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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However, a large enterprise often already has most of the IT resources in place to support a new application. Further, it can depreciate the underlying hardware -- which it can't do with monthly SaaS application fees.

Thomas Jefferson
Be tough but fair in your negotiations, advises Thomas Jefferson, former vice president of business technology at TMP Directional Marketing, so you don't harm your long-term relationship.

Something else to consider: SaaS providers are just as profit-oriented as traditional software vendors and can be hard bargainers, Warren reports. For instance, Salesforce.com offered a discount in return for 20/20's agreeing to purchase both developer and end-user licenses as soon as the contract was signed. The development phase stretched out for two more months, during which time 20/20 paid maintenance and support for end-user software it wasn't using. "We probably should have held out for buying the end-user licenses once the development was completed," says Warren.

Moreover, customers that expect SaaS to be strictly pay-per-usage are often disappointed, says Gartner's Snyder. In exchange for a good deal, "many providers want a three-year agreement with a guaranteed minimum usage, so you're locked into a floor" when it comes to giving seats back.

Even if you're not ready to go with an alternative option like SaaS, open source or freeware, it doesn't hurt to let your vendor know of your interest, says Snyder. Vendors will be more willing to seriously negotiate "when true competition is a factor," he adds.

Don't play too roughly

Don't treat your vendor like an enemy, industry experts warn.

While hard-nosed negotiating is fine up to a point, "at the end of the day, price and licensing discussions are very much part of a long-term relationship," IDC's Konary says.

"You may get the best price in the world," says TMP's Jefferson, "but if you alienate your vendor, you may not get the support and service you need." When TMP went through a workforce reduction recently, the company's contract with Microsoft had no clause stipulating that it could "flex down" its licenses to reflect a lower number of end users.

However, Microsoft agreed to renegotiate the three-year agreement so TMP would not have to pay for the licenses it wouldn't be using, Jefferson notes. He gives the economic downturn partial credit for the software giant's willingness to cut TMP some slack. More important, he says, was that he and his team created a partnership with Microsoft early on in which "we put all our cards on the table" and kept the vendor fully informed of business plans and software needs.

TMP does that with all its vendors, Jefferson says. "We'd bring them in and say, 'Here's what we're doing; we need to maximize our spend.' Often, they come up with innovative solutions."

Next: Virtualization and software prices: Very tricky.

Horwitt, a freelance reporter and former Computerworld senior editor, is based in Waban, Mass. Contact her at ehorwitt@verizon.net.

Copyright © 2010 IDG Communications, Inc.

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