ClearEdge data reveals that customers frequently get taken advantage of by server suppliers when it comes time to negotiate their maintenance bills. The main areas of risk are:
Sudden price increases well above previous levels (up to 30%) for support
Stingy discounting compared to the prior deal
Forced upgrades to new equipment
Server sales reps are typically compensated on net new spend, so they often present deals where it appears cheaper for the customer to buy new equipment rather than pay for maintenance on the older, perfectly adequate equipment. We use the words “appears cheaper” because the sales reps grossly inflate the maintenance costs to move a client to new equipment. We call it the “net new trap” and the “maintenance bucket game”.
In recent months, client examples abound:
A client was renewing maintenance on Oracle Sun servers and the vendor hiked prices by 15%. Because the client had mission critical-data running in that server stack they had no choice but to agree to the deal.
Another client was getting just a 10% discount on their Dell/EMC hardware maintenance bill, compared to other similarly-sized client deals where we see 40-60% discounting
IBM reached out to a client, suggesting that if they continued to maintain their current environment, they risked spending $750K for the next three years. They then offered the client new power system servers for $650K which included three years of maintenance – cutting the run rate by $100K. The client asked ClearEdge to validate the deal and we were able to find deals for the same new equipment and maintenance at $450K. The vendor’s offer appeared good only because it was framed against an outrageously priced maintenance deal.
Suppliers succeed with these sales tactics because they know customers cannot risk going without maintenance, and they work hard to gain specific information about their customers’ environment. Often, the only way to achieve slightly better pricing and discounts on such deals are by offering to pre-pay or agreeing to a multi-year renewal.
The best way to compete with these vendors is outlined below in a proven process developed by ClearEdge, with an emphasis on starting deals early and bringing third party maintenance suppliers into the mix. In a recent case, we saw a client use this process to achieve a 50% discount from HPE.
IT deal leaders are urged to spend adequate time on the first column, with emphasis on the first, second, and fourth bullet points. These action items will make it infinitely easier to complete the rest of the steps.
We recommend starting this process six months before any supplier engagement. This runway will allow you time to align your stakeholders and understand your demand, determine which needs are urgent, what alternatives exist in the market, if there’s any net new spend to add to the deal, and how you might accelerate or decelerate to your advantage. Each step builds upon the former and will provide multiple levers to use during the negotiation process; the better you do at completing these steps, the better your deal outcomes. By starting early, you’re able to summarize your leverage position early in the process and throw the vendor off their game plan.
Many of our clients are moving towards third party maintenance providers and saving 50% to 75% on all or part of their maintenance spend. Even if you have no interest in using a third party, bringing in a bid can ruffle the feathers of the OEMs and push them to make a more competitive offer. When you get another quote, you show the supplier you’re seriously considering other options.
To make the process easier, ClearEdge developed a set of three tools to help clients compete against server suppliers, described here.
Using these templates will help you execute an effective deal plan step-by-step. The tools and templates are quite simple; the challenge lies is getting your stakeholders to use them. When they do so, they will be providing you the visibility you need in a clear, digestible dashboard showing what servers you have, what you need to maintain, and what you need down the road.
The ability to know with confidence what you need vs. and what would be nice-to-have before you talk to the supplier allows you to play the timing game correctly, the bundling game correctly, and take your story to the vendor before they come to you. These tools will guide and support your priorities from the beginning to the end of your next deal and neutralize your suppliers’ leverage.
To learn more about the inflection points surrounding your server life-cycle and the tools designed to help you, download our webinar here or contact your ClearEdge representative.
- This article is based on a recent ITDM Virtual Summit webinar delivered by Analyst Joe DeVirgilio and Senior Analyst Danilo Milevsky of ClearEdge.