Five lock-in traps to avoid when buying 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...


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