How to Negotiate Better Business Software Deals

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Negotiating tactics and gotchas

Are you preparing to sit down at the negotiating table with an enterprise software vendor? Here are some best practices to employ and some gotchas to avoid.

* Beware of "buy now and save" bargains that vendors offer at the end of the quarter or year. They encourage customers to buy software before it's needed, so you can end up paying maintenance and support fees for shelfware.

* Ask your vendor for rebundling protections that ensure that you keep your functionality and add-ons when a suite or platform gets repackaged, bundled or unbundled.

* When negotiating, make sure you involve both an IT person who understands the software and a business person who understands contracts. And make sure they talk to each other.

* Don't immediately reduce the number of licenses you hold to reflect a decrease in users. During a recent workforce reduction, Baker Hughes opted to continue paying maintenance and support costs on expensive software, since it will probably add end users down the road, says Graham Crisp, the company's IT assets director. The other option was to wait and potentially pay higher prices when the new users come online.

* Negotiate as an enterprise, not as separate divisions. You have more leverage that way.

* Talk to analysts, colleagues at other companies and fellow user group members to learn which vendors tend to be more generous and flexible. If Vendor A is being hard-nosed, mention that Vendor B is offering deals.

* Don't make decisions based on pricing alone. An alternative software offering may not have the features and capabilities your users need. Altimeter Group analyst Ray Wang says SaaS offerings typically have about 60% of the features provided by on-premises products -- but that figure should go up to 80% within the next two years, he notes.

* Remember: Linux has some features that Windows and Unix lack, and vice versa. Don't make a decision based on your personal preferences; figure out which features are critical to your organization, and make your choice on that basis.

Over the past few years, industry bodies such as the international standards group ISO have collaborated on a set of software asset management best practices for reducing software costs. Those practices include eliminating or reallocating underused software licenses, eliminating overhead associated with management and support, and ensuring compliance during vendor license audits.

Effective software asset management involves regularly inventorying software assets, determining usage and comparing what's installed with what the license agreement entitles you to, says Snyder. Companies that do this "are in a powerful position to drive down software costs," he adds.

Unfortunately, many IT staffs lack documentation for the company's software assets, according to Snyder. Software purchases are often made by individuals or business groups, with limited or no IT oversight. This limits IT's ability to negotiate volume discounts, and vendors exploit that weakness, Snyder says.

Using Asset Management Tools

Organizations are increasingly using IT asset management and software compliance tools to get a handle on their software assets and purchases.

For the past few years, Baker Hughes has been using CA Inc.'s Desktop and Server Management (DSM) tool to monitor software assets on some 30,000 machines worldwide so IT can determine whether the numbers are in compliance with vendor agreements. "We initially found that we were overlicensed," says Crisp. "This is what we expected, because people were buying software as needed, rather than going to the trouble of figuring out if we had additional licenses to spare." The company recently deployed CA's Software Compliance Manager, which automatically checks software usage against vendor licensing agreements.

CA's DSM also includes a metering tool that reports not only on used and unused licenses, but also on licenses that haven't been executed within a predefined time frame. "This will enable IT to harvest licenses that are just sitting on someone's desktop and redeploy them," says Crisp.

Asset management tools need to be backed up by organizational practices such as systematic enforcement of software retirements, says Snyder. Otherwise, data center administrators may keep an old system running while a new system is being tested and deployed but then forget to delete it, he adds. Be aware, too, that some software packages don't remove everything from the registry when you delete a program, or they may allow two versions of the same program to coexist.

Baker Hughes recently instituted a practice of assigning software to computers rather than to individuals, Crisp says. "When we decommission a computer, we harvest all software associated with it and reuse it more effectively," he notes. The payback: Microsoft enterprise license usage has stayed flat, even though the company has purchased additional machines and equipment, Crisp reports.

Centralizing software administration has enabled Crisp's group to accurately charge business units for software costs. Further, "it definitely helps us get volume discounts," he says.

However, asset management tools have yet to catch up with per-usage pricing models offered by SaaS and virtualization vendors, cautions IDC's Konary.

Time to Bargain

Providing usage statistics to a vendor can give you leverage at the negotiating table -- as long as you know how to bargain. For example, if your vendor insists on invoking a contract clause that penalizes you for giving back unused licenses, ask if you can reallocate the cost of those licenses to other products that you do need, Altimeter's Wang advises.

One way you can get your enterprise software vendor to listen is to mention that you're considering going with an alternative product, such as an open-source or SaaS offering.

Mosaic, an Omaha-based organization serving people with intellectual disabilities, wound up going with open source even though it hadn't originally planned to do so. As part of a desktop virtualization project, the nonprofit compared existing Microsoft products to Linux alternatives and found that the latter offered major savings in license fees, in-house IT infrastructure needs and staff costs, says Thomas Keown, data storage and security administrator at Mosaic.

Keown conservatively estimates that moving to open-source software has saved Mosaic $465,000 annually, or about 19% of its IT budget. The organization has about 1,500 users nationwide.

But IT decision-makers should thoroughly evaluate the cost-benefit trade-offs of an alternative type of software. While moving to open source was the right choice for Mosaic, "every company has to do its own evaluation" of license, deployment, maintenance and support costs, Keown says. Particularly in larger companies, integrating open-source software with existing IT systems can be a problem.

Support can also be an issue, says Wang. If you're installing Linux software and you don't want to pay for outside help, he says, "you need a team that's trained in Linux software development." And make sure any open-source product you're considering has an active online support community. "Look at forums and bulletin boards and see how fast someone responds when you post an issue," he says.

SaaS, too, can provide significant cost savings over traditional software offerings, but it isn't a slam-dunk for all companies.

Next page: How to know your pricing options

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