Deals not always a good thing

Getting the best deal on software licensing and hardware purchases isn’t easy in an industry where there are almost no “real” published prices, and vendors are trying to squeeze every dime out of buyers that they can.

But IT managers are fighting back by dragging information about secretive contract licensing into the light of day. At Gartner Inc.’s 10th annual IT Assets Management Conference in Orlando, for instance, where more than 700 IT managers convened to find out what they can do to get a fair shake from increasingly cagey software vendors, the bottom line was that this has been a year that “software vendors are pressed to increase revenue,” said Gartner analyst Jane Disbrow, whose focus is on ERP software, which is often a multimillion-dollar purchase. She noted that only Oracle Corp. published ERP prices openly.

In the tough economic climate, vendors are aggressively pushing “all-you-can-eat deals” in which corporations buy every suite the vendor has at a “discount,” although the software might sit on the shelf while support costs skyrocket, Disbrow said. While there seems to be a discount for the initial licence, the complex contract terms are leading to higher annual maintenance costs that purchasers are expected to pay over the life of the contract for use of the software.

“A few years ago the maintenance averaged 17 per cent of the initial licence, but now it’s 20 per cent and rising to 21.3 per cent,” Disbrow said. Vendors are coming up with new elaborate pricing models based on business metrics, such as charges based on a percentage of the corporate revenue or roles-based usage where there’s no clear definition in the contract of what the term really means. These types of tactics were observed with PeopleSoft Inc., Oracle and SAP AG, she noted. Gartner analysts recommend that corporations keep their cards close to their vest and reveal as little as possible about their IT budgets when negotiating with any vendor.

IT managers have to prepare to negotiate hard so they don’t see their real costs doubling over the course of a three- or five-year contract because of maintenance fees, Disbrow said. There should be clauses in contracts to assure predictable costs when the number of employees rises or falls.

In what Disbrow called “revenue mining,” vendors are trying to hook buyers into contracts where software costs are linked to the consumer price index each year – which to them might mean a periodic eight per cent or 12 per cent boost in price.

When software prices are published, these might only be a starting point for negotiations. Microsoft Corp.’s four-tier pricing for Microsoft Office offers 45 per cent off of the US$479 retail price. But Gartner analyst Alvin Park said he’s seen large organizations get a 10 per cent discount and more below that.