Use negotiating nous to win licence deals

User power looks like it's making an impact.

In recent months large software vendors, such as Oracle and Microsoft, have tried revising licensing models that could see a dramatic rise in costs for their customers. However, it's been a month of progress for the customer resistance movement.

Oracle has moved to clarify its pricing policy by publishing a guide and Microsoft aborted its subscription-licensing model for OfficeXP after a trial in Australia foundered on customer confusion.

Yet analysts warn that users must still go on the offensive to protect their budgets, seriously prepare for tough license negotiations and be prepared 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.

Computerworld gathered suggestions from Gartner research director Greta James and Meta Group program director of server infrastructure strategies, Dr Kevin McIsaac on how to get tough with software vendors:

* Only buy what you need. James and McIsaac agree that companies should only buy the software that will go into production in the next six to 12 months. James warned a lot of vendors try to sell "all-you-can-eat packages".

* Bring in the competition if the vendor you're negotiating with thinks it's got the deal that puts it in a stronger position. "If you can look an Oracle salesperson in the eye and say you're just as happy to go to competitor, then the company has to justify its price," McIsaac said.

* Have a specialist team including people with specific expertise in negotiating. James advises that if you don't have them internally, look outside. "A professional negotiator as part of team makes a tremendous difference," James said.

* Negotiate as close as possible to the end of the quarter or fiscal year to maximise bargaining leverage. Historically, timing has been important when dealing with Oracle because on the last day of the quarter the vendor drops its prices significantly as sales people try to reach a target to get their commission and other benefits. However, Oracle has said it is not going to be doing this any more, which is something users need to be aware of, McIsaac said.

* Negotiate protection from price hikes. James advised buyers to look at the whole portfolio of product suites when dealing with big players like Oracle and Microsoft. If you think you might want to use another product in the future, bring that to the talks and negotiate some protection from price hikes for these products, James warned.

* Negotiate maintenance fees upfront as part of total package. Build the maintenance fee into the contract as a percentage of the discounted price rather than the full retail price. James said the best possible deal she has seen would be 18 per cent of the discounted price; however, it can reach up to 22 per cent of the list price.

* Check the start date of maintenance fees. James said that sometimes vendors start billing maintenance when the contract is signed, not when you start using the product. "Make sure it starts at a reasonable date, particularly for a licence agreement where you're purchasing a number of products in the main agreement," she said.

* Negotiate price caps for maintenance and not just for a three- to five-year time frame. If the fee is related to the list price of the product, vendors could raise the list price and you'll be up for a significant rise in maintenance.

* Protect yourself in the event of the vendor going out of business. Particularly when dealing with small players where there could be some concern about the viability in event of a takeover, make sure that the terms of contract will continue.

* Put source code in escrow. "You still need to have the skills in-house to deal with the source code. A major benefit is the maintenance is the responsibility of the vendor, but at least it would give you some protection if you've got access to the source code," James says.

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