How to make the most of an IT buyer's market

Big changes in the vendor landscape are creating unexpected fringe benefits for users. Here's how to seize the opportunities.

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But as CIOs and vendors increasingly become bedfellows, the IT world is drafting its own version of a prenup. For instance, when UHN began vetting vendors for a new managed service contract, Forbes insisted that each interested party develop a five-year plan illustrating how unit costs might change over time. Vendors that promised cost-per-unit decreases earned extra points.

Another way Forbes gained an upper hand in negotiations was paying research firms, including Gartner and PricewaterhouseCoopers, for market analysis on IT service prices such as help desk costs and server fees -- industry benchmarks that provided "a viable opportunity to negotiate cost reductions right upfront before signing a contract," he says. "We're doing more strategic thinking as part of the RFP process as opposed to just writing an RFP and throwing it out onto the street."

Such an informed approach to negotiating pays dividends, according to Cole, who says he once talked an IT vendor into reducing the price of a system by $3 million. "We build performance milestones into all of our contracts," he says. "We also do a very good job of negotiating [financial] holdbacks so that we don't feel like we're paying for a service well before it's delivered."

Faced with dwindling bargaining power and better-educated customers, many vendors are sweetening the pot by offering cost-effective bundles of services. For example, a vendor specializing in email encryption technology might try to package its tool with an Exchange server and high-margin services such as consulting on compliance issues.

In fact, Lubner says peddling packages is "the only way for vendors to differentiate themselves and provide more value to the buyer" these days.

Forbes agrees. Just as the federal government has been slowly embracing a shared services strategy, he says, the healthcare industry is inching toward a similar model, where multiple hospitals, clinics and laboratories will agree to share the funding and resourcing of key IT services to cut costs and improve efficiency. "There's a lot of opportunity to save money and reinvest the subsequent savings back into healthcare if we only shared some of these IT services," says Forbes, adding that the vendors that are most likely to come out ahead are those that "recognize the market is shifting and respond by packaging their software."

Sharing the Legal Load

But greater collaboration, bundled IT services and high performance standards aren't the only changes in the IT landscape helping to create a buyer's market. Organizations are demanding that even legal issues be treated as shared responsibilities rather than matters to be hashed out by bloated legal departments. After all, says Cole, "if you just have two sets of legal teams talking, you'll reach an impasse very quickly."

Cole should know. In the first four months of this year alone, he's had to tackle questions of intellectual property with at least three different vendors. That's because, in these litigious times, it's becoming increasingly common for unwitting end users to wind up entangled in patent infringement suits. For example, a hotel chain that offers its guests free Wi-Fi might find itself involved in a patent suit simply because it relies on server technology that has come under legal fire.

However, whereas in the past vendors would simply scoff at the notion of shared liability, Cole says there's more willingness now to address issues such as intellectual property as a mutual business challenge rather than as a legal technicality.

"We need to have protection so now it's a negotiation to determine how much liability a vendor is willing to give up and how much risk am I willing to accept," says Cole. "It's become a business discussion, not a legal discussion. In fact, it's a very common conversation in the IT community today."

That's not to suggest, however, that vendors are simply rolling over and letting customers call all the shots. For example, Graff points out that Kansas City, Mo.-based Cerner is both a buyer and a provider of IT services and says that, no matter how profitable a project might seem, the company will "never sign a deal [as a provider] where we can't deliver on what we've written into the contract."

But that's not all. Cole says most organizations do recognize and respect a vendor's need to turn a profit. "Recently we negotiated a deal where it came down to both sides saying, 'Here's what I'm willing to give you in terms of profit and here's where I need to be in terms of expenses,'" he recalls. "That's a partnership where we shook hands. But had we dug in our heels and said, 'Here's all I'm going to give you,' we both would have left with a bad taste in our mouth."

After all, there's no telling when the pendulum will swing back to a seller's market. All the more reason, says Graff, for savvy CIOs to make sure "it's a win-win situation for both parties."

Next: Tech vendor startups gain ground

Waxer is a Toronto-based freelance journalist. She has written articles for various publications and news sites, including The Economist, MIT Technology Review and

Copyright © 2014 IDG Communications, Inc.

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