February 13, 2014
Many of you will be in the midst of a contract negotiation or maintenance renewal with BMC and/or CA at the moment, because both software vendors do a large proportion of their license deals in the January to March quarter as it’s their financial year ends on March 31. It’s a sourcing cliché that software companies give their best discounts at their financial year end, but just because you are making a purchase in month 12 doesn’t mean that you are getting a good deal. Through client interactions, I see a lot of software deals and I am often surprised by the gulf between the latest deal on the table and what I would consider to be a market best deal – one that sets the relationship up for mutual success, balancing price, flexibility and risk.
Buying software from powerful providers such as BMC and CA is very different from buying hardware, services and non-IT categories. Unfortunately, many sourcing professionals seem to think that they’ll look weak if they engage external expert help to coach them during a negotiation, but it isn’t a question of just buying additional haggling advice (although that can sometimes help), it’s really a question of buying deep, current market knowledge. Unless you have that, you risk:
· Buying shelfware. Your most important goal in any negotiation is to create a commercial relationship that maximizes your program’s chances of success. A vital part of that is to phase purchases in line with deployment. In practice, many software sales reps, incentivized by short-sighted commission plans, ignore this principle and aggressively push customers to bulk buy ahead of real need. Bulking up the deal with stuff you aren’t ready to implement might help your software sales rep make her annual numbers and get her on the Caribbean trip for its sales superstars but it risks undermining the ongoing relationship as customers feel aggrieved at the amount of shelfware they end up with – especially if they then find that they are paying annual maintenance and support on it too!
· Paying too much. Some buyers think that there is a linear relationship between the deal size and discount level, with a small margin for extra negotiation. It’s not that simple. There are many factors that software vendors consider when deciding what price to offer, so each large deal is unique. Very few buyers, even experienced ones, understand these factors sufficiently well. That is why there is often a wide disparity between what un-coached clients have paid for their software and what their better-advised peers have achieved.
· Using the wrong license metrics. Software vendors often have a multitude of different licensing metrics for their various products. They generally represent good ways to approximate the likely business value of the product concerned, but many also create risks of unexpected extra costs at a later date. The most dangerous metrics are those related to processing power because they put you on a data inflation cost escalator that you can never escape.
Bottom-line: Negotiating with BMC and CA this quarter presents unique opportunities and challenges for sourcing professionals. General negotiating skills alone will be insufficient to secure the best possible overall deal that balances price, flexibility and risk. You also need deep knowledge of how these vendors work and market insight into what constitutes a good deal to ensure your negotiation optimizes value while minimizing risk and cost. Forrester can offer you this insight and help fuel your efforts at the negotiating table. Contact me for more information.