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No. 4: Avoid vendor lock-in. Vendor lock-in undermines negotiating leverage. "Value-added features that use special APIs create the potential for lock-ins, which tie an enterprise to certain hardware and software combinations," Krischer writes in the Gartner report. Once the organization is locked into certain product combinations, it forfeits an enormous amount of negotiating power. "Special functionality should be applied on an as-needed basis and only when a TCO analysis justifies real operational savings," Krischer writes.
Lock-ins--usually in the form of software or advanced features--are widespread throughout the storage industry, says Krischer. Trying to break out of a lock-in situation will be costly, involving the retraining of operators, altering procedures and modifying applications, job control language (JCL) and scripts. This results in the consumption of critical human resources and added costs, he notes. Even disks--considered to be as much of a commoditiy as a product can be--can lead to lock-in when vendors adopt exclusive types of interfaces or integrated disk.
No. 5: Negotiate software separately. With hardware becoming increasingly commoditized, vendors are turning to their software not only for lock-in, but to provide the fat profit margins no longer available from hardware. "Software, which only a few years ago was an incidental, can now account for up to one-third to one-half of a storage proposal, and in rare situations, even more," Krischer writes. Further complicating matters, the software isn't even loadable software as much as it is microcode that can't readily be sourced separately.
Ideally, storage managers want to itemize the vendor's proposal and negotiate the hardware and software separately. From a practical standpoint, this will be difficult. "Vendors are now selling the software with the hardware as a packaged solution," says The Evaluator Group's Kerns.
There may be more opportunities to negotiate over the length of software warranties--sometimes as short as 90 days--and maintenance agreements. "A strong buyer can negotiate for 12, or even 36 months of free software maintenance," adds Krischer.
TSYS' Rogers found that it was easier to negotiate an enterprise software license than to negotiate the price of every piece of software, manage license compliance and worry that every time it added capacity or changed something about the hardware, the company would be hit with another charge. "We did a five-year enterprise software agreement with Hitachi and got it at a significant discount," he says. The vendor initially resisted the idea, but finally came to see the enterprise software license as a way to solidify a relationship with a company likely to buy large amounts of storage for years to come.
No. 6: Take advantage of new pricing and licensing models where appropriate. Gartner reports that traditional storage pricing models are starting to undergo dramatic change. A number of factors are driving this shift, including the increased importance of software, shorter product cycles, shrinking hardware margins and new capabilities such as capacity on demand. As a result, "enterprises should carefully examine special pricing models, such as utility pricing," Krischer writes.
Enterprise storage software licensing, for example, is one new model. Another new model is capacity on demand, where the vendor charges only for the capacity that is used. Capacity on demand promises to eliminate the need for organizations to overload on storage capacity to ensure it is there when they need it. With capacity on demand, the capacity is physically there, but the organization doesn't pay for it until it initiates a process to activate it. Different vendors are experimenting with various approaches to capacity on demand, but the industry has yet to settle on a standard approach.
C2B2 is about to jump into the uncharted waters of capacity on demand. The organization has seen its storage requirements grow from 1TB to 12TB in three years. A user of BlueArc's NAS storage, C2B2 is now preparing an RFP for 100TB of storage, which it wants delivered as capacity on demand. For C2B2, the benefits of capacity on demand are clear. "We'll save 30% to 40% by buying in bulk, and we won't have to wait for shipping when we need more capacity," says Restuccia. C2B2 has already started discussing with BlueArc how the capacity on demand model might work.
TCO is the bottom line
In the end, success at price negotiation comes down to understanding TCO. The best price is the price you can afford to live with over the life of the technology. If you have to retrain staff, invest in additional tools, modify your applications, change your business processes, track complicated software licenses or limit your future options, then a low acquisition price may not be a bargain. Still, it pays to negotiate the best deal you can. According to Gartner, storage will represent up to 26% of the data center TCO and 48% of the hardware budget by 2006. That's a big chunk of change. The time to negotiate savings is now.
This was first published in March 2004