7 ways to cut your software costs during the economic downturn

It's official: IT budgets, once so resilient in the face of three years of worsening economic news, aren't immune to the downturn after all.

IT spending is expected to grow just 2.6 percent worldwide and less than 1 percent in the US next year, according to market research firm IDC. Gartner is even more pessimistic: its latest spending forecast calls for 2.3 percent growth globally in 2009. When you factor in expected inflation, many CIOs likely will be overseeing budgets next year that are smaller in real dollars.

"This is the worst global downturn since the Jimmy Carter era," IDC analyst Mike Fauscette said. Although Fauscette said that he doesn't expect large users to engage in "wholesale stoppages" of critical IT projects, he thinks that "at best, companies will hold spending flat."

The economic conditions have driven some IT vendors to announce massive layoffs. Others are showing a willingness to deal. For instance, 39 of the 66 software vendors that responded to a recent survey said they were flexible on licensing and pricing, according to results released in October by Acresso Software. Acresso, which sells software licensing and compliance monitoring tools, conducts an annual survey of users and vendors along with the Software & Information Industry Association (SIIA) and other groups.

As the Chinese expression goes, a crisis also equals an opportunity. So how do you take advantage of what may be a once-in-a-career IT buyer's market? Here are some suggestions:

1) Keep an eye out for looming price wars

When Oracle was bidding to buy ERP rival PeopleSoft in 2003 and 2004, both companies offered discounts of as much as 80 to 95 percent on their software licenses, said Jim Geisman, a longtime software pricing consultant who is president of MarketShare. A price war of that sort may again be on the horizon in the ERP market; for instance, hosted applications vendor NetSuite recently promised 50 percent cost savings to users of SAP and Salesforce.com that switch to its software.

Vendors like SAP and Salesforce.com are unlikely to sit back and watch their customers go elsewhere. So users should be in a good position to play vendors off against each other "and then take advantage" of the heightened competition, Geisman said.

The Schumacher Group, which provides staffing and management services for hospital emergency rooms, uses Salesforce.com and Microsoft as its two primary software suppliers. About half of the company's systems are powered by software-as-a-service technologies, although Schumacher runs Oracle's PeopleSoft financial applications on-premises.

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