What Should I Consider When Negotiating Business Application Licenses?

Enterprise-scale applications can often entail complex licensing agreements and businesses need to be careful when negotiating expansive software contracts. It’s not just about receiving good value for money at the outset, but also about ensuring license agreements include enough flexibility for changing business requirements. Here are ten points businesses must consider when negotiating a licensing agreement.

1. Make Sure You Understand What End Users Require

Rushing into licensing negotiations without understanding what it is your business end users really require would be a mistake. It can be tempting to save time and negotiate blanket agreements, but better business value can be achieved by carefully analysing corporate requirements. In turn, a business can request a custom license agreement that closely matches real needs, instead of expensively covering the business with a bloated, blanket agreement.

2. Prioritise Software Provisioning

Every business operates with a fixed procurement budget, and the same goes for software. However, the potential list of software requirements can be almost endless. Prioritising needs is a key aspect of negotiating with a vendor as this ensures a business can get the maximum value for its money. Of course, where nice-to-haves can be obtained cheaply, these should be included in a licensing agreement.

3. Consider Service Levels

Software companies are responsible for providing support where and when applications fail. Rapid, around the clock support can be expensive, but necessary where business-critical operations are at stake. On the flipside, many business applications can tolerate brief periods of downtime. When negotiating with a vendor, don’t overpay for service levels which simply are not required by your business.

4. Involve Legal Guidance

Particularly where software deals are very large, legal expertise should be a part of the process. The opinion of a legal expert that is versed in the complexities of software licence agreements can help your business catch on to potentially expensive mistakes before an agreement is signed. Though legal expertise will add to the cost of obtaining a software license, the long-run savings may be significant.

5. Include Incentives and Penalties

Some software licensing agreements include the once-off delivery of a software product, but agreements increasingly involve ongoing service delivery, particularly where cloud vendors are engaged. Vendors may become lax once an agreement is signed. That’s why businesses should consider including incentives and penalties in an agreement. These can ensure that vendors continue to deliver ongoing high service levels.

6. Watch out for the Term of the Agreement

Business objectives can change rapidly. Though vendors may offer lower prices for multi-year agreements these discounts should be weighed up against the vendor lock-in that it produces. That said, some applications are procured in response to ongoing, unchanged business requirements and here businesses should consider negotiating a discount for a longer commitment period.

7. Implementation Costs

Adding new software packages to an existing IT portfolio can be tricky and customising a pre-packaged solution to business requirements can also be expensive. Where vendors are willing to include implementation as part of a licensing agreement this effective discount should be considered against the overall price of the licensing agreement.

8. Keep an Eye on Future Requirements

The rationale behind an agreement is to fix terms for both parties for a set period of time. However, your business requirements may change during this time period. Attempt to include a degree of flexibility in licensing agreements, allowing your business to change software provisioning alongside changing business requirements. Where penalties are involved, try to minimise these.

9. Follow a Contracting Process

Ad-hoc negotiations are not a good idea when it comes to complex software licensing agreements. Instead, use documented procedures throughout negotiations, avoiding phone calls by instead opting for written negotiations. Check that all terms and conditions are clearly agreed to while also ensuring that all parties are fully informed throughout the process.

10. Ask the “What-if” Question – Frequently

Finally, businesses should question the progress of a software licensing agreement every step of the way. It is often the unseen, unexpected factors that turn a once reasonable, well-priced software agreement into a nightmare for the business that signed it. By asking questions throughout the process a business can eliminate at least some of the surprises that may emerge over time.


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