Don't get hooked on expensive vendors

How to negotiate an excellent deal with your vendors.

I was talking to a friend today who got me on another rant -- so here goes.

The topic this time was how vendors sucker you in with cheap prices and then stick it to you on the upgrade. That's kind of a harsh way to put it, but it's accurate. Software vendors are like drug dealers. They have to get you hooked first, then they can charge whatever they like because you can't live without them.

I don't think it's right to name the three specific products we were talking about. Let me say that our company got a good deal initially, but now we're several versions behind on some of them because we can't afford the upgrade. And the only problem is that we can't move to a new platform because like I said, our entire business depends on these packages. So the longer we wait, the harder and more expensive an upgrade is going to be, and at this point a conversion is going to be expensive as well.

So what's the solution? Well, in our case, SQL Server has a couple offerings that are not only a lot cheaper, but in some cases included in our SQL Server licenses. This is a case where the license is basically free, and we would be able to upgrade for free as well. With these other products, we only get deeper and deeper into licensing costs, and with the Microsoft solution, we're guaranteed to eliminate the cost of these solutions. I've not only been preaching these solutions for over two years at this job, but for years at other jobs as well. And the reason is that I've seen it too many times where a company makes a good deal on a solution and winds up getting the short stick two years down the road. And I just wish I could get companies to listen before it it's too late.

In this economy, you really can't afford to be blowing tons of money on license upgrades. A lot of companies are starting to really look at their policies on software purchasing, but what can they do? They've locked themselves into expensive solutions that are hard to get out of.

And one of the reasons it's hard to get our of these solutions is that a LOT of these large companies refuse to organize themselves. Many of them allow their different divisions, offices, regions, etc. to make whatever decisions they like. So you get one group using SRS, another using BOE, etc. Under this model, nobody is purchasing enough to be able to negotiate a good deal. Not only that, but if someone can't afford to upgrade and switches to a new platform, the vendor doesn't really care because they've still got the rest of the company as a customer.

However, if you centralize these purchasing decisions, you can negotiate a price for the entire company that holds a lot more weight with the vendor. Now if you can't afford to upgrade, you can threaten to pull your entire account and move to a new platform and the vendor is more likely to listen and give you a good discount. It's not really a nice thing to do, but it's also not nice to charge me $250,000 to upgrade a software package either, so it all evens out. Personally, I'm sick of being raked over the coals by vendors because they think they're the only game in town.

Let's bring this discussion back to DBs. The smart thing for any enterprise to do is to centralize their data group. There are a number of benefits that come from that: consolidating skills, making global security policies, making global backup policies, etc. That's actually another post all on its own, so I'll leave that for now. However, the reason I bring it up now is because it's a good specific example of my main point.

In past jobs, I've been very effective at negotiating excellent deals on products such as LiteSpeed, ER/Studio, and the like because I was purchasing for the entire company and we were big enough to swing a big sword. I think companies that don't centralize their data group are being fairly irresponsible in the handling of their data purchases. Sometimes it doesn't make sense to centralize, but those cases are so rare they're not even worth counting.

Anyway, there's strength in numbers, and unless you present your company as a unified front to the vendor, you'll lose. After all, the vendor is presenting a unified front to you, aren't they? When you buy from Cisco, for example, you're not just buying from the Texas division of Cisco, you're buying from the entire company with all of its resources. While your specific sales rep cares if he loses your sale, the company probably doesn't because you're too small to be on their radar. But if you're buying for a large enterprise and they'll either sell 6,000 units or none at all, then you'd better bet they'll sit up and pay attention when you say you want a good discount.

During that initial sale, don't be bashful about negotiating the price for upgrades. If significant upgrades are going to cost significantly, then you're doing yourself a disservice if you don't talk about it in the original contract. I always do, and I find that most of the time a vendor is willing to not only sell at a discount, but they're also willing to throw in upgrades at a discount as well. Remember, these are things you can insist on because you're negotiating for the entire company. If you were only buying for your region, the vendor wouldn't care because they can still get everyone else in the company, and they didn't have to give them a discount either.

Anyway, if you're a CXO or IT director reading this, strongly consider what I'm saying. Consolidate your data services and start saving money -- and so much more. Maybe I'll flesh out that entire argument here soon.


Copyright © 2009 IDG Communications, Inc.

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