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Small firms to cash in on software bargain bonanza

Time for David to haggle with Goliath

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Smart small and medium-sized businesses can nab themselves some serious software bargains this year if they negotiate hard with vendors currently bending over backwards to break into the SME market.

Research unveiled today by META Group advises small firms that the time is ripe to nail vendors of enterprise resource planning (ERP), supply chain, and infrastructure offerings to the floor in negotiations over software and service purchases.

According to the analyst firm, the opportunity to haggle will last throughout 2004 and 2005 as software vendors ramp up their efforts to attract small and medium businesses by modifying their technology, product lines, selling techniques, and pricing models.

"Software vendors are continuing to revamp the products they offer SMEs - along with their marketing, sales, and product development strategies - to better meet the buying styles of SMEs," 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."

But META points out that the opportunity for SMEs to secure discounts will be realised only if their negotiating skills are up to scratch. Firms must adapt their haggling techniques to highlight understanding of flaws so they can by get the best deals from vendors offering software, services, and maintenance packages.

Many SMB buyers focus on software functionality and fail to adequately address the implementation services or maintenance charges associated with an IT project, META's study warned.

For example, small firms should be aware of the fact that vendors often try to base maintenance contract prices on the 'list price' of software licenses (usually 20 per cent to 22 per cent) when dealing with SME buyers.

Lehmann advised: "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."

The study predicts that, using this newly found leverage, SMEs could negotiate maintenance charges down to or below the 18 per cent of list price average, or they could add contract extras such as support and free future software releases to sweeten their deals. ®

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