‘Software vendors commonly increase pricing when customers remove SKUS in order to maintain maintenance renewal revenue. How can customers reduce maintenance costs when faced with these restrictive practices?’
Here are their responses:
Piaras MacDonell, Software License Manager, Origina
Maintenance contracts are a significant source of IBM revenue that is why you often receive increased quotes, even after reducing the number of products under support. Faced by hard targets, IBM maintains income by simply increasing maintenance costs for remaining products.
To counter this there are a number of techniques you can use:
Negotiating a good deal takes time. In our experience, you should begin talks six months before your Enterprise Agreement ends. All other contract negotiations should start no later than three months before conclusion.
Understand IBM discount rules
Your support agreement is a complex document, containing full details of your discount entitlements. Discounts are calculated using points to define your RSVP Level. Importantly, you can only drop one RSVP level per year. You will also find full details of any specific discounts that are unique to your contracts in the agreement.
Consolidate Passport Advantage agreements
Every one of your Passport Advantage (PA) sites has a separate RSVP Level. You can consolidate PA sites to help boost your RSVP level and mitigate the impact of any reductions when cancelling maintenance contracts. Be warned that consolidation takes time, so you must act long before agreements expire.
Maximise new purchase benefits
Always try to negotiate contract renewals alongside new purchases (if you need any). Your account manager will be more amenable to offering maintenance contract discounts if the overall deal is worth enough. But don’t get sucked into buying any products you don’t need or won’t use just because they are on ‘special offer’!
Lock in support costs
Assuming you have done your analysis of you environment and you see IBM software as the way forward for your business then IBM’s multi-year support agreements allow you to avoid annual increases (typically 8%-12%) for up to 5 years. If you plan to use IBM Global Financing to reduce capital spend, apply at the end of the relevant quarter to secure the best deals.
Obtain several quotes
Account managers are not the only ones under pressure to make sales – the same is true of IBM Business Partners. By obtaining multiple quotes you stand a better chance of being offered a discount by one of these Partners – or gaining leverage to use in negotiations with IBM direct.
Delay your order
Time your order to complete at the end of the quarter or financial year when your account manager is fighting hardest to reach targets. Just make sure you can prepare a purchase order before the deadline.
Build a support cost model
A Support Cost Model in Excel allows you to visualise reductions in IBM support and the potential implications. This baseline allows you to “see” the real benefit (or loss) of any proposed deals.
With so many factors to consider, maintenance savings sound complicated. But set aside enough time before your contract expires and significant cost reductions are achievable. You also send an important message to you IBM that you know what you are doing, and that they can expect hard negotiations in future.
Antony Attfield, Head of Solution Sales, SoftwareOne
In our experience at SoftwareONE, vendors are very focused on achieving as much revenue as possible. We also know that as customers have more SKUs and spend, they are often provided with increased discounts. As customers remove SKUs or decrease spend, the discount levels could decrease which means the customer could be paying the same or more and their maintenance stays the same or more. Generally speaking, maintenance is set as a percentage of the new license cost (e.g. 15%) and that percentage normally stays flat.
So, how do customers deal with this? As we stated before, vendors often provide increased discounts where there is more spend, particularly if this achieves their commission plans or sales targets. Consolidating and centralising spend is a great way to have a better discussion with the vendor when negotiating these discounts. If future spend or implementation strategy can also be discussed this also adds weight to your requests. Centralising spend may result in more SKUs, or increased quantities, getting the customer to higher tiers of discounts. This gives customers better negotiating power and take advantage of higher discount levels.
Additionally, from a vendor perspective, almost always new license revenue is worth more than a maintenance renewal. A customer can negotiate higher discounts on new products as Cloud SKUs. If these new products fit in with a customer’s IT road-map, they can be included adding more ROI than accepting higher costs for existing support.
Based on SoftwareONE’s experience helping customers negotiate the best terms and pricing on products and maintenance, here is what we recommend to keep maintenance costs in check:
- Making sure there is full visibility and clarity on the terms governing maintenance and renewals is key. Initial negotiation of contracts should set the renewal terms to make this practice difficult to increase maintenance costs as product spend is decreased or SKUs removed.
- Understand your software lifecycle (current and future requirements) across your organization. By consolidating, taking advantage of volume discounts and higher discounts on newer products will provide better ROI and keep your maintenance costs in check.
- If maintenance costs are increasing, evaluate and change the support level to a lower SLA and therefore you will be charged a lower maintenance percentage (which is only possible when the vendor has two or more support levels).
- Insisting on full breakdowns of support costs and service levels can help. Publishers can hide a lot in a single line quote for maintenance – having visibility what is being charged and where is essential. Also asking for details of the support tickets that have been raised with SLA performance in the previous support period can show what value the contract is providing and give a stronger negotiating position.
Geoff Worsley, SAM Enterprise Architect, Aspera
In my experience, when reducing the number of licenses requiring maintenance, a number of the main software vendor’s initial response is that the costs actually increase because you’ve dropped down a price break point. The whole cost efficiency process is about the vendor understanding what you are trying to achieve in advance, or at least the customer communicating they need to save money. At a minimum you should be able to maintain the same rate rather than facing an increase. Understanding your contract, the licenses in use and spare helps you negotiate but give the vendor enough time to understand why you are trying to reduce the amount. You may before offered alternative software licensing options – The big step of course is to threaten the removal of all the software if you have an alternative.
Here are 3 tips you can start with tomorrow:
- Keep communication lines open.
While no one likes bad news, if a software vendor understands that you aren’t ordering new software due to downsizing or cost efficiency drives, they won’t be too disappointed – or caught off guard, when they don’t get an order. As a bonus, they may even be able to offer a better solution to meet your needs.
- Build a strong and organized SAM program.
Software companies want you to continue to use their software and buy more of it. That’s why having a SAM program is so critical. It took a long time for the C-Level to realize the business case for Software Asset Management. Without SAM in place, software vendors will continue to turn up each year demanding more money, since organisations aren’t able to prove correct usage.
- Always hold at least three of the aces in the deck
Working with software vendors is a negotiation process. As with any negotiation, always start from the position of strength. Use your SAM program to identify your real needs so that you can negotiate discounts or better terms for your software licensing.
Eric Feldman, Senior Product Marketing Manager, Flexera
Software licenses and maintenance are big line items in most IT budgets. Upwards of 30% of IT budgets are dedicated to software projects. Applications are often downloaded and installed, sometime for short projects, or to solve a specific problem. Once it has served its purpose and is no longer needed, that software often lays idle on the device consuming a license and being covered under maintenance.
Harvesting or reclaiming software is the act of reducing the consumption of software licenses in an organisation so that they can be reused when needed. Software re-harvesting can help save money on both license and maintenance costs, and involves four basic steps.
Step 1: Measure license consumption
There’s little point in trying to reduce license consumption or maintenance fees without a true measure of software in use. The first step is to have an accurate software asset management inventory that tells you where the licenses are being consumed, by whom, and on what devices. Software licensing is complex and vendors have many different ways to license it. For end user software, the most common methods are device based or user based. If it’s a device based license, you should know the user of that device. If it’s a user based license, on top of knowing the users, you should know which devices they’re using it on.
Step 2: Measure Usage
Once you know the devices and users by which the license is consumed you then need to determine the best candidates for re-harvesting. First, exclude users that are actively using the software. One of the most common approaches for doing this is to exclude cases where the software was used in a certain number days. 90 days is a typical threshold, although you might have different thresholds depending the application to be re-harvested.
Step 3: Refine the candidates – Ask the user
An “authoritarian” IT department might decide to simply uninstall applications from any devices where it’s not in active use. The reality is that for most situations, it’s best to consult the end user before uninstalling any software from their device. The simplest way to do this would be to take the list of users that aren’t actively using the software and send them an email pointing out that they’re not using the software and asking whether they need it any longer.
Step 4: Work with deployment administrator to uninstall the software
You should now have a list of devices or users from which you want to re-harvest the software license. At this point you need to share the list with the administrator of your software deployment system to have them configure the applications for removal. This will take time as your administrator will have limited time and his priority is to ensure users are productive.
Step 5: Review the results
At some time later your software asset management system will report that the software license consumption has dropped and you have thus saved your organisation lots of money.
AJ Witt, ITAM Industry Analyst, The ITAM Review:
This commonly-used technique is anti-competitive and wouldn’t be tolerated in many other industries. Fundamentally, companies should only be paying for what they use. For a mature SAM practice maintenance contracts are an untapped source of significant ROI and it is as important to track usage of these contracts as it is the software they pertain to. The challenge is that whilst ITAM tools may track the cost of the maintenance contract they generally don’t integrate with the support portal to track usage – e.g. how many incidents did I raise, did the vendor respond within the SLA, was a resolution provided? This is usually a manual process and relies on you as a SAM Manager knowing who the application and contract owners are. For perpetually-licensed products the support element is almost more important than the license cost, because it becomes your ongoing cost. Ensure that TCO includes support costs for the life of the product & don’t fall foul of the bubblejet business model. Alongside preferential discounts on maintenance renewals for incumbent resellers this was a source of great frustration for me as a SAM Manager and my colleagues in Procurement. As Piaras and Antony have said, one lesson I learnt was to ensure that for new engagements we worked on what the exit clause looked like, removing this cash grab and freeing up reseller choice. Time your negotiations right and a strong buyer should be able to get these concessions added to your contract.
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