Does your software vendor or reseller keep raising fees year after year? Do you feel less like a long-term, loyal customer and more like an abused customer?
If so, you’re not alone. In a normal year, I get lots of questions about controlling mature-deployment costs for major app’s and shrinkwrap software products. These are long-term customers, using app’s their organizations depend on and value. But they’re looking to roll back the hands of time to the earlier days of their relationships with their software vendors and resellers, back to the days of attractive pricing that they under-appreciated at the time. Since about November 2008, these inquiries have increased dramatically. So, I thought I should offer up some tips for everyone to consider.
Timing and Initial Price – I realize it’s not what you want to hear, but the best time to control costs for a software acquisition is at the time of acquistion. However you accomplish it, you have to get the best possible initial price that you can. Arm yourself with market knowledge, pit reseller against reseller, use a reverse auction process–whatever it takes. If your benchmark is 30% off of list, and you apply this benchmark across all of your new software acquisitions to the exclusion of other price negotiation strategies, you’re leaving good money on the table. Initial cost is important to everyone, and everyone likes to think they got a good deal on everything they buy. But in terms of software purchases, initial cost is especially important because, regardless of what good cost-containment measures you might negotiate into your license, nearly all will be tied to your base pricing.
Terms and Conditions – If you want to control the long-term license and service fees for any software purchase, you need to add appropriate terms and conditions to your license agreement at the time of purchase. It’s much more difficult (and sometimes impossible) to get these terms and conditions later. What Total Cost of Ownership (TCO) terms and conditions should you add? This probably deserves a separate post or two, but you should not ignore the following:
License Structure – Most software buyers will negotiate a particular license structure (seat, user, block, tiered user, etc.) that is best for them at the time of purchase, and leave it at that. What you should do instead is provide for alternative license structures, provide associated pricing for each now, and eliminate any penalties associated with switching from one structure to the other down the road. Then tie the alternative license structures to your other cost-containment provisions.
Most Favored Nations Clause – Use a meaningful Most Favored Nations Clause (MFNC), not the one your software vendor is willing to provide if you think to ask. A meaningulf MFNC must be interlinked with the other provisions of your license, and it must be auditable to be enforceable. It’s possible to weave in language that deals with the fact that new customers typically receive better pricing that older, loyal customers (the Cable Company phenomenon).
Price Escalation Clauses – Again, don’t stop with the standard CPI or other cap your vendor will provide–if you think to ask. Any meaningful Price Escalation Clause (PEC) will state that license and other fees will not increase by X% year over year. But this alone is not enough. Your goal is to create ceilings for price increases, not floors (typical PECs function as floors; next year’s price is automatically base plus X%). With the price increase ceiling concept, you leave each successive price increase open to negotiation, but in no event will it be more than X%.
What if I didn’t get all this good stuff at the time of my initial software acquisition? – Well, I would say you are the norm and not the exception. But all hope is not lost. Remember, everything is negotiable. And remember, too, that “negotiable” includes “re-negotiable”.
If you are looking to re-negotiate existing licenses with your software vendors and resellers, there are many approaches you can take. What approach you choose depends on your particular starting point. But for any situation, you should probably conduct a Software Asset Management (SAM) exercise before you launch into your re-negotiation process. A good SAM exercise will help you determine where you’re at presently with with your software deployments and corresponding licensures, and it should help you determine where you want to go for the future. A good SAM effort will help you determine the objectives of your re-negotiation process and how best to achieve them. For example, you may find that your organization’s preference is to keep SoftCo’s Tarantula module, but you could live without it. Use this and other information about your current use and licensure of SoftCo’s products to your advantage.
Lastly, if you will undertake a re-negotiation process, that will be a good time to get (attempt to get) all of the good stuff mentioned above (buyer-favorable license terms and conditions). You don’t want to go through the whole re-negotiation process and get some good price compression resluts, but find yourself wanting to roll back the hands of time again in 3-5 years.
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