How to negotiate better enterprise software deals

Computerworld - Tough economic times, and the availability of more software licensing models than ever before, have combined to shift more negotiating power into customers' hands.

But there's a downside: The software-shopping process has grown more complicated. With a slew of complex options to choose from, IT decision-makers have to do more homework than they once did.

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 IDC analyst Amy Konary. Some customers are threatening to choose other options -- including virtualization, software as a service (SaaS) and open source -- if a traditional vendor doesn't meet their demands, she explains.

The economic downturn has also given customers more leverage, Ray Wang, an analyst formerly at Altimeter Group and now CEO at Constellation Research Inc. Some have gotten maintenance and support fees cut by up to 60%, he says, adding, "This is a great time to buy enterprise software."

Baker Hughes Inc. recently got better terms from several vendors by agreeing to longer-term contracts and by bargaining as an enterprise rather than having each of its divisions negotiate on its own, says Graham Crisp, IT assets manager at the Houston-based 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.

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.

In addition to providing more pricing options, vendors are becoming more open about what choices they offer, Konary says. Indeed, some are actually using them as marketing tools.

Cloud vendor RightNow Technologies Inc., for example, has been trumpeting a provision in its new cloud services agreement that allows users who sign multiyear deals to cancel at the end of a year for any reason. In addition, customers can buy a pool of "seat months" that they can use on an as-needed basis.

Maintenance is another area where customers are starting to push for fairer deals.

For example, Gartner Inc. recently formed a user group, called the Global IT Council for IT Maintenance, that has issued a "code of conduct" for the way vendors approach maintenance deals. It calls for "reasonable, predictable" percentage ranges for annual maintenance fee increases or reductions, long-term caps on increases, and the ability for customers to stop or alter support at any time for unused products.