Tech vendors take a page from automaker playbooks: 0% financing

HP joins crowd of IT vendors offering free or low-cost financing to entice users to buy now

If you're a big buyer of technology, Hewlett-Packard Co. has a deal for you: zero-percent financing for up to 36 months on leases of many of its core business software products.

The financing offer, which was announced Tuesday, covers licensing and support costs on enterprise and information management software contracts valued at more than $100,000, HP said. But you'll have to act quickly: The promotion is scheduled to expire on Jan. 31.

With the economy in recession, credit tight and IT spending forecasts down, technology vendors are increasingly using incentives to try to convince corporate users to buy or upgrade products now rather than later. And big vendors, which have their own financing arms, have become much more aggressive about it.

Customers have been seeking better terms for months because of the economic downturn, often to no avail at first. But the business slowdown has started hitting the bottom lines of vendors with a vengeance.

In November, Microsoft Corp. offered zero-percent financing for up to 36 months to qualifying buyers of its Dynamics ERP and CRM applications. That deal is available through March 20 to customers who receive Microsoft financing credit approval on purchases ranging from $20,000 to $1 million.

Also last month, Dell Inc. announced financing rates as low as zero percent for large businesses and institutional customers on lease terms ranging from 12 to 48 months.

And IBM put some special programs in place on hardware sales during the current quarter, including a no-charge deferral of payments for up to three months followed by lower-than-usual interest rates. IBM called that promotion "Why Wait?" — a name that sums up the vendor's goal, which is to entice customers to not put off purchases.

Robert Mahowald, an analyst at market research firm IDC, said he expects zero-percent financing to save a business 5% to 8% on a typical IT purchase. Citing HP's offer, he said, "To some extent, it's a concession that they need customers to stay on an upgrade path and that customers may need the help to do so."

HP, in its announcement, also pointed to its software-as-a-service offerings as a cost-saving alternative to on-premises software. Mahowald said SaaS applications can cost as much as 20% to 40% less during the first year vs. running the software on your own. But he added that over a number of years, the cost differences between SaaS and on-premises apps can vary greatly depending on a number of factors, such as how long the software remains in use.

Companies that buy products costing six figures or more are making strategic decisions, and discounted or free financing is just one factor for them to consider, said Joseph Pucciarelli, another IDC analyst. What the vendors are trying to do with the promotions is change the timing of those decisions. "They give you a reason to perhaps pull the order up a little," Pucciarelli said.

Vendors have good reason to try to get buyers to commit to purchases now: IT spending growth is expected to be anemic next year, especially in the first two quarters. IDC, Gartner Inc. and Forrester Research Inc. have all recently cut their 2009 spending forecasts. Forrester said this week that it now expects IT spending in the U.S. to increase by just 1.6%, although it is predicting that a recovery will start next summer.

Copyright © 2008 IDG Communications, Inc.

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