a software and services license is a multi-faceted endeavor in which many
aspects of the vendors' strengths and challenges should be leveraged to
the purchasers' advantage. In order to maximize the value and time spent
negotiating information technology contracts, a project negotiator should
never walk into a vendor negotiation without a clear plan and a prioritized
set of goals. With that in mind, TechnologyEvaluation.COM has developed
a two part software negotiation report series articulating proven, best
of breed negotiation processes for software, hardware and vendor services.
the framework documented below, TechnologyEvaluation.COM has defined 6
global negotiation categories and macro questions that should be combined
with the more detailed negotiation tips outlined in its Software Negotiation
Tips report. The lead negotiator should review and consider the six categories
documented below in preparation for any major technology negotiation.
All six are critical individually, yet should always be pursued within
the context of the larger negotiation discussion.
Can I add to or subtract from the overall scope of products and services
up for bid to lower the overall cost? Can I link necessary purchases
to swing the cost/benefit more in my favor? (E.g., If I am purchasing
a site license for Microsoft Office 98 and within 12 months we will
purchase a new e-mail system. By including server-based network versions
of Outlook, can I decrease the total cost of both projects by allowing
the vendor to leverage its dominant product line into new sales in
a target area of growth?)
Can I use the fear, uncertainty and doubt surrounding a product
with a limited number of installs to lower the cost I pay as a "pioneer"?
Once products achieve a critical mass of installs, the buying community
achieves a sense of security knowing that the product has emerged
beyond slideware. Until that point, however, user organizations can
leverage the industry-wide trepidation at being the first to install
a new product.
Has the vendor had financial problems in the past 9-12 months?
Contrary to technophiles who focus solely on product functionality,
the importance of vendor viability in the selection process cannot
be underestimated. If the vendor experiences a significant loss in
valuation or a cash shortage, the effects on a vendor and its clients
can be devastating. For example, if a vendor misses their revenue
targets for a given period, a public company loses a percentage of
its market capitalization under lowered expectations. To shore-up
the stock price, many vendors tap into their cash reserves for a stock
buy-back. Lowered cash reserves are typically coupled with trimmed
expenses, and revised (and reduced) hiring plans. The next step is
a scaled-back research and development agenda, meaning weakened and
less frequent upgrades for clients, coupled with decreased service
and support capabilities due to hiring and attrition. Clearly, this
is not a positive scenario for either the vendor or the client. Helping
the vendor to understand the potential risks the organization is taking
by selecting a vendor with questionable viability could lead to significant
How can I leverage the flow of dollars to the vendor in the most
advantageous way possible? For example, many application vendors price
their business applications according to the number of named or concurrent
users on the system. Typically, the vendor prices the license with
one cost/employee ratio during initial implementation, with an add-on
employee/cost ratio (usually lower) beginning 6-9 months after the
go-live date. An organization can leverage this stance during negotiations
by modifying the number of initial named users, then increasing the
number of additional users 9-12 months after the initial implementation.
Financial Status and Year-end
Is the vendor nearing the close of its fiscal year? While all
hardware and software vendors will tout firm list prices during the
negotiation process, this is never the case. When a vendor is nearing
its fiscal quarter- or year-end, pressure from investors to hit the
forecasted target looms larger than ever, forcing every vendor from
a $20B hardware manufacturer to a $10 software vendor to develop "creative"
pricing schemes. Users moving through the selection process should
whenever possible schedule negotiations to culminate in March, June,
September, or December, typically the closing months of a quarter
or a fiscal year.
Using the Systems Approach
Perhaps the most basic software negotiation tip is to treat the
process as a combined system rather than a discrete set of individual
point negotiations. The lead negotiator must have a definitive structure
in mind that encompasses all three components of a software negotiation
- product pricing, product maintenance and vendor service and support.
All negotiations should be conducted from two different but related
perspectives - an absolute price (the price provided by the vendor
in a vacuum) and relative price (vendor price versus its top competitors).
The client should be willing to give ground tactically in areas that
are known in advance to be vendor sticking points, while using that
vendor inflexibility to gain additional strategic concessions in other
areas. For example, when a vendor is well known for never dropping
its software maintenance fees (Peregrine Systems is a good example),
a client can use that information as leverage for reduced product
license or service and support fees. In another example, a client
could use Oracle's legendary stubbornness in reducing its professional
services pricing to gain major concessions on Oracle application pricing.