Saturday, November 02, 2002

Expect end of year deals on enterprise applications, but read the fine print. Paul Hamerman, a research director for Giga Information Group, has some good recommendations on making year-end deals for new software this year. Q4 is typically a good time for buyers to negotiate with vendors for new systems, because of the vendors' need to meet sales targets. However, because few vendors expect the market to roar back in 2003, it is going to be hard for them to convince prospects that favorable terms will disappear after December 31. Furthermore, watch out for deals where the vendor throws in several "free modules" that you "might need later." Such modules might be free in terms of upfront license costs, but they are frequently included at list price when calculating maintenance fees. Hamerman points out that in such cases the vendor has simply gotten you to agree to pay him an additional recurring revenue stream. I have often felt that companies frequently buy too much software up front. Structure the deal to only buy the modules that you plan to implement over the next 12-18 months. You'll save on maintenance fees, and you'll also have stronger leverage with the vendor during implementation, because he'll know that future purchases will depend on how well he delivers on the stuff you've already bought.

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