Get more for your enterprise software budget: Negotiating strategies

There are more choices to navigate these days, but some fundamentals still apply, too

Today's tough economic times, along with the availability of more software licensing models than ever before, have combined to shift more negotiating power into customers' hands, some experts say.

But that power, and the expanded array of choices, come with a downside: a more complicated software-shopping process. With more complex options to choose from (see sidebar below), IT decision-makers have even more homework to do than usual.

Even with the economic downturn, however, the overall amount IT spends on packaged software hasn't gone down. In fact, packaged software has increased slightly as a percentage of the IT budget, rising from 1.92% to 2.02% of total worldwide IT spending from 2006 to 2010, according to IDC.

Smart IT managers are getting more for their money these days, though. Instead of passively accepting the old perpetual license model and vendors' pricing terms, customers are haggling for better deals, says Amy Konary, research director of software licensing and provisioning at IDC. Some customers are threatening to go with an alternative software product -- including virtualization, software as a service (SaaS), open source and freeware -- if their traditional vendor doesn't pony up, she explains.

[Read related story, Virtualization and software prices: Very tricky.]

The economic downturn has also given customers more leverage, says Ray Wang, a group partner at consulting firm Altimeter. He knows some clients that have gotten their maintenance and support fees cut by as much as 50% or 60%, he adds. "This is a great time to buy enterprise software."

Baker Hughes has recently negotiated better terms with several vendors by agreeing to longer-term contracts and by bargaining as an enterprise and not as separate divisions, says Graham Crisp, IT assets manager for the global oil-services firm. "We have much more leverage and can get volume discounts by bargaining as a single company with 36,000-plus users instead of eight divisions," says Crisp.

Of course, enterprises have always been able to cut deals in exchange for larger and longer-term commitments. The big change now is that the customer "has more transparency, flexibility and choice" during negotiations, Konary says.

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