Vendors to IT: No economic stimulus package for you

As the economic news gets bleaker, IT execs aren't getting many price breaks from vendors. In some cases, prices are actually going up.

On the same day last week that Federal Reserve Chairman Ben Bernanke gave a gloomy assessment of the U.S. economy to members of a House committee, SAP AG announced plans to shift all of its users to a new support plan that will increase their software maintenance fees.

SAP's price increase isn't the only one users are facing. Oracle Corp. raised the list prices of some of its key products by 15% or more last month. And last week, Emerson Network Power hiked the price of some of its data-center cooling and power systems by 5%, passing along the higher costs it's paying for raw materials.

Such actions beg the question: Are IT vendors out of touch with reality?

As the economy goes from bad to worse, many IT managers are seeking new terms and price breaks from vendors, and some are delaying planned hardware upgrades and application deployments. But judging from interviews with nearly a dozen IT managers, the economic problems aren't resulting in a buyer's market for IT just yet.

For instance, Phil Chuang, IT director at the home health care division of Sacramento-based Sutter Health, plans to seek price reductions from his technology suppliers as part of his negotiating strategy. However, he said, "I don't see vendors really changing their behavior at this point."

Chuang and other users said that vendors of IT equipment and applications that could easily be replaced with other products are likely to face particularly tough negotiations in the current economic climate.

On the flip side, open-source vendors, software-as-a-service (SaaS) providers and outsourcers could see new opportunities as users move to maintain or improve their IT capabilities while reining in costs.

IT execs also may put some purchases on hold while their companies ride out the economic storm. Chuang, for one, still has a laptop refresh in his budget for next year. But he said the planned upgrade is low on his priority list and may well "slip" to a later time.

Similarly, Tridel Corp. CIO Ted Maulucci decided to postpone the usual three-year replacement cycle on laptops at the Toronto-based condominium builder this year. The end-user performance gains don't justify an upgrade during an economic downturn, Maulucci said.

Matthew Kesner, chief technology officer at law firm Fenwick & West LLP in Mountain View, Calif., said the prices he's seeing from IT vendors "continue to go up, not down." That probably results partly from ongoing consolidation among vendors of legal applications, Kesner added. "The big companies are getting bigger," giving them more leverage with users, he said.

But like some of his peers, Kesner is considering a range of options. For instance, he's interested in the possibility of using an online service to help offload some of the 250TB of data that he now stores, although he said a compelling offering hasn't surfaced.

Some vendors are responding to the economic downturn, according to IT managers such as Greg Morrison, CIO at media conglomerate Cox Enterprises Inc. in Atlanta.

"I'm not sure it's a buyer's market yet," Morrison said. But he added that some of the vendors he deals with "are acknowledging the difficult economic environment by proactively reaching out to customers with cost-reduction suggestions." Most of that activity is focused on maintenance costs, as opposed to new product sales, Morrison said.

Kevin Bott, CIO at Ryder System Inc., a Miami-based transportation and logistics services provider, said that IT pricing is "definitely more in favor of the buyers" now than it had been over the past couple years.

"We're seeing bigger discounts than we normally see," Bott said, pointing to substantial savings on telecommunications costs as an example. But Bott, an SAP user, added that he's still paying "pretty hefty" software maintenance fees.

Guido Sacchi, CIO and senior vice president of corporate strategies at CompuCredit Corp. in Atlanta, is another user who says vendors are showing a greater willingness to work with him on pricing.

But Sacchi is also considering new technologies, including open-source and Google applications. And he has started piloting desktop virtualization software that he hopes will arm him with better data about application usage at CompuCredit. If a particular app isn't getting the use it should, Sacchi plans to ask the vendor to lower its license fee. Even in a tough economy, he said, "if you go back to the negotiating table, you better have data."

Kumud Kalia, CIO and executive vice president of customer operations at Toronto-based Direct Energy, an integrated energy company that is part of Centrica PLC, said he thinks that the economic downturn will spur "renewed interest in open-source deployments, to avoid cost with traditional vendors such as Oracle and Microsoft."

Analyzing internal technology costs more closely may also become a bigger part of the IT management mix because of the economic problems. That's the case for HomeStreet Bank CIO Mark Gregory, who is using a new SaaS tool developed by Apptio Inc. that is designed to help companies better measure their IT spending. Gregory said the tool is helping him track all the costs associated with various types of IT services — giving him better insight into what Seattle-based HomeStreet is spending on e-mail enterprisewide, for instance.

But Gregory, who began evaluating the Apptio technology earlier this year, before the economic woes really began to take hold, isn't just looking to control costs. He said that he also expects the tool to help him expand the use of IT within the bank.

Copyright © 2008 IDG Communications, Inc.

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