7 ways to cut your software costs during the economic downturn

Global recession gives IT execs an opportunity to gain pricing edge on software vendors

It's official: IT budgets, once so resilient in the face of three years of worsening economic news, aren't immune to the downturn after all.

IT spending is expected to grow just 2.6% worldwide and less than 1% in the U.S. next year, according to market research firm IDC. Gartner Inc. is even more pessimistic: its latest spending forecast calls for 2.3% growth globally in 2009. When you factor in expected inflation, many CIOs likely will be overseeing budgets next year that are smaller in real dollars.

"This is the worst global downturn since the Jimmy Carter era," IDC analyst Mike Fauscette said. Although Fauscette said that he doesn't expect large users to engage in "wholesale stoppages" of critical IT projects, he thinks that "at best, companies will hold spending flat."

The economic conditions have driven some IT vendors to announce massive layoffs. Others are showing a willingness to deal. For instance, 39 of the 66 software vendors that responded to a recent survey said they were flexible on licensing and pricing, according to results released in October by Acresso Software Inc. Acresso, which sells software licensing and compliance monitoring tools, conducts an annual survey of users and vendors along with the Software & Information Industry Association (SIIA) and other groups.

As the Chinese expression goes, a crisis also equals an opportunity. So how do you take advantage of what may be a once-in-a-career IT buyer's market? Here are some suggestions:

1) Keep an eye out for looming price wars

When Oracle Corp. was bidding to buy ERP rival PeopleSoft Inc. in 2003 and 2004, both companies offered discounts of as much as 80% to 95% on their software licenses, said Jim Geisman, a longtime software pricing consultant who is president of MarketShare Inc. in Wayland, Mass. A price war of that sort may again be on the horizon in the ERP market; for instance, hosted applications vendor NetSuite Inc. recently promised 50% cost savings to users of SAP AG and Salesforce.com Inc. that switch to its software.

Vendors like SAP and Salesforce.com are unlikely to sit back and watch their customers go elsewhere. So users should be in a good position to play vendors off against each other "and then take advantage" of the heightened competition, Geisman said.

The Schumacher Group, which provides staffing and management services for hospital emergency rooms, uses Salesforce.com and Microsoft Corp. as its two primary software suppliers. About half of the Lafayette, La.-based company's systems are powered by software-as-a-service technologies, although Schumacher runs Oracle's PeopleSoft financial applications on-premises.

Douglas Menefee, Schumacher's CIO, said that most of his software contracts are up for renewal early next year. Menefee plans to negotiate hard, since he expects vendors to be much more amenable to bargaining than they were in the recent past.

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