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Data integration costs hurting companies with poor negotiation skills

Companies could save upwards of $100,000 each if they learn to be savvier negotiators when it comes to data integration licenses, according to Gartner Inc.

Many companies are essentially throwing away tens of thousands of dollars, if not more, on data integration, paying for software and services that don't match their organizational needs, according to a recent report by Gartner Inc.

"The industry can tighten up," said Ted Friedman, an analyst with the Stamford, Conn.-based research firm and author of the report. "I think people have been pretty loose in negotiating for data integration tools."

But that need not be the case. By paying closer attention to detail when negotiating or renegotiating data integration software and services licenses, Gartner predicts, the average company stands to save upwards of $100,000 -- no small sum in a down economy.

"Data integration teams, infrastructure managers and other roles involved in the evaluation and procurement of data integration software can save $100,000 or more during new procurement and renewal transactions by negotiating better pricing and terms with vendors," Friedman writes in the report.

Specifically, organizations that are negotiating new data integration licenses – or renegotiating existing ones, which Gartner recommends -- must learn and understand in detail the terms of their data integration licenses, negotiate with multiple vendors and, finally, know what they need and ask for the right things, Friedman said in an interview.

Many companies don't understand the terms of their data integration licenses, having never taken the time to study them in detail, the report states. Usage rights, for instance, often limit the number of users of a particular integration tool, a point often overlooked.

Such usage rights are being expanded across companies as data integration comes to be viewed as a strategic initiative, rather than a non-strategic, behind-the-scenes project. This factor alone can increase data integration costs by up to 50%, Friedman said.

The same goes for testing and development usage rights, which typically cost between 25% and 50% of production license costs. "Enterprises should negotiate for these rights upfront, rather than wait to see what the vendor charges for them later on when buyers have lost their leverage," the report states.

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 Considering multiple vendors is also essential to realizing maximum cost savings, Friedman said. He further recommends that companies keep negotiations open with multiple vendors until a contract with one of them is finalized -- something too many companies fail to do.

Finally, companies must know what their needs are and craft licenses to include only those tools and services that they will actually use. This step becomes increasingly important as data integration vendors continue to push expensive, comprehensive software suites.

Many data integration vendors, for example, bundle -- and charge for -- real-time data replication and data federation capabilities along with standard ETL functionality. "But for many companies, those two are just ancillary capabilities," Friedman said.

Such bundling helped the data integration market reach $1.44 billion at the end of 2007, according to Gartner, with an estimated year-over-year growth rate of more than 17%.

Companies should limit their data integration investments to only those components that are needed now and will clearly deliver value in the near- to mid-term, Friedman said.

Even those companies with existing data integration licenses should try to revisit them with their vendor when possible. Though it might be harder to renegotiate with mega-vendors like IBM and SAP, smaller independent firms are more likely to renegotiate licenses to keep customers for the long-term.

Friedman estimates that careful negotiation of data integration licenses can help most companies save $100,000 or more on data integration costs. And as the economy continues to spiral downward while data volumes continue to increase, every penny saved helps.

"Many organizations have left money on the table through inattention to data integration tools pricing and licensing terms and conditions as they have expanded their investments in the tools," Friedman writes. "Understanding the range of functionality needed and increasing effectiveness of negotiations can lead to attractive savings."

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