JustFoodERP featured in MSDynamicsWorld article "Assessing Impact of New Microsoft-Mandated Escrow Requirement for Partners, to Protect ISVs"

This article was reprinted from MSDynamicsWorld.com

Effective November 1, Dynamics partners have to meet a new software escrow requirement to be part of Microsoft's "Certified for Microsoft Dynamics" (CfMD) program.
Business solutions that are CfMD are thoroughly tested and proven to meet Microsoft's standards for partner solutions to reassure customers that their licensed software will perform as promised.

According to Microsoft, the escrow process will protect the ISVs' intellectual property (IP) and give customers an added assurance about the long-term viability of the software they purchase.

"Customers working with third-party software vendors in CfMD want to know that the IP assets developed by innovative startups will be protected," said Ray Wang, a partner at research firm Altimeter Group. "Software escrows are a key tool to provide an assurance that these assets will exist well beyond the life of some of these companies."

Marc DiGiorgio, vice president, JustFoodERP, said his company has been using a software escrow service for five years-long before Microsoft made it a requirement for certification. JustFoodERP was one of the first NAV solutions to receive the CfMD certification, he said.

"The CfMD certified program says, ‘Hey, prospective customer of Microsoft Dynamics, this product has been certified by Microsoft and it's written in the standards that we state it should be written in and there are ten customers running this product,'" he said. "And Microsoft has tested it and called the ten customers to make sure they're actually running the product and it fulfills all the documentation and coding standard that it wants."

There are only a small selection of products that are CfMD certified and now Microsoft is going one step further and increasing the certification requirements, DiGiorgio said.

"Microsoft is saying not only will it do this testing and validate that these customers are running it, but it wants to provide customers with an extra step of insurance in case of trigger events-usually that's insolvency and the partner disappears-so that the code, the phone numbers of all your developers and all the documentation related to the product are sitting in an electronic vault somewhere," DiGiorgio said.

JustFoodERP decided to use an escrow service because its customers requested it.

"We did it do it because the smart prospective customer will say, ‘Hey, you've done all this great stuff with NAV what happens if you disappear next year?'" he said. "They want to know because they're working with this behemoth partner Microsoft and Microsoft's not going anywhere but when they're talking to a smaller partner like us they want to be sure we're going to be around in the next 10 years. So the question they ask us is, ‘What happens if you're not around in the next 10 years? How am I protected in case you guys disappear.'"

DiGiorgio said the easiest way for JustFoodERP to deal with that question is to say it's going to put all of its "stuff" in a vault. Then, if the company disappears, its customers are beneficiaries of the escrow agreement and they'll automatically be sent a notice and as well as all the media that's inside that vault.

"It's a very inexpensive service," he said. "It's about $1,500 a year, provided you're on a third party agreement, and it provides that extra step of assurance for prospective customers. We use Iron Mountain."

But one Microsoft Dynamics CRM ISV, who asked not to be identified, is not sure the new certification makes sense for vendors of all Dynamics products.

"I'm concerned about anything that adds additional costs to the CfMD process if customers are not making it a prerequisite to purchase and own the product," the ISV said. "My feeling is even you gave me your code and I had all the source code, if you were out of business, who knows if I could even interpret it. Even if I have skilled people around would it make any business sense for me to figure out how it's working and what it's doing so I can continue to use it. Maybe it works for the ERP world, where it could be a $50,000 to $100,000 kind of component."

Recently Microsoft selected InnovaSafe Inc. and Guard-IT Corp. to provide software escrow services and hold the source code and data on behalf of CfMD partners and their licensees.

These vendors will help ISVs with the business requirements for their specific technologies and to meet their needs for prompt service, confidentiality and security, while protecting licensees' interest by providing rigorously controlled access to the technology, should a pre-defined event occur, according to Microsoft.

But ISVs are free to choose any service provider they want.

"These escrow companies are two of several Microsoft recommends, but there are no requirements to go with any one particular escrow company," a Microsoft spokesman said in an email to MS Dynamics World. "The escrow agreement is between the ISVs and the escrow company of their choice."