Tough Talk for Hard Times

Nine ways to get more out of software vendors in 2009

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Never hesitate to ask vendors for concessions, says Gartner Inc. analyst Jane Disbrow. During the course of contract negotiations, software vendors will typically go through a discounting process "that leads the customer to believe that [the salespeople] won't be able to feed their own children tomorrow because they gave them such a great deal," she says.

But don't worry about the vendors. They "always tend to hold back money," Disbrow says. Your goal should be to not leave any of that money on the table.

5. Eliminate Phantom Systems.

During the cost-cutting drive at Sony Pictures Home Entertainment, Cortese met with various business unit leaders to determine what software contracts were in place and how effectively software was being used. "I was pretty blown away by what I discovered," he says.

For instance, during Cortese's evaluation, the company received a $125,000 maintenance bill from a provider of workflow management software. With a little digging, he found that the system was no longer in use. "If we hadn't asked about it, the maintenance bill just would have gone through," he says.

6. Put Maintenance Under a Microscope.

Vendors hate to discount maintenance, largely because it's so profitable. For instance, 85% of the revenue Oracle derived from software maintenance in fiscal 2008 was pure profit and represented 76% of the company's total profit, according to the company's 2008 10-K report.

If a customer signs an enterprise software deal worth tens of millions of dollars, it might have the leverage to demand discounted maintenance rates, says Wang, but generally, it's an area that vendors don't want to haggle over. "Maintenance is the last thing [vendors] want to discount," he says.

But there are always exceptions. For example, under most vendor-generated software contracts, customers begin paying for maintenance before the ink has dried on the contract -- even if it takes a year or more to implement the system. But some IT leaders push hard not to pay maintenance for any software until the system has gone live. Cortese says he's had mixed results in attempting to defer maintenance, but he was successful recently on a seven-figure CRM license.

YRC Worldwide's Schleiden tries to get the first year of maintenance free of charge. Though he, too, is not always successful, he says that "lately, the percentage [of vendors that concede] is higher than it's been in the past."

Schleiden's IT procurement group also tracks the number of software maintenance calls it puts out to each of its suppliers annually to make sure YRC is getting its money's worth. Last year, Schleiden renegotiated maintenance fees with some vendors and shifted to use-based maintenance agreements with others. With one ERP vendor, he recently negotiated a three-year maintenance agreement at a 2% annual increase cap per year.

Schleiden says it's easier to renegotiate maintenance agreements for middleware software than it is for mainframe systems because there's more competition in the middleware market.

Other users take a hard line across the board on any maintenance fee increases. "We make it clear to all of our suppliers that while software [is] important to our company, the focus of our company is selling things like helicopters and golf carts," says Sherri Zapinski, director of Textron Inc.'s indirect strategic sourcing center of excellence. "So if an engine supplier doesn't get to raise its prices, it's not fair if someone like a software supplier that's used for overhead gets to raise its prices."

Still, Zapinski says she "might make an exception" if a vendor has been reliable and consistently responsive in delivering patches, upgrades and other fixes over time.

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