Market strategies for Microsoft negotiations

Survivors -- and some winners -- of Microsoft software license negotiations share their cautionary tales.

NEW ORLEANS -- Robert Hacker, director of information systems at Omaha, Neb.-based Mutual Protective Insurance Co., said his talks with Microsoft aren't actually negotiations. They were far more one-sided than that. "We don't buy enough to have a hammer over them," he said. "There is no alternative."

We don't buy enough to have a hammer over them.
Robert Hacker, director of information systems, Mutual Protective Insurance ,

To say that midmarket companies are at a disadvantage when negotiating with software giant Microsoft is a bit of an understatement. In one corner, we have Microsoft, which won't come to a screeching halt if it loses, say, 1,500 licenses at a midsized company. In the other corner, we have a growing company in the SMB space, most likely in need of Microsoft's ubiquitous software.

But there is hope, according to Alvin Park, a Gartner Inc. analyst who offered tips for negotiating with Microsoft at the Gartner Midsize Enterprise Summit this week. Even modest-sized companies can level the playing field by developing a plan for using and upgrading their software, and taking the time to negotiate. They may even walk away with a good deal.

First, Park urged businesses to review their Microsoft licensing arrangements and develop a timetable for upgrading various software licenses. Such plans can differ depending on the product.

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For example, many businesses prefer to upgrade their desktop operating systems as they replace hardware. Since Microsoft provides support for its products for 10 years, some customers choose to skip the upgrade (usually on a three- or four-year cycle) on operating systems and some applications -- and keep an existing version twice as long as suggested by Microsoft.

Trieu H. Tran, general manager of business engineering and administration with Smyrna, Ga.-based Murata Electronics North America Inc., only upgrades his operating systems when he replaces PCs. It saves the company money, and he has found that his PCs work better that way. "I find that the older hardware is not good enough for the new operating system," he said.

Park also recommended that businesses negotiate their tune-up pricing -- the clause in the agreement that allows them to add users during the lifecycle of the license agreement. That's especially important for SMBs that may not be able to accurately predict how quickly the number of their employees might grow. Park warned that often these fees are exorbitant and neglected in the negotiating room. "Negotiate tune-up fees vigorously and try to get them as low as you can," Park advised.

Park outlined three purchasing programs for which most midsized businesses qualify: Microsoft Open (five to 500 users), Select (over 250 users) and Enterprise (over 250 users) agreements. Of course, each program has multiple -- and sometimes confusing -- subsets. In general, the larger the agreement, the better the deal, but there can be exceptions depending on the details of the agreement. Park suggested getting price quotes for a number of these programs to ensure that the best deal is on the table.

Park also suggested that businesses should buy the Professional version of the XP operating system. With that version, users can downgrade if, for example, they want all machines running the same OS and then upgrade back to XP for free at a future date.

Be prepared for battle

CIOs should also think about how their employees use their software when choosing their licensing model. For example, if an executive has a laptop for travel, a PC in the office, another computer at home and mobile devices, licenses for each device can be very expensive. It makes more sense to buy a license for that user. That way, they can access the same software through any device for one fee. On the other hand, if multiple employees use the same device, then a per-device model makes sense, Park said.

Gene Guertin, CIO of Smart Document Solutions LLC, in Alpharetta, Ga., said his organization finally considered the $100-per-seat StarOffice product from Sun Microsystems Inc. after experiencing so much frustration with Microsoft. Ultimately, he passed on StarOffice, and chose Microsoft, but he did let Microsoft know that he was considering an alternative. "We brought that up," Guertin said. "It made Microsoft more attentive."

Guertin has been able to carve out some savings by purchasing the standard version of Office instead of the professional version. He only buys the professional version for a handful of employees that truly need it. Park estimated businesses can save as much as 20% on Office this way.

When all else fails in the negotiating room, it can't hurt to use whatever muscle is available to you. Barbara C. Weaver, CIO in the county government's office for Guilford County, N.C., has found a way around Microsoft's midmarket squeeze. She lets the state of North Carolina do the buying for her. "That way we get the best deal we can get," she said.

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