META: Hone Negotiating Skills to Get Best Software Deal

Firms modify business models to lure SMBs; buyers have more leverage

Firms modify business models to lure SMBs; buyers have more leverage

Stamford, CN  January 28, 2004  The analyst firm META Group Inc. said it anticipates a continued effort by a number of software vendors in the enterprise resource planning (ERP), supply chain and infrastructure markets to increase their efforts to attract small and medium business (SMB) clients by modifying their technology, product lines, selling techniques and pricing models throughout 2004/05.

"Software vendors are continuing to revamp the products they offer SMBs  along with their marketing, sales and product development strategies  to better meet the buying styles of SMBs," said Carl Lehmann, vice president with META Group's Technology Research Services. "As vendor business models and selling strategies change, SMB buyers will have to improve their negotiating skills."

According to META Group, negotiating skills must adapt to include understanding of flaws and thereby get the best deals from vendors that offer complete or partial software, services and maintenance proposals. Many SMB buyers focus on software functionality and fail to adequately address the implementation services or maintenance charges associated with an IT project.

"For example, vendors often try to base maintenance contract prices on the 'list price' of software licenses (usually 20 to 22 percent) when dealing with SMB buyers," said Lehmann. "It is important for SMB buyers to leverage the interest in their market and negotiate maintenance agreements based on 'as sold' prices, or contract deliverables in return for their business."

With newly found leverage, SMBs could negotiate down to or below the 18 percent average, or they could add maintenance contract deliverables such as support (e.g., troubleshooting, help desk, patch administration) and future releases to their agreements.