Want to Save IT $$$: Review, Renegotiate Licensing Contracts
If your business is strapped for cash and wondering how it’s going to find the money to pay for much needed hardware, software and network upgrades in 2010, it’s time to revisit your existing licensing contracts.
The specific terms and conditions of your licensing contracts could literally translate into money in the company’s coffers. C-level executives and IT departments may be pleasantly surprised to find that there’s gold in those contracts that may potentially net your organization much needed licenses and other already negotiated extras. While there are no guarantees, the chances are good that the organization’s existing licensing contracts could net you a windfall similar to unclaimed funds or finding treasure in Grandma’s attic. These overlooked items which may include things like unused and available desktop, server and software application licenses; discounted and free training and technical service and support could be worth thousands or even millions depending on the size and scope of the company are licensing agreements. ITIC primary research indicates that eight out of 10 businesses will undertake a major product or application upgrade during 2010. Eight out of 10 businesses will perform a major network migration in the next 12 to 15 months, and with budgets still tight, upper management is demanding tangible TCO and ROI.
Natural skepticism many prompt many of you reading this to question how organizations could fail to notice licenses and tools that they’ve already paid for, which are so crucial to the bottom line.
Very easily and it happens all the time. As an analyst at Giga Information Group, my colleague, Julie Giera and I put together a series of licensing boot camps or user seminars throughout the U.S., Canada and Europe. We were stunned to realize that the majority of organizations don’t know what licenses they’ve bought, what they’re using or not using and they frequently don’t take advantage of extras and freebies that are written into their contracts.
I’m not accusing users of being ignorant or lazy. But the fact is, licensing agreements are most often negotiated by persons within the organization who are only tasked with getting the deal done. Once the contract is signed, the negotiator hands it off to the appropriate executive or accounting person, who promptly files the document and forgets about it. Lax communication amongst departments means that IT departments may not see the actual contracts. Thus, they may be unaware that they are entitled to myriad “extras” like expanded technical service and support; access to days or weeks of free training on specific products and access to free online inventory and asset management tools that can assist the organization in tracking license usage and remaining compliant.
Compounding the problem is the fact that the majority of licensing contracts are negotiated once every two, three or even four years. ITIC research indicates that 60% of the time a different person will negotiate the licensing contracts once it comes due for renewal. And since organizations, oftentimes don’t keep good records; the new contract negotiator may be unaware of specific terms and conditions and whether or not the organization or the vendor fulfilled their responsibilities.
The result: organizations – from academic institutions and non-profits to the largest commercial enterprises –can unwittingly cheat themselves out of licenses and benefits that are rightfully theirs, leaving tens of thousands or even million on the table. Not everyone does this of course. Approximately 10% of organizations aggressively negotiate their contracts and keep tabs on their T&Cs, with the passionate obsession of Les Miserables’ Inspector Javert pursuing Jean Valjean through Paris.
Here’s a scary statistic: recent ITIC survey data indicates only 7% of organizations polled said they had attempted to renegotiate their licensing contracts in the past 12 to 18 months!
In this instance, the ongoing economic downturn can work your organization’s favor. Vendors and resellers are aware that most businesses are either strapped for cash or that their IT budgets don’t allow for extras. Your vendors and resellers are all anxious to retain your business and get you to re-sign your contracts once the licenses expire. Even if you just signed a new contract six months or a year ago, you can still contact the vendor or reseller and initiate interim negotiations. But you won’t get anything if you don’t at least make the attempt to renegotiate.
Negotiating to Save
First things, first: assemble a team that includes the appropriate members of the organization such as the CIO, CTO, VP of IT and the appropriate network administrators (e.g. database, server, messaging, security, storage, etc.) to review the T&Cs of your various licensing contracts. It’s also a good idea to involve the corporate attorneys. If your firm doesn’t have in-house counsel, engage the services of an outside firm. Legal counsel will help unravel the confusing and nebulous terms.
Do a thorough cost/analysis of your current environment. Next, conduct a thorough assessment of your current environment, tally up your licenses: are you using everything you paid for and are you paying for all the seats you’re using? Compliance is crucial. You won’t be able to negotiate a better deal if your organization has not paid for all its licenses – even if it was an honest mistake. There are lots of free software inventory and asset management tools available to assist your organization in this task. You may discover that your current licensing agreement entitles your organization to an online asset management tool. This tool will act as a discovery mechanism to uncover unused or available licenses for key products and applications. This is “found money” because your business has already paid for these product licenses.
Organizations that have recently been involved in mergers, acquisitions or divestitures should pay especially close attention to the T&Cs of the licensing contracts for all of the acquired or discarded business units. Some licenses will carry over but some may not and M&A activity will affect planned purchasing decisions.
Next, the team should collaborate and define the business needs and goals. Set priorities. There are many ways to improve TCO and ROI.
Where the Money Is
The team also must determine whether or not the organization purchased a maintenance and upgrade plan. These plans can be a real treasure trove, including everything from free or discounted upgrades; access to online training, learning and assessment tools. Additionally, they may also entitle the organization to many free services such as 24×7 phone support; free training vouchers for specific products; access to onsite technical training and support. Customers who purchased Microsoft’s Software Assurance maintenance and upgrade plan, for example, have the ability to swap or convert their Software Assurance tech support incidents for Microsoft Premier Problem Resolution incidents. The latter provides a much more detailed and hands on level of support service. Microsoft’s SA agreements also allow customers to purchase extended Hot Fix support to resolve code issues on products that are no longer sold or supported and complimentary “cold backup” server licenses for the purpose of disaster recovery.
If you’re not in compliance, take steps to return to compliance in advance of any product negotiations. Next, do a cost/analysis of your projected environment for at least two years and preferably three years. This should include estimates on staff increases or decreases which will affect future the purchasing levels and licensing agreements. Don’t over-estimate. It’s better to buy at a lower level and upgrade than to commit to purchase a higher discount level and be forced to downgrade and give back a percentage discount to your vendor or reseller in the event your company’s fortunes wane.
Before approaching your vendor/reseller, investigate what types of deals your peers are getting on their licensing contracts. Compare notes to determine that the T&Cs of your contracts are competitively priced. User groups are a great source of information. When it comes to negotiating for better terms, knowledge really is power.
Approach your vendor or reseller with several “wish list” items. Be as specific as possible. “I’d like a 10% discount on 50 licenses for XYZ product,” will yield better results than an open-ended request like, “How much of a discount can you give me?” or “What can you do for us?”
And above all be reasonable. The economic recession has had an adverse impact on vendors as well as end users so don’t ask for the Sun, the Moon and the stars.
If you have a good relationship with your vendor or reseller sales representative, there’s a good chance they’ll be receptive to negotiating things like fixed annual payments or extended payment plans and even negotiating down the percentage of the True-Up payment if your organization has experienced a reversal of fortune over the past year or two. Here’s a list of things your organization may want to negotiate:
• Keep your unused licenses and have them carry over when you re-sign a new contract.
• Negotiate for price caps on product and licensing increases
• Price protection for the duration of your licensing contract
• Contract buy-outs
• Licensing transfer fees
• Penalty waivers if you’re non-compliant
• Flexibility in signing upgrade and maintenance agreements
• Discounted or free training
• Discounted or free technical service and support incidents
• Free training vouchers
Again, this is all saved money that will shave your organization’s capital expenditure and operational expenditure budget. Don’t get discouraged if your vendor or reseller initially balks. That’s all part of the negotiating process. Be persistent; remember your vendor wants to keep you as a customer. Be prepared with a counter-offer. Remember: you have nothing to lose and everything to gain.
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