10 tips for renegotiating your virtualization licensing contracts

The down economy is a perfect opportunity to renegotiate your virtualization licensing contracts. Get tips on how to work with your vendors to cut virtualization costs.

What can midmarket companies do to expand data center virtualization solutions and remain competitive in this economic crisis? One way is to negotiate or renegotiate existing virtualization licensing contracts.

An overwhelming majority of companies don't even attempt to engage their virtualization vendors, according to a recent Information Technology Intelligence Corp. (ITIC) survey of 700 companies worldwide. Only 7% of respondents said they had tried to renegotiate their current or planned licensing contracts to get better terms and pricing deals during the ongoing economic downturn.

The biggest costs of server, application, desktop and storage virtualization deployments are the up-front licensing costs (the terms of which will vary by vendor) and ongoing management, which includes the time and manpower spent configuring, deploying and maintaining the virtualized environment.

Here are several ways midmarket CIOs can cut corners and costs on existing virtualization licensing contracts and future purchases:

  • Evaluate existing virtualization solutions and network infrastructure. Determine whether your current equipment and software is adequate not only for the company's present needs, but also for your anticipated workloads for the next three years.

  • Thoroughly comprehend the terms and conditions of your existing contracts. Don't be afraid to challenge your vendors and rework the terms and conditions.

  • Make a report card. Grade your virtualization vendors on their performance in various areas, including their ability to meet service-level agreements, technical service and support, sales responsiveness, product features and prices. Use this as leverage in your negotiations.

  • Get price and licensing quotes from rival vendors wherever possible. There are multiple virtualization vendors now, and they all want your business. Make them work for it.

  • Compile a specific "wish list." Make a list of the three or four must-have items. If your IT training or consulting budget has been slashed this year, you might ask for free or deeply discounted virtualization technical support or training for the appropriate IT administrators.

  • Negotiate for more flexible payment options. If cash flow is problematic, ask your vendor to work out a more flexible payment schedule that lets your firm stretch payments out monthly or quarterly or even make deferred payments instead of a lump-sum payment.

  • Negotiate to waive fees if your firm has had layoffs. Many companies have cut head count in the last 12 months and may no longer need all of the virtualization licenses they agreed to buy when they originally signed their contracts. Most vendors will usually cut the discount rate if companies reduce their volume purchases. Work with your vendors to maintain the same level discounts even if you're lowering purchases.

  • Negotiate price protection and set price caps. Contract and payment options usually favor the vendors. Typically, a company's pricing levels are set at signing. If your firm purchases 500, 1,000 or 10,000 additional licenses for the same product six months later, it's entirely possible you could get hit with an undetermined price increase. Hold the line on price hikes. If your company is in the middle of its licensing contract, renegotiate for fixed pricing. If you're negotiating a new contract, insert a clause that provides price protection beyond the initial order. Keep license price hikes to less than 10%.

  • Negotiate for discounts on technical service and support and training. These are crucial items. Virtualization deployments are becoming more complex, and your beleaguered IT staff will need all the help it can get.

  • Don't be afraid to walk away from the negotiation table if you find that your virtualization vendor is intractable or unresponsive.

Laura DiDio is principal at ITIC, a Boston-based consulting firm. She can be reached at ldidio@itic-corp.com. Let us know what you think about the story; email editor@searchcio-midmarket.com.

This was first published in September 2009

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