Users claw back power over software licences

A report by Gartner warns software vendors that they must establish more realistic margins to guarantee long-term survival in what will become an increasingly competitive market.

"Up until now the unique nature of the software market has meant that buyers had very little negotiating power after the initial purchase of a software licence," said William Snyder, a research vice president at Gartner.

"We expect those dynamics to change considerably over the next five to 10 years giving chief information officers and software procurement officers more bargaining power, while potentially reducing software vendor profit margins."

Snyder explained that leading application vendors will be particularly challenged as firms seek to reduce software charges as they have done with hardware and services costs in recent years.

"Software buyers need to realise that the pendulum is beginning to swing in their favour and that there are an increasing number of alternatives in today's software market," he said.

Gartner outlined a number of ways that companies could improve their negotiating power with software suppliers.

These include using business process outsourcing and software-as-a-service, taking on open source alternatives, and employing third-party vendors to cut high maintenance fees on old software.

"Costing out the possibility of using offshore skills to build application functionality as web services will also help negotiations with vendors," said Snyder.