2010

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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What’s in Store for Desktop Hardware Vendors in 2010

As 2009 winds down it’s time to take a look back and a look ahead to forecast what 2010 will bring to desktop hardware OEM vendors.

These are difficult and challenging economic times but there are bright spots in the desktop hardware arena. Notebook sales remain strong; Netbooks are coming on strong and there’s a new class of so-called “super notebooks” that’s emerging, fueled most notably by Hewlett-Packard.

The desktop hardware OEMs are pinning their 2010 revenue hopes on an immediate market rebound based on the success of Microsoft’s newly released Windows 7, pent up demand and a plethora of new offerings arriving just in time for the holiday season.
Longer term though, hardware vendors, including Acer, Apple, Asustek, Dell, Hewlett-Packard, Lenovo, Sony, Toshiba and others are facing feverish competition as they vie with each other for corporate capital expenditure and consumer monies. In response, all are ramping up their sales efforts by offering dueling bargains and attempting to differentiate their products with a wide range of value-added devices and features at every price point from low-cost Netbooks to high-end gaming systems.
Global PC shipments rose slightly in 2009’s third calendar quarter as corporations and consumers cautiously began opening their wallets. This trend was helped by Microsoft’s long awaited Windows 7 operating system which debuted on October 22, to very good reviews. ITIC’s October 2009 Windows 7 Deployment Trends and Adoption Survey, which polled nearly 1,700 companies worldwide, indicated that 60% of corporate respondents will deploy Windows 7 within the next 12 months.
That’s good news for the desktop hardware vendors all of whom have a vested interest in highlighting their collective support and partnerships with Microsoft. The survey responses also showed that the availability of Windows 7 is just the impetus that corporations need to upgrade. Consumer sales – particularly for entry-level, aggressively priced Netbooks and notebooks – should also serve to bolster OEM hardware manufacturers in the immediate and near-term.
Not surprisingly, some desktop OEM vendors have fared better than others during the ongoing economic recession. Below is a roundup that details the strengths and challenges confronting the major desktop hardware manufacturers:
Acer: Acer has been one of the desktop hardware success stories over the past two years and now ranks as the number two desktop OEM vendor behind HP. This is largely due to key acquisitions – notably Gateway and Packard Bell – which have heightened and expanded the company’s global brand. Acer also scored big wins with the success of its notebooks and the robust demand for the company’s Aspire One 10-inch Netbooks which debuted in the summer of 2008. Street pricing for Acer’s entry level Netbooks begins at a very economical $149; though pricing of $299 is the median average. The Aspire One has done well against competing offerings from Dell Inspiron Mini 9 and the Asus Eee PC line of desktops. The Aspire One also has broad consumer appeal owing to its support for Windows, Linux and even a modified version of the Mac OS X via the OSx86 project. Acer aspires to surpass HP as the world’s top PC/notebook/Netbook manufacturer, but it has its work cut out for it. While the quality of the Acer product is high, HP and Dell both have the edge when it comes to fast, efficient service and support.
Apple: Can Apple do anything wrong? For the last few years – in the consumer space, at least – the answer is “No.” The enormous success of the iPod and the iPhone has, in turn, buoyed sales of Apple Mac desktops – particularly its notebooks. Always a hit with consumers, this popularity is now carrying over with modest success in the enterprise arena. Those same consumers have also been taking their Macs into the workplace and using them in increasing numbers as their corporate desktop instead of Wintel-based PCs. Apple notebooks won’t make a perceptible dent in PCs in the workplace for the foreseeable future, but ITIC survey data shows that this is a sustained trend. Apple CEO Steve Jobs has consistently maintained that Apple will eschew the lucrative low-end Netbook market. But the company is widely rumored to be developing a Tablet PC of unknown dimensions – but larger than an iPhone to counter the Netbook.
It is against Apple’s company policy to reveal any product details (or even confirm the existence of a product) in advance of shipment but we believe it’s highly unlikely that Apple will let 2010 pass without making a major new product introduction. Meanwhile, Apple’s financials and its marketing are stellar. The Cupertino, California firm has been one of the shining stars in high technology and has consistently out-performed in this sector. Consider the numbers: Apple’s stock price is up an astounding 124.8% in the last 12 months and is currently hovering at just over $201 a share, and quarterly revenues grew 25% year over year (YoY). The company has a market cap of $181.14 billion; profit margins of 15.61%; operating margins of 20.96% and return on equity of 23.35%. Apple also has significant cash on hand: $23.46 billion and no debt. Apple also has the distinction of being just about the only high technology firm that did not have any layoffs over the past 18 months.
Asustek: Based in Taiwan, Asustek is a fast growing company with big ambitions. It was one of the first companies to manufacture and capitalize on the Netbook craze and it has set a self-proclaimed goal to be one of the world’s top three notebook vendors by 2011. The company hopes to accomplish this via acquisition and it has its sights set on acquiring Toshiba’s notebook business. Asustek and Toshiba are reportedly in negotiations although nothing has been finalized. Meanwhile, Asustek is a serious up and coming competitor in the consumer desktop hardware sector. The company posted a net profit of $6.49 billion in its just ended fiscal quarter, which is double what was predicted.
Dell: It’s no secret that Dell has struggled and has lost business and market share to both Acer and HP during the past 24 months. However, there are bright spots and encouraging signs for the company. In particular is Dell’s strong partnership with Microsoft; Windows 7 sales should help lift Dell desktop sales – particularly in the enterprise sector where Dell enjoys a strong presence. Additionally, ITIC survey data indicates that Dell gets an “excellent” or “very good” rating for service and support from an overwhelming 84% of businesses.
Though the industry at large incorrectly perceives Dell a consumer vendor, in reality, the company has an extremely strong enterprise presence. Consequently, Dell’s sales suffered because of the protracted slowing of enterprise desktop upgrade cycles. Dell reported disappointing financials numbers two weeks ago, including a 54% drop in revenue in the latest quarter. Sales are down 14.9% YoY, with annual sales of $51.43 billion on earnings of $1.45 billion. Operating margins are also on the thin side at 4.67%. These results stood in stark contrast to overall strong PC/notebook/Netbook sales during the same period, causing some industry watchers to opine that Dell may be missing the boat as the industry slowly recovers from the downturn.
Dell executives – led by CEO Michael Dell — have repeatedly said in recent weeks that they are poised for a turnaround. The company sought to reassure analysts and industry watchers by saying it will not initiate steep price cuts on its PCs. However, Dell moved aggressively to slash tags on its PC monitors for the Black Friday sales which traditionally usher in the holiday shopping season. For example, Dell’s S2009W 20-inch desktop monitor sold for $99 at Best Buy last week; a substantial 37% decrease from the normal list price of $159. Dell executives have also been vocal in recent weeks in stating that their fortunes and sales will wax based on demand for Microsoft’s newly released Windows 7. And in fact, Dell does have cause for optimism in this regard. Additionally, Dell’s Alienware M15x, 15 inch notebook and the M17x 17-inch laptop aimed at hard core gaming enthusiasts, which debuted earlier this year to rave reviews, are among best in breed. The M15x pricing starts at $1,499 while the M17x retail prices start at $1,799 and ranges to $4,899 for a high end fully loaded model.
Another Dell strength is found in its marketing and it will need to bring all of its skills to bear in this area to jumpstart sales.
Hewlett-Packard: The world’s Number One desktop hardware maker has navigated through the troubled economic waters better than most competitors. This is due to HP CEO Mark Hurd’s ongoing cost cutting initiatives and fortifying its’ services offerings with the purchase of EDS. HP also gets high marks for its diversified product portfolio. The company’s printer and peripheral business remains strong and HP now has a new play in networking owing to its recent acquisition of 3Com. This diversification will continue to help the company weather the worst of the economic downturn.

Although HP is often perceived as mainly an enterprise vendor, in reality, the firm has a huge presence in the consumer space. This has solidified HP’s position as the top desktop hardware OEM. The consumer sector has shown more strength in the last 18 months than the enterprise arena, where budget constraints have forced IT departments to delay desktop hardware refresh cycles. HP became the world’s number one desktop hardware OEM back in 2007, wresting the title away from Dell on the strength of its feature rich notebooks. HP is also betting heavily on an emerging class of hybrid laptops dubbed “super Netbooks.” The most notable HP offering in this category is the DM3 13-inch lightweight device that is equipped with 4GB memory and eight hours of battery life. It has a list price of $599 from HP but as of Black Friday, Amazon began selling it for $499.

HP is performing well overall. The company has not been immune to the downturn; quarterly revenue growth declined by 8.40% YoY, however quarterly earnings growth is a positive 14.20%. HP’s latest financials beat the street and its gross margin is 23.59%, while operating margin is 9.62% on annual earnings of $7.66 billion and annual sales of $114.55 billion. HP’s return on equity is a very healthy 19.28%. The combination of cost cutting, a diverse product portfolio, strategic acquisitions and very good technical service and support all augur well for HP’s continued success in the desktop arena throughout 2010 and beyond.
Lenovo: The outlook remains challenging for Lenovo Group Ltd, which is the world’s fourth largest PC/notebook manufacturer. Based in Hong Kong, Lenovo purchased IBM’s PC business in 2005. Earlier this month, the company staunched the flow of red ink from three consecutive losing quarters and posted a net profit for its 2010 second fiscal quarter of $53.08 million (US). However, Lenovo’s revenues fell 5.2% to $4.10 billion (US) from $4.33 billion in the same quarter a year ago. Cost cutting measures and strong growth in China helped Lenovo to rebound. PC and notebook sales to China accounted for nearly half – 49% – of Lenovo’s second quarter sales. However company executives cautioned that the economic environment remains challenging. “The worldwide personal computer market has not recovered yet and Lenovo is still facing difficult problems,” said Chairman Liu Chuanzhi in a November 5 teleconference call with analysts. He added that Lenovo is working to resolve its issues but said it will take time, stating that the company hopes (analysts) “won’t set excessively high expectations for us, and give us room to grow.”
All in all, consumers and corporations can expect to reap great bargains as competition intensifies among major and minor desktop hardware vendors. At the same time vendors must deliver superlative price/performance economies of scale and top notch service and support in order to successfully compete over the next 12 to 15 months.

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