Cutting the Waste

When purchasing new software, IT managers can easily get sold a lot of features and functions they don't really need, perhaps because it gets them a better discount, or just because the sales rep has made a great pitch. But software contracts can wind up being too much of a good thing. To get a low-fat deal, here are some tips for negotiating a new software license:

Estimate what software components will be used within a year. Gartner analyst Jane Disbrow recommends taking a hard look at any extra options and modules offered to determine whether they'll really be used in the short term. "I tell people to at least call references in their industry to see if they're using the software in the way that you would anticipate doing so," she says. "If not, be tough about saying, 'I don't need this.'"

Resist buying just to meet uncertain future needs. The discount or "free" software you get usually doesn't justify the maintenance and support costs incurred by the extra software, Disbrow says. Also, those extra applications won't be freebies when the license is renewed, says Scott Lemm, IT contract administrator at the University of Michigan. "The vendor seeds the module at no visible upfront cost, only to charge for it in later contracts," he says. Once that software becomes entrenched in the company, it's difficult to switch to a different product from another vendor. Instead, Lemm advises negotiating for price protections for products you may want to add in the future.

Negotiate the right to remove or swap out modules. Look for "swap-out" agreements where you can replace one module with another at no penalty if your needs change, suggests Steffani Lomax, a consultant at Software Success Partners. Vendors who license based on usage are often more willing to do this than vendors who license based on company revenue or total employee population, Disbrow says.

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