Get more for your enterprise software budget: Negotiating strategies

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

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More transparency in negotiations

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

RightNow, for example, has been trumpeting its recently announced Cloud Services Agreement, in which users who sign multiyear agreements can cancel at the end of each year for any reason. In addition, customers can buy a pool of "seat months" that are consumed on an as-needed basis.

Graham Crisp
Baker Hughes recently began assigning software to computers rather than individuals, says Graham Crisp, IT assets manager.

Maintenance is another area where customers are starting to push for a fairer deal. "They know that vendors are making 80% or 90% on maintenance," Konary says. Adding fuel to the fire was SAP's ill-timed attempt in 2008 to do away with basic maintenance and push everybody to the premium level, she adds.

The issue of software pricing and contractual terms is getting more play these days. Gartner recently formed the Global IT Council for IT Maintenance, which has issued a vendor "code of conduct." It calls for fair 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.

Recession or no recession, vendors are still playing hardball at the negotiation table, industry experts agree. They might cut you a deal upfront but also include clauses that hamstring your ability to renegotiate down the line -- such as eliminating volume discounts when you give back licenses, says Altimeter's Wang.

Analyze and streamline your needs

Assessing and monitoring software assets and utilization is crucial, both during upfront negotiations and as a long-term bargaining and contract compliance tool, experts agree.

Before sending out RFPs, businesses need to identify and analyze their software needs and then streamline those needs as much as possible, says Bill Snyder, a research vice president at Gartner. "Ask yourselves, Is there a cheaper alternative to this product? Do we need all of these features and functions?"

The ability to predict software needs is critical when it comes to long-term negotiations, Snyder says, because once you deploy a vendor's ERP or database system across the enterprise, you're effectively in a monopoly relationship. Purchase too few licenses, and you'll have to buy them later, losing out on volume discounts. Buy too many, and you're paying maintenance and support costs for shelfware -- software that sits unused on a shelf or computer.

Anticipating software needs more than a year or two ahead can be tricky, however. 20/20 Companies, a sales-personnel outsourcer, originally purchased 300 end-user licenses for Force.com, Salesforce.com's SaaS-based application development software. From there it went up to 500 licenses, which it quickly exceeded and expanded to 900. "Edging up means no volume discount," says Mark Warren, the 20/20's acting CIO.

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