New Strategies for Better Deals

IT managers are in a strong position to negotiate with software vendors and get more for their money.

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

Of course, SaaS providers are just as profit-oriented as traditional software vendors and can be hard bargainers themselves, says Warren. For instance, Salesforce.com offered a discount in return for 20/20 agreeing to purchase both developer and end-user licenses as soon as the contract was signed. But development 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," he says.

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

Not Too Rough

But don't treat your vendor like an enemy. Hard-nosed negotiating is fine up to a point, but "price and licensing discussions are very much part of a long-term relationship," 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."

For example, TMP went through a workforce reduction recently, but the company's contract with Microsoft didn't allow it to reduce the number of licenses it paid for to reflect the decrease in the number of end users. Nonetheless, Microsoft agreed to renegotiate the three-year agreement so TMP wouldn't 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, however, was TMP's partnership with Microsoft. As part of that relationship, Jefferson says, "we put all our cards on the table" and keep the vendor fully informed of business plans and software needs.

TMP does that with all of 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."

Horwitt is a freelance reporter and a former Computerworld senior editor. Contact her at ehorwitt@verizon.net.

This version of this story was originally published in Computerworld's print edition. It was adapted from an article that appeared earlier on Computerworld.com.

Copyright © 2010 IDG Communications, Inc.

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