Express was given an a la carte menu of IT services, with the freedom to choose the types and amounts of services it wanted. At the time of the deal, former Amex CIO Glen Salow remarked, "Think of it like an electric utility—no matter how much or how little you use, it will be there and that's what you'll pay for."

Salow now is EVP of technology at Amex spin-off Ameriprise Financial (Minneapolis), and has been succeeded by Stephen Squeri as EVP and CIO at Amex. Squeri formerly was president of American Express' Global Commercial Card group. --Ivan Schneider

Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio

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