Tech Update

In a buyer's market, how good does it get? By David L. Marguluis January 10, 2002  Add your opinion Forward in Format for

rvice. But what else are they willing to do to get your business? How good (or bad, if you happen to sitting on the selling side of the table) does it get?

We decided to find out. In an informal survey, we asked vendor CEOs and sales execs about the kinds of deal terms they're seeing out there. Here's what we heard:

• Large companies are getting unlimited-CPU licenses at rock bottom prices from small vendors who desperately need them as reference accounts. One of the world's largest retailers replaced a $1.5 million two-year limited-CPU software license with a "lifetime" unlimited-CPU license from a competing vendor at a total cost of $250k plus maintenance fees. Of course, pushing that hard on price can have its risks. The software CEO in this case astounded us with the admission, "The last laugh may be on them, our life may not be that long."

• Companies are paying far less up front, and linking deferred payments to hard performance milestones. Reportedly, an industry-leading software vendor recently accepted $500,000 cash for a $2.5 million license, with the rest due on a contingency basis nine months later. Many ASPs are signing entire contracts on a contingency basis -- knowing if they don't hit their milestones, they won't get a dime.

• Savvy technology buyers are insisting on--and getting--hard MFN ("most favored nation") clauses. These clauses entitle them to cash refunds if their vendor later sells the same product to another customer at a lower price.

• Software buyers are insisting on "proof, not promise" clauses - terms that ensure delivery of the goods before money changes hands. This typically includes a "conference room pilot," a hands-on dry run of the software at the customer's location using actual business scenarios. The point of this exercise is to load and test the code, and prove that it meets business requirements and can be integrated with the customer's internal systems. "These are the new buying realities," one marketing consultant told us. "This is universal among the Global 2000 now."

• Even buyers of consulting services are getting in on the action - many consulting firms have so much talent sitting on the bench, they'll provide free studies in hopes of getting a larger engagement.

• Hardware buyers are primarily negotiating on price, using equipment available on the secondary market as a bargaining lever. Equipment from Sun, Cisco, EMC, Dell and others is available on sites like eBay and Dovebid.com - or sometimes even from the remanufacturing arms of the vendors themselves. Some large vendors have purportedly set aside budgets to buy back their used equipment so they don't have to compete with it.

• Wait until end of a quarter if you want maximum leverage.

• Be sure to balance price in the negotiations with service, support, and upgrades.

• Always keep your business and financial goals for the project in mind.

David L. Margulius is a technology marketing consultant based in San Francisco. He can be reached by email at: dmargulius@pacbell.net.

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