Five lock-in traps to avoid when buying software

 
Page 5 of 5 | Single page

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
 
 
 
Top Stories
Myer CIO named retailer's new chief executive
Richard Umbers to lead data-driven retail strategy.
 
Empty terminals and mountains of data
Qantas CIO Luc Hennekens says no-one is safe from digital disruption.
 
BoQ takes $10m hit on Salesforce CRM
Regulatory hurdles end cloud pilot.
 
 
Sign up to receive iTnews email bulletins
   FOLLOW US...
Latest articles on BIT Latest Articles from BIT
Microsoft is offering Azure for Disaster Recovery to Australian SMBs
Feb 10, 2015
If you haven't talked to your IT provider about disaster recovery, it might be worth discussing ...
The 2015 Xero Roadshow is on: here are the locations and dates
Feb 6, 2015
The 2015 Xero Roadshow kicked off this week - see where you can attend at locations around ...
Microsoft Outlook is now on iPhone and iPad: why could this be useful?
Jan 30, 2015
Microsoft today released Office for Android and Outlook for iOS - complementing the other Office ...
Franchisees, here's something you should know about
Jan 23, 2015
You need to know the Code if you are a franchisee or franchisor as the penalties are significant.
Xero users rejoice! Quoting has finally arrived
Jan 23, 2015
It has taken years, but Xero has at last added integrated quoting to its online accounting software.
Latest Comments
Polls
Who do you trust most to protect your private data?







   |   View results
Your bank
  35%
 
Your insurance company
  5%
 
A technology company (Google, Facebook et al)
  9%
 
Your telco, ISP or utility
  8%
 
A retailer (Coles, Woolworths et al)
  4%
 
A Federal Government agency (ATO, Centrelink etc)
  18%
 
An Australian law enforcement agency (AFP, ASIO et al)
  15%
 
A State Government agency (Health dept, etc)
  7%
TOTAL VOTES: 4076

Vote
Do you support the abolition of the Office of the Information Commissioner?

   |   View results
I support shutting down the OAIC.
  27%
 
I DON'T support shutting the OAIC.
  73%
TOTAL VOTES: 1391

Vote