Software licensing contracts can be complex, costly, and confusing. Whether you are buying, selling, or renewing software, you need to negotiate the best terms and conditions for your business. Here are some strategies for negotiating software licensing contracts that can help you save money, avoid risks, and get the most value from your software.
Before you enter a negotiation, you should have a clear idea of what you need and want from the software. What are your business objectives, pain points, and priorities? How many users, devices, or locations will use the software? What features, functions, and services are essential, nice-to-have, or unnecessary? How much are you willing to pay and for how long? Having a well-defined scope and budget will help you compare different options and negotiate with confidence.
One fundamental issue - the non-legal, practical parts of the deal. You need to be well informed about what the software is intended to do, how critical it is to the business, so find someone educate you. If it’s intended to replace/supersede existing software, you need know how any data it may need will be “ported” from the old to new, the party responsible, and whether any software tools will be required. You should talk to your client’s/company’s “change control” managers and technical specialists too. You need to know why the software is being acquired, or the contract renewed. If the new software doesn’t work, understand what’s involved in porting to an alternative - and provide for who is responsible and will cover the cost.
One should also have an understanding on who is going to the use the service, and do they have capabilites to understand the same. Impact: What impact I can expect, what updagrades will be required to be able to scale further. How is the support system.
You should also do your homework on the software vendor and the market. What are their strengths, weaknesses, and motivations? How do they price, license, and support their software? How do they handle updates, upgrades, and maintenance? How flexible are they in terms of customization, integration, and scalability? How do they compare to their competitors and alternatives? You can use various sources of information, such as industry reports, customer reviews, online forums, and peer networks, to benchmark the vendor's performance and value.
Research on the vendor is crucial. An example from personal experience, a middleware vendor that systematically used dubious “events of default” as a sales tool to drive existing users to extending the scope and duration of their contracts - remotely shutting down use of their vital software. The new deals, to get access switched back one, would contain a release of all claims that might otherwise arise out of this tactic. They grew by acquisition, capturing existing customers; I was involved in opposing one such acquisition. They were extremely arrogant, they even did it to the UK governments’s HMRC (the tax collector.) Former executives interviewed were terrified of they sounded like organised crime witnesses.
Once you have gathered enough information, you should prepare your negotiation plan and team. Your plan should include your desired outcomes, your best alternatives, your walk-away point, and your negotiation tactics. Your team should consist of people who have the relevant expertise, authority, and communication skills to represent your interests and goals. You should also assign roles and responsibilities, such as lead negotiator, subject matter expert, note-taker, and observer, to your team members.
There are several models based upon which you can choose your payment plan, software vendors offer per user/usage/Core/GB unit prices, and sometimes they provide an "All you can eat" option. It's important to understand which pricing is most cost effective and hassle free for your business. Telco customers for example are more CPU intensive than they are storage intensive, a software license based on CPU might be more expensive than one based on capacity.
Negotiating software licensing contracts is not only about numbers and terms, but also about relationships and trust. You should try to build rapport and trust with the vendor by being respectful, courteous, and professional. You should also communicate clearly, listen actively, and ask open-ended questions. You should aim to understand the vendor's perspective, needs, and concerns, and to find common ground and mutual benefits. By building rapport and trust, you can create a positive atmosphere and a collaborative approach for the negotiation.
Part of building rapport is trying to identify who, at an operational and practical level, will be responsible for provisioning, customising, bug-fixes, etc. and not just the marketing and sales team - and making sure their relevant counterparts on your side establish their own personal connection. As negotiations advance, you should try to create opportunities for these key people to meet, not limiting things to legal negotiators. You do not want only the C-Suite to know each other. And make sure to ask for and listen to the opinions of these people on your side of the deal. They can also be a valuable source of industry information and gossip about the counterparts.
One of the most common mistakes in negotiating software licensing contracts is to focus only on the price. While price is important, it is not the only factor that affects the value and cost of the software. You should also negotiate the other aspects of the contract, such as the scope, duration, license type, service level, payment terms, discounts, warranties, renewals, and termination clauses. You should look at the whole package and how it aligns with your needs and goals. You should also prioritize the issues that matter most to you and be willing to compromise on the less important ones.
You also want to always preserve as much as possible the ability to move away from a vendor. So data formatting issues can be significant - you need to know, if necessary, how would you “port” you data to another platform and at whose cost. Customisation and implementation are a crucial aspect of cost. Will your own organisation, or your client’s be able to do this with internal resources, or will you need to employ consultants - as part of this contract or a separate third party agreement. Seek candid discussion from your organisation or your client’s as to whether they really have the capability to implement the software on their own. Don’t criticise or embarrass them for a frank answer.
After you have reached an agreement with the vendor, you should review and finalize the contract. You should read the contract carefully and make sure that it reflects what you have negotiated and agreed upon. You should also check for any errors, ambiguities, or inconsistencies in the contract. You should ask for clarifications, revisions, or amendments if needed. You should also consult with your legal, financial, and technical advisors before signing the contract. You should keep a copy of the contract and monitor its implementation and performance.