Information is key to a good software deal

There is no transparency in the software market, so there is no substitute for knowledge in getting a good deal from vendors.

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In my experience, it is vital during the selection process to keep the short-listed vendors fully engaged and uncertain about the outcome. There needs to be an -environment where they are competing with each other on price, not competing with you. This may sound obvious, but it often does not happen.

So what about when there is no competition? On one occasion I recall well, a vendor was renewing a large enterprise contract, and because of the customer’s blunder when the original deal was done, the vendor could do pretty much whatever it wanted at the expiry of the 10-year contract period. When approached about this, the vendor dug its heels in and came up with an outrageous price. Various hard-nosed negotiators were wheeled in, but to no avail. After four months of negotiations, the renewal price had not moved one dollar.

On that occasion, I managed to convince the software salesman that there was a serious prospect the company would switch to another vendor (a complete bluff) and the price halved that afternoon – saving literally millions of dollars.

Informed choices
Another valuable lesson is to read existing contracts carefully. I am aware now of a situation where a contract I had -personally negotiated came up for renewal years later, when I was no longer employed at the firm. The procurement department had not read the contract properly and had not realised there was a clause in the contract allowing the -renewal to take place at a nominal cost when the contract term expired.

The vendor was aware that procurement staff had moved around since the original deal and tried asking for a couple of million dollars as a renewal fee. The salesman who related the story to me was acutely aware of the renewal clause and was dreading a call right up to the day of the contract. But the call never came, and the vendor was two million -dollars richer for doing nothing at all.

It should be said that not everything is about price. If you are in a very strong position and squeeze the vendor mercilessly, then you may win the battle but you’ll lose the war. You are the one that is going to implement the software. And if the vendor feels aggrieved, it will likely be a lot less helpful when it comes to sorting out problems on your project than if it feels it was treated fairly. This is particularly the case with smaller vendors, for whom your deal may be very significant. With the larger players, though, it can be seen from the net margins of these companies that there is usually some scope for negotiation.

Buying software is a dark art, so arming yourself with as much information as possible will put you in a better bargaining position. Then, ensure genuine open competition to get a fair deal.

Andy Hayler this week launched, Information Difference, a boutique market research and analyst firm specialising in the master data management. He was the founder of Kalido

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