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7 ways to cut your software costs during the economic downturn

By Eric Lai
December 1, 2008 12:00 PM ET

"For the last three years, while tech was hot, I've experienced a bit of 'the price is what the price is' attitude from sales guys," Menefee said. "I completely think the power has shifted to the buyer."

As an example, Menefee said he is seeing "very aggressive pricing" from three vendors that are competing for a contract to supply Schumacher with a new human resources administration system.

Fauscette said that IT buyers should also watch areas such as workforce management software, where smaller, SaaS-savvy vendors such as SuccessFactors Inc. or Taleo Corp. could "go aggressively after Oracle or SAP." He even suggested that inexpensive or free desktop applications, such as OpenOffice.org and Google Apps, have matured to the point where organizations might consider dumping Microsoft Office, along with its accompanying Software Assurance maintenance tithe.

2) Consider cutting software maintenance — carefully

Discontinuing maintenance or support contracts with software vendors is a popular way of saving coin among corporate users. "A lot of enterprises will say, 'You're not giving me anything anyhow, so kiss that revenue goodbye,'" Geisman said. "Customers feel they've been cheated, and in many cases, they have been."

In the case of Microsoft's products, maintenance is "something many customers could dispense with," agreed Paul DeGroot, a licensing analyst at Directions on Microsoft, an independent research and consulting firm in Kirkland, Wash.

But cutting your maintenance contracts could prove costly if you're dealing with vendors that take a hard line in such situations, according to Eliot Colon, president of Miro Consulting Inc., a Fords, N.J.-based firm that focuses on software contracts and licensing strategies for Oracle and Microsoft users.

Colon recounts the case of a $1 billion-a-year semiconductor maker that dropped support for its Oracle apps two years ago, then found itself needing access to a mission-critical software patch. Despite offering a "six-figure flat fee" for the patch, the company was rebuffed by Oracle, Colon said. He added that after three months of negotiations, the chip maker agreed to pay several million dollars — the same amount it would have paid if it had kept an active maintenance contract the whole time.

In between the two extremes are vendors that may be willing to strip out elements of their tech support programs you don't use in order to help you save money, Geisman said.

3) Bring hard business data to the negotiating table

Sharing internal financial data may seem like a surefire way to lose the upper hand in vendor negotiations. But some analysts said that when done in good faith, it often is more effective than simply claiming corporate poverty or making empty threats to migrate to other vendors. Good vendors, they noted, will respond to calls for pricing that's more in line with the economic value you get from products.

For instance, if your company pays $100,000 a year for an application that you estimate saves a million dollars annually, Geisman advised that you take the data to the software vendor and tell it that the current cost "is a little too rich for our blood." By doing so, he added, "it becomes a negotiation, rather than you squeezing them."



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