How to Negotiate a Better Deal on Enterprise Software
An abiding IT myth is that negotiating a steep discount on software licensing agreements (SLAs) is easist at the end of the fiscal year when reps for leading software vendors are scrambling to meet their annual quotas.
Related: 3 Golden Rules of Negotiating
Most software vendors offer 15% to 20% discounts to open negotiations, without waiting for the year end, but every lasting myth has some truth. The fiscal year-end -- May 31 for Oracle, June 30 for Microsoft -- is the best time to negotiate the absolute lowest price but those alluring, unsolicited discounts could cost you dearly.
Vendors want to sell you their complete stack of products and offer more options to try new products, functions and features later. You need a good handle on the road ahead 18-24 months and the “under the hood” of your business to avoid a software “engine” that’s either much too large (i.e., shelfware) or way too small (i.e., licensing limitations). Negotiate value first, price last.
A self-audit of your current IT assets and licenses is essential prior to negotiations. Anticipating change and core requirements can save significant time and money. What types of SLAs are needed for growth, reorganization, new geographies, outside partners, and/or other change scenarios? It is critical to align software assets and licensing with your core enterprise requirements.
It is equally important to know the vendor’s history and culture. Every software vendor has unique rules, tendencies and limits. Knowing them can save time and money. For example, Microsoft is more flexible tailoring SLA terms and conditions (T&Cs) to buyer needs. Oracle is more steadfast but flexible on certain T&Cs, such as limited-use licenses for peak periods.
Winning non-discount T&C concessions is the key to negotiating value in terms of true cost, increased productivity, flexibility and operational efficiency. Focusing on the right T&Cs -- such as transferability, future purchases and maintenance fees -- will optimize the SLA for your requirements. This often saves more money than price discounts.
For instance, negotiating reduced-fee software support services could result in substantial cost savings and increased efficiency for the internal IT team. Help desks are services that the enterprise will likely pay for as part of implementation or migration, and then again as part of annual maintenance. If the cost can be discounted, or even added as reduced-fee software support services for the implementation phase, the cost savings could amount to hundreds of thousands of dollars.
Another example is unlimited licensing agreements (ULAs). ULAs are valuable under particular business conditions but must be carefully considered for proper fit of all your needs. Negotiating a more flexible alternative could result in substantial savings.
When your core needs have been addressed, then negotiate price. There is nearly always wiggle room for pricing discounts, even after negotiating value concessions. They want the deal as much, or more, than you do.
Price discounts are important, especially since annual support fees for both Oracle and Microsoft are based on a percentage of the net price for each license. And if it’s close to their fiscal year-end, you might negotiate another one or two percent below the standard year-round discount. But always negotiate value first!
Related: The Hidden Costs of Free Software