How to Prepare for an IBM Software Negotiation

Mark Bartrick is a Senior Analyst at Forrester Research, serving Sourcing & Vendor Management professionals.

As any sourcing and vendor management (SVM) professional will tell you, software negotiation with IBM is no simple task. In recent years, as IBM has expanded its range of software and services, its pricing and licensing metrics have grown increasingly complicated, leading to serious headaches among SVM professionals. That being said, successful negotiation is not impossible – in a new Forrester report, my colleagues and I show that with preparation, patience, thorough due diligence, and an understanding of IBM’s licensing and pricing nuances, it is possible to construct a deal that satisfies all parties.

First and foremost, SVM pros need to do their homework. While it may not be possible to fully master all of IBM’s licensing nuances, you need to have at least a basic understanding. Some initial ideas to help you get started are:

  • Watch out for hyperlinks. Some of IBM’s agreements include hyperlinks to their website and its licensing policies, which can be changed at IBM’s discretion. Pay attention to these hyperlinks to stay up-to-date on the changes or include in your agreement that any changes must be communicated to you in advance.
  • Consider subcapacity licensing to cut your costs. Both mainframe and distributed products can be deployed in either full-capacity or subcapacity mode. Although subcapacity mode requires extra effort to monitor and manage, it also means you only pay for the actual capacity used, and usually results in lower software costs.
  • Review how your organization currently licenses IBM products. If you’re already an IBM customer, check how you are licensing IBM’s products today. You may find that IBM has recently changed the way it licenses certain products, so simply thinking you can renew as before may be wrong.
  • Audit your license usage. Run your software asset management tools to check what your actual IBM usage is and to compare to your current IBM license entitlement. This can help you quickly reveal compliance issues and suggest better ways to manage licenses and optimize subcapacity options.

Once you have a basic understanding of the licensing metrics, it’s time to think about pricing. Just like with licensing, IBM’s pricing model has become more confusing as they have expanded their product portfolio. If it is too overwhelming, you may need to bring in independent market analysts in order to broaden your knowledge. Some tips for negotiating pricing with IBM include:

  • Understand IBM’s Passport Advantage program. Insist that IBM fully explain its volume discounting and where you currently sit in its various discount bands.
  • Watch for special discounts from IBM. Occasionally IBM reveals special discount offerings such as competitive replacement programs or time-restricted discounts, so it’s worth monitoring IBM’s sales activity.
  • Consider multiyear deals to gain bigger discounts. Consider multiyear agreements with IBM as an incentive to get it to reduce its support/maintenance costs.
  • Review an annual spend cap with IBM. Clients often overcommit on their annual Enterprise Licensing Agreements (ELA) cap and then find that they underspent in the year. Try to ensure that you cap at the optimum level and don’t cap too high.

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