Buyers should beware in BI negotiations

By Hannah Smalltree, News Writer 30 Mar 2006 | SearchDataManagement.com

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BI standardization is a lot more important than saving a few dollars on a software contract. Kurt Schlegel research director, Gartner, Inc.

Companies seeking BI standardization often grapple with vendor negotiations, according to Kurt Schlegel, research director at Stamford, Conn.-based Gartner Inc., who spoke at the analyst firm's recent Business Intelligence summit in Chicago. As organizations remove multiple departmental BI applications in favor of one platform, purchases become more expensive, and long-term stakes become higher for both vendor and customer. A company may get a great deal when it first buys into a big BI platform, Schlegel said, but once it has migrated, future negotiations can become much tougher and pricing may not be as attractive.

"If you do standardize, you're not going to get as good a deal in the long run. But the corollary to that is -- don't worry about it," Schlegel said during an interview. "BI standardization is a lot more important than saving a few dollars on a software contract."

Multiple BI applications in an enterprise often cause problems with data discrepancies, integration and support, according to many analysts and experts. Companies shouldn't be "penny wise and pound foolish" when it comes to BI, Schlegel cautioned. But they should do everything possible to negotiate a good long-term deal.

Spell out the specific products included in the purchase

For more information about business intelligence and negotiating Get negotiating tips from a professional negotiator Learn how to avoid the seven fatal flaws of BI deployments Check out our special report on business intelligence

It's important for contracts to define the exact items that are included in a purchase, Schlegel explained. Ideally, contracts should spell out product SKUs -- that is the "stock keeping unit" number or unique product identification code. Many organizations he talks to have made the mistake of skipping this step, Schlegel said. Purchases that are quickly negotiated, sometimes at the end of a quarter, can fall prey to this kind of contractual ambiguity, and the results aren't pretty.

Organizations that don't require this detailed listing often find out later that a feature they thought they had purchased wasn't part of the deal and will be an additional cost to acquire, Schlegel said. Companies that buy bundled BI systems may be especially susceptible, he added. Each contracted line item should include the product name, vendor SKU or identification number, a detailed description of the product or service, the licensing style (per user, CPU, processor, etc.), the number of units, the list price, and the discount and net price, Schlegel advised.

Understand the upgrade process (yours and theirs)

It's critical that companies assess what happens when the vendor puts out a major upgrade or changes the way a BI platform is packaged.

"This has actually been a problem recently because Business Objects, Cognos and Hyperion -- three of the big vendors -- have all made major changes to their BI platforms, and there are disputes over what's covered underneath maintenance," Schlegel explained. "Hyperion is charging an enablement fee [to get to Hyperion System 9] and a lot of folks are complaining." Some Hyperion customers view the upgrade as something that should be covered under their maintenance agreement, he said.

To avoid this, companies should consider the vendor's plans, assess how a major change could affect the business, and define a clear migration or upgrade path with the vendor. Further, a company should look at its own roadmap for its IT infrastructure. Technology advances such as virtualization, dual-core processing, and the advent of service-oriented architectures could have an impact on BI licensing costs down the road. Companies are advised to discuss these issues with vendors and spell out exactly what will happen when technology changes on either side.

Carefully consider various licensing models

There are a few BI licensing styles. The concurrent-user pricing model is most favored by users in North America, preferred over per-CPU and role-based or named-user licensing, according to a 2004 Gartner study. However, few vendors offer this model, Schlegel said. This may change as technology architectures change, but a company purchasing BI today should evaluate the available pricing models from vendors against specific business requirements. Companies should also watch out for "application-specific licenses," which offer a lower price in return for a limited, application-specific license, Schlegel warned. Companies and vendors should specifically define the limitations of this kind of license in the contract, and should address the future terms, if the company chooses to upgrade the license later.

Get the right hardware configuration estimate

The hardware configuration can be tricky to estimate pre-deployment because vendors often provide benchmark statistics that aren't tested in a company's specific environment, Schlegel said. This can be a major additional cost if more hardware is required than initially budgeted. Companies need to work closely with the vendors to ensure that hardware estimates are realistic.

Negotiate maintenance contracts carefully

Maintenance agreements are a common area of concern, Schlegel said. Companies have complained about BI vendors' altering maintenance agreements, reducing the quality of support, or discontinuing maintenance of older versions of products. As such, Schlegel's presentation had a host of tips. Companies should push for caps in the annual rate of increase of maintenance agreements -- he recommended capping increases at no more than 5%. Further, development and testing can be a large hidden cost of deployments, so consider negotiating for inclusion of those services in the contract. Finally, since BI systems are a "mission-critical undertaking," Schlegel said, companies should consider upgrading to premium support.

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