Five lock-in traps to avoid when buying software

By Brett Winterford on Oct 12, 2009 6:35 AM
Filed under Software

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1. DON'T STOP AT LIST-PRICE DISCOUNTS

The natural instinct for buyers is to seek discounts, knowing that a competitive market for a relatively commoditised product should warrant a lower price.

But Lai warned that a discount on the list-price of software delivered very little value in the long-run unless the Total Cost of Ownership (TCO) of the solution was considered.

Even when a discount was offered, maintenance and support were often offered at list prices rather than at the discounted rate.

"The one that stands out for me is negotiating discounts on software," said Lai. "The vendors will usually give a discount on the upfront cost, but the annual maintenance fee is anywhere between 17 and 20 percent on top every year.

"And that is where the software vendor makes its discount back. Indeed, that is where some software companies make the largest amount of their revenue.

"Look up the annual reports of the likes of Oracle, you will find that more revenue comes from maintenance than from software licenses."

The problem for users, Lai said, was that "maintenance is the last thing on your mind when you are buying software licenses.

"You need to make sure you get the same quantum of discounts on maintenance as you do on the upfront price," he said. "The question you need to ask is - can I get that same discount on my maintenance?"

Many organisations also found it difficult to wind back their investments on software licenses during leaner times. While the vendor was only too happy to push prices up when the customer hired staff, often there was no flexibility to move prices in the other direction.

"You never get in a situation where you tell your software vendor, I reduced my headcount by ten percent, I'd like to pay ten percent less," said Emma McGrattan, senior vice president of engineering at Ingres. "They find some way of jamming it up."

While legal resources were often scarce among mid-market organisations in particular, the key to negotiating any software deal was to realise that you can negotiate on far more than price

"You can negotiate discounts on support, or to stop the clock when it comes to certain issues," Sweeney said. "You can negotiate free mobility extensions should you want to expand that functionality to mobile devices in the future. You can negotiate additional training for staff members."

"Put short, you can negotiate on everything."

Any glaring omissions or oversights? What other traps should buyers watch out for? Comment below...

Five lock-in traps to avoid when buying software

3 comments in this discussion

"I have a few things to disagree with Mr Sweeney. Firstly, most Microsoft product can be licensed on a PER USER as well as per device model, so his statement is flat out incorrect. Secondly, any ..."

By choof

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software, lockin, lock, licensing, traps, virtualisation, exit, fees, ibrs, idc, microsoft, oracle, ibm

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Comments: 3

webrecs Oct 12, 2009 8:15 AM	Great tips. There is also the Saas trap to avoid. Saas providers lock you into their services by not providing a way to migrate off their platform - before you know it you have thousands of documents in their nebulous cloud and it becomes too hard to change. Make sure that you can get both documents and metadata easily and in a consistent state. In an open-source or standard format. We always say "There is no sass without a rub" (sass = software as a secure service) (rub = relocatable user backup ) Or in other words , to feel secure about using a Saas solution ensure that you can make a backup and run or restore your backup easily somewhere other than on the vendor's site...
HyRax Oct 12, 2009 10:16 AM	The American Government puts their data for historical archives in plain old ASCII format. No Word files, no formatting, just good old plain text files. It's one of the few things that any Government has done very smartly. I still deal with companies today who have old customer data in some proprietary format on tape and they can't access it because the systems that ran the proprietary software that created the archive in the first place some 10-15 years ago was decommissioned and then lost, no doubt thrown out with the garbage without realising it. They can't even remember the name of the software that was used at the time! They can read the tape, but they just can't make any sense of the data on it!
choof Oct 19, 2009 11:59 AM	I have a few things to disagree with Mr Sweeney. Firstly, most Microsoft product can be licensed on a PER USER as well as per device model, so his statement is flat out incorrect. Secondly, any organisation with 2000 desktops using OEM licensing is mad, the OEM licence is designed as a cheap, inflexible license model for small organisations. The reason EA's and Select agreements exist is to give larger organisations more flexibility. Also, on his 'Project on Citrix' example, that issue is caused by the usage of device based licensing. If an organistaion uses user based licensing (which most do) then this problem doens't exist. Think about it - you've chosen a licensing model that is based on the number of devices, rather than the number of users, then complain when you don't want to license the number of devices?? And even if the organistaion does use device licensing, all they need to do is to implement a system which prevents the other devices the ability to log in. Something like Appsense will do it. And lastly, on the "don't choose a single vendor", sure, that might make you think that you have more bargaining power, but in reaity it doesnt. Vendors give bigger discounts to customers who utilise more of their products. And you only have to go and look at an organisation like Qld Health, who have spent 10 years selecting "best of breed" prodcuts in every area, to see the mess that gets you in. You end up with a hodge-podge mix of systems which ends up costing you 100 times in integration and maintenance costs, what you would have saved in licensing. Pick a platform, and stick to it. You may only get 95% of the functionality, but with 100% less support and integration dramas.