Economy Gives IT a Sword for Slashing Software Costs

Tech budgets aren't immune to the economic downturn. Market research firm IDC expects IT spending to grow just 2.6 percent worldwide and less than 1 percent in the US next year. Gartner is even more pessimistic: Its latest forecast calls for 2.3 percent growth globally in 2009.

And last week, Forrester Research sharply cut its projected increase in US IT spending for next year, turning the number around from 6.1 to 1.6 percent.

IDC analyst Mike Fauscette said he doesn't expect large users to engage in "wholesale stoppages" of critical IT projects. But he thinks that at best, many companies will hold spending flat in the months ahead.

The silver lining is that the current crisis may also represent an opportunity. For instance, 39 of 66 software vendors polled recently said they were flexible on licensing and pricing, according to 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.

So, how can you take advantage of what may be a once-in-a-career IT buyer's market, even with budget restraints in place?

1. Encourage price wars

Users should be in a good position to play vendors of ERP and CRM applications against one another and benefit from the competition, said Jim Geisman, president of MarketShare, a software pricing consulting firm.

A case in point is The Schumacher Group, which provides staffing and management services for hospital emergency rooms. CIO Douglas Menefee said most of his software contracts are up for renewal early next year. He plans to negotiate hard, since he expects vendors to be much more amenable to bargaining than they have been in the recent past.

"For the last three years, I've experienced a bit of 'the price is what the price is' attitude from sales guys," said Menefee. "I completely think the power has shifted to the buyer." For example, he said he's seeing "very aggressive pricing" from three vendors that are competing for a contract to supply Schumacher with a new human resources administration system.

2. Consider cutting software maintenance -- but be careful

Discontinuing support contracts with software vendors can save corporate users some coin. "A lot of enterprises will say, 'You're not giving me anything anyhow, so kiss that revenue goodbye,' " Geisman said. "Customers feel they've been cheated, and in many cases, they have been."

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