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Foiled! How to beat software vendors' sneaky price increases

Robert L. Scheier | Jan. 14, 2014
Between complex licenses and the cloud, Microsoft, Oracle, and SAP have lots of ways to hike up prices. Here's how to fight back

Ulman recommends including business, financial, and legal staff members who can examine every possible scenario. For example, if the organization divests a business unit, must it keep paying licensing fees for the software that unit used until the end of its contract? And can the new owner of the business get the same discounts the seller had?

Another piece of knowledge many customers lack is how many of their users work with multiple devices (such as a notebook and a tablet) or access software through a shared device such as a kiosk, says Mike Hogan, general manager for Microsoft at IT advisory En Pointe Technologies. That's important, he says, because a user Client Access License (CAL) that allows software to be accessed on multiple devices costs 15 percent more than a device CAL that limits such connectivity to one device.

Muscarella warns users of "friendly" vendor-paid services that assess how well a customer is managing its software. These are often "really not that friendly once you start," he says, because if the vendor finds unlicensed software, the result is an audit. In 80 percent of such engagements he's seen, "the vendor winds up asking for more money."

If you threaten to shift suppliers, prove you're serious, says Blake. Rather than just put together a list of competitors, invest the time to do it right. When an incumbent provider starts seeing proposals from competitors and hears a customer ask about termination rights, "you're really getting its attention" and making it more likely it will compromise, he says.

If you can't realistically threaten to abandon your core software, consider switching subcomponents. Although migrating a large organization from Oracle's ERP applications to SAP's is "pretty audacious," says Blake, an Oracle customer could threaten to move from Oracle to a competitor for just the database that underlies the ERP apps.

Tips for better deals from IBM, Oracle, and SAP
Consultants say that when it comes to price hikes, the most aggressive vendors are those with a large suite of interconnected products on which customers have come to rely. For customers of companies like IBM, Oracle, and SAP, this can make shifting to a competitor too expensive, difficult, or risky.

Negotiation consultants offered these tips for negotiating with several such vendors:

IBM: Customers can get the best deals on agreements for software and services (and combinations of both) because "these represent strategic growth areas with recurring annuity streams" for IBM, says a 2013 Upper Edge PDF report. Companies like IBM are under heavy pressure to show rising earnings per share (EPS), and recurring-revenue deals do that the best, so publicly traded vendors will favor them. Customers that can provide faster payments to IBM "can use this as leverage in negotiations for additional concessions on price and other terms," the report says. IBM declined to comment.


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