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Negotiating the Best Software Deal

Written By: B. Hecht 

Published On: September 29 2000 

Introduction

Negotiating a software and services license is a multi-faceted endeavor in which many aspects of the vendors' strengths and challenges may be leveraged to the purchasers' advantage. Perhaps the most basic software negotiation tip is to treat the process as a combined system rather than a discrete set of individual point negotiations. In other words, do not walk into the negotiation without a plan. Rather, the lead negotiator must have a definitive structure in mind that encompasses all three components of a software negotiation - product pricing, product maintenance and vendor service and support. All negotiations should be conducted from two different but related perspectives - an absolute price (the price provided by the vendor in a vacuum) and relative price (vendor price versus its top competitors).

Each sub negotiation should be managed within the context of the larger process. The client should be willing to give ground tactically in areas that are known in advance to be vendor sticking points, while using that vendor inflexibility to gain additional strategic concessions in other areas. For example, when a vendor is well known for never dropping its software maintenance fees (Peregrine Systems is a good example), a client can use that information as leverage for reduced product license or service and support fees. In another example, a client could use Oracle's legendary stubbornness in reducing its professional services pricing to gain major concessions on Oracle application pricing. In all cases, a comprehensive plan should be designed prior to the negotiation discussion, with multiple project team individuals playing different roles throughout the process.

TEC analysts have separated the software negotiation process into three discrete categories. All three are critical individually, yet should always be pursued within the...