Whether your company is large or small, software vendor negotiations are important to ensure you're getting the best deal for your money. Midmarket organizations may have a smaller voice, but that doesn't mean that voice isn't heard. "I think when you're a midmarket CIO, it's easy to think you don't have a lot of power with contract negotiations," said Duncan Jones, a senior analyst for vendor management and IT sourcing professionals...
at Forrester Research Inc. "What you need to remember is that to the individual sales rep you're dealing with, you could be very important to him for making his numbers for the quarter or for the year."
Big software vendors are willing to listen, according to Jones. Take the time to understand your contract and your relationship with them, as well as any changing business needs. This can lead to contractual concessions and built-in protection against future problems. In a recent interview with Jones, he offered some vendor negotiation tips for midmarket CIOs working with IBM, SAP AG, Microsoft and Oracle Corp.
IBM's complicated processor value units (PVU) licensing system is very important to understand, according to Jones. "You need to know what these [terms] mean for your company and some of the risks you're going to face in the future as you add processor capacity to process bigger and bigger data workloads," Jones said. "You're going to need to add these processor value units, and that's going to cost you money."
To prevent these cost escalations from getting out of control, try to build some protection into the vendor contract that will keep costs down, even as you grow. Jones also suggests looking at alternative metrics offered by the vendor, such as the cost differential between purchasing processor value units as opposed to per-user agreements. "In the short term it may look like the PVU is better, but in the long term as the capacity requirements get greater and greater, a per-user approach is probably going to be cheaper," Jones said.
Microsoft has unique terminology and ways of doing things -- and the most important step during vendor negotiations is understanding these terms, Jones advised.
For example, the Microsoft Software Assurance program is similar to other vendor maintenance programs but also a bit different, according to Jones. "The key here is to understanding what you're really getting for what you're paying for," he said. Re-evaluate the benefits and understand how the program factors into your organization so when it comes time to renew and your Microsoft representative is presenting the possible benefits, "you can really push back and say, 'Well, we've analyzed it and the value is not as big as you make it out to be,'" Jones said. "Then provide a bottom line of how much you're willing to pay for the service."
With Microsoft, understanding all aspects of what your organization is paying for and the impact this has on your company, as well as being able to lay that out for a representative, will provide more leverage to get what you want. Again, the representative wants to close the deal and "may be willing to bend for you," Jones said.
When SAP announced in fall 2008 maintenance fee increases that would raise costs by about 30%, user groups worldwide organized a response and caused SAP to reconsider the new policy.
Although many organizations were tied to SAP support, some companies looked at areas where they had discretion and delayed projects, Jones said. "The collective voice of the midmarket, as well as people voting with their purchase orders, actually did get SAP to change their policy."
If you are unhappy with a sudden change, chances are, others will be too -- and sharing in a collective response will have a larger impact. "SAP is a great example of how the market can move the vendor, even if an individual cannot," Jones said.
According to Jones, Oracle's licensing rules tend to create the most issues for his clients. "The one thing to remember about Oracle is that the sales reps are under a lot of pressure to make a sale, and they can get creative with how they interpret Oracle's policies," he said. "So you really need to dig deeper to make sure that what you're being told is the truth."
You need to look for contract loopholes. Make sure to build details into your contract specifying what will happen if Oracle acquires another company or if your Oracle product gets superseded by a company that was just acquired. "Make it clear in the contract that you will not be disadvantaged at all, that you will have the right to trade in your product for a newly acquired one at no cost to you," Jones said.
Jones also suggests understanding Oracle's business strategy. "Oracle always pushes how they want to be your overall technology provider, not just for databases but with middleware and applications -- run with that," he said.
Show how your business and technology strategy ties in with Oracle and lay out your long-term plan for your Oracle representative to see. "You're a good customer to have on board because you will be growing with them, and that gives you more leverage in the sales process, beyond the individual purchase order," Jones said.
For all of the vendors, show how your long-term strategy will align with theirs -- this will prove that the short--term concessions will be outweighed by having you as a customer for some time. "Show them that it's in their interest to keep you around as a customer and be aware of what you can get with more long-term vision," Jones said.