Top 10 Sneaky Tactics Technology Suppliers Use to Jack Up Your Costs
Preface
Nearly all clients are seeking greater prosperity in 2024.
While client organizations are still focused on cost reductions to meet the challenges of their new economic and market realities, the pent-up demands of the business are increasingly calling for innovation, automation, and organizational performance improvement.
Digital Transformation has emerged as the #1 Way to Boost Performance and Savings concurrently. Client organizations that are digitally transforming are harvesting greater value by:
- Automating tasks (RPA) to streamline efficiencies
- Unlocking data insights (ML) for better organizational (AI) decision-making
- Empowering flexible (Cloud) solutions for more cost-effective scaling
This drives greater innovation, improved organizational performance, and significant cost savings ranging from 25-30% (depending on industry, scope of transformation, maturity of transformation, and the methodology and execution) while at the same time, lowering risk by diversifying and improving the technology supply chain.
NET(net) is the #1 IT Cost and Value Optimization Provider. In the last 20+ years, NET(net) has shaped over $2 Trillion of investment, captured well over $400 Billion of incremental value for our clients and partners, and has an 85% probability of helping you save between 13-53% on your existing and planned IT costs. Our performance numbers are simply unmatched.
Series Description
The ever-evolving landscape of technology is a double-edged sword for businesses. While it unlocks incredible opportunities for innovation, enhanced operational efficiencies, and improved organizational performance, it also presents challenges when it comes to understanding the over-hyped mysticism of these supposed magical solutions that can solve all your problems, and managing the ever-increasing realm of constantly growing IT costs. In this 4-part blog series, we'll be your guide, unveiling the sneaky tactics technology suppliers sometimes employ to inflate your costs and/or reduce your value. We'll equip you with actionable strategies to fight back and ensure you're getting the most value from your technology investments.
- Part 1: We'll kick things off by exposing the top 10 sneaky tactics commonly used by technology suppliers to jack up your costs.
- Part 2: Buckle up as we delve into some of the most outrageous, newly invented fees being slapped on you by technology suppliers in 2024.
- Part 3: Feeling like your technology supplier might be overcharging? We'll unveil a Supplier Value Grab Report on 28 of the worst offending providers to help you compare your experience and discover negotiation strategies.
- Part 4: Ready to see the (in)famous "Hall of Shame"? We'll reveal the top 5 Absolute Worst, most egregious, most expensive (and potentially most value-draining) technology suppilers of 2024, along with tips to negotiate better deals.
“Technology suppliers have been increasingly predatory in recent years and in my experience, it has come in two forms: (i) Suppliers that acquire legacy software products that are ‘sticky’ and then create new suites, forcing customers to buy additional products they don’t need, and (ii) Suppliers that were once low cost / high-value, but now that they have gained market acceptance and perhaps garnered some technology dependency and integration, they try to force through outrageous price hikes at contract renewals, after previous price holds may have expired”.
- Philip Thomas
CPO, Hargreaves Lansdown
Introduction
Increasingly, technology suppliers are engaging in tactics that have the unfortunate result of jacking up your costs. Here's a breakdown of the top 10 sneaky tactics technology suppliers use to inflate your costs and erode your value, along with actionable recommendations to future-proof your environment and respond effectively:
1. Subscription Shock:
- Problem: Suppliers phase out perpetual licenses for core software, forcing a switch to subscription models. These subscriptions may offer minor feature upgrades but significantly increase long-term costs.
- Example: A company with perpetual licenses for editing software faces a migration to a cloud subscription. They may need the core functionality of various products, but the subscription bundles in features like video editing and stock photos that they don't use, inflating the cost.
- Future-Proofing: Negotiate long-term support contracts for perpetual licenses while they're still available.
- Response: Evaluate your actual software usage. Explore open-source or alternative supplier options that offer the specific features you need without unnecessary bloat. Negotiate with the supplier for a subscription plan that aligns with your requirements, not one that only fits their packaged offering.
- Problem: Suppliers pre-configure software suites with unnecessary features, forcing customers to pay for functionalities they don't want, need or use.
- Example: A company purchases a project management software suite that includes advanced reporting and resource allocation functionalities suitable for large enterprises. However, their team is small and primarily utilizes basic task management features.
- Future-Proofing: Thoroughly evaluate software features before purchase. Look for suppliers offering modular solutions where you can choose specific functionalities required by your team.
- Response: Request customized pricing from the supplier, excluding features you don't require. Explore alternative suppliers with a la carte pricing models.
- Problem: Suppliers raise list prices for their software while maintaining existing discount tiers. This reduces the effective value of the discount as a percentage of the overall cost.
- Example: A supplier increases the list price of their software by 20% (from $100 to $120) but maintains the existing 20% negotiated discount for long-term customers. While you still receive your 20% discount, your effective costs increase from $80 to $96 (e.g., you still got a 20% increase in costs).
- Future-Proofing: Negotiate flexible discount structures that consider the manipulation of list price values, and be sure your future costs reflect on the net fees you are agreeable to pay, not on the gross numbers absent a corresponding change in discount percentages. Get long term consideration on these areas and be sure it isn’t nullified in subsequent renewals. Regularly benchmark software pricing and explore alternative suppliers.
- Response: Renegotiate your discount with the supplier, referencing industry pricing trends. If unsuccessful, evaluate the cost savings of switching to a competitor's solution.
- Problem: Suppliers introduce new criteria for existing discount agreements, making it harder for customers to qualify for their previous discount levels.
- Example: A company has a volume-based discount with a supplier. The supplier may introduce new criteria like growth rates, user adoption rates, or specific product adoption alongside the existing volume requirement, making it harder to maintain the discount level.
- Future-Proofing: Negotiate for multi-year discount agreements with clear terms and conditions to avoid surprise changes.
- Response: Review the new discount criteria and assess if you can meet them. If not, analyze the feasibility of switching suppliers if the cost increase is significant. Consider legal counsel to review your existing discount agreement.
- Problem: Suppliers reduce the functionalities included in existing software solutions, forcing customers to pay extra to regain previously available features.
- Example: A supplier removes advanced security features from their basic subscription plan, pushing customers to upgrade to a more expensive tier to maintain the same level of protection they previously had.
- Future-Proofing: Negotiate for grandfathering clauses in contracts that ensure access to the current feature set for the duration of your agreement.
- Response: Document the features included in your current plan. If they are reduced, investigate downgrading to a lower tier that still meets your needs. Explore open-source or alternative solutions offering the functionality you require.
- Problem: Suppliers exploit customer lock-in by jacking up prices at renewal time, particularly for heavily customized or integrated solutions with high switching costs where long term price holds are not in place (and sometimes even if they are).
- Example: A company heavily relies on a customized CRM system from a single supplier. During renewal negotiations, the supplier significantly increases the price, knowing the cost and complexity of switching to another platform are substantial.
- Future-Proofing: Avoid supplier lock-in by negotiating contractual limitations on price increases at renewal. Maintain relationships with multiple suppliers to explore competitive options.
- Response: Start renewal discussions well in advance. Analyze the proposed price increase and provide counter-proposals with justifications. If negotiations fail, evaluate the feasibility of switching suppliers despite the switching costs.
- Problem: Suppliers push annual price increases for technical support, even with existing contracts that stipulate fixed pricing. This tactic relies on customers not noticing or challenging the increase.
- Example: A company has a three-year contract with a supplier that includes fixed pricing for technical support. However, the supplier bills them an additional 5% annually for support, citing "inflationary adjustments" not mentioned in the original contract.
- Future-Proofing: Negotiate all-inclusive pricing that incorporates support costs for the entire contract duration.
- Response: Review your contract and identify clauses related to support pricing. If the supplier's increase violates the terms, challenge the charge with clear reference to the contract. Explore alternative suppliers with transparent support pricing structures.
- Problem: Suppliers employ complex and ambiguous licensing terms (e.g., Java audits) to create fear and uncertainty, pressuring customers to purchase additional licenses they may not need.
- Example: A company receives a surprise audit letter from Oracle, claiming they are not in compliance with their Java licensing agreement. The vague language in the agreement makes it difficult to determine if they are truly non-compliant, leading to potential penalties and pressure to purchase additional licenses.
- Future-Proofing: Seek legal counsel to review your software license agreements and identify potential ambiguities.
- Response: Do not admit non-compliance without a thorough review. Consult with software licensing experts to analyze the audit findings and potential responses. Work closely with our legal counsel and a lawyer that specializes in software licensing audits.
- Problem: Suppliers push out frequent software updates that may not offer significant value, forcing customers to upgrade to maintain compatibility and security, even if their current version works perfectly well.
- Example: A company utilizes a stable version of a productivity suite that meets their needs. The supplier releases a new version with a flashy interface but minimal functional improvements. The company is pressured to upgrade to maintain security updates, despite the lack of practical benefit from the new features.
- Future-Proofing: Negotiate extended support agreements for stable software versions that meet your needs.
- Response: Evaluate the actual value of the new update. If it offers minimal benefit, consider delaying the upgrade and prioritizing security patches separately. Explore alternative suppliers with longer support lifecycles for stable software versions.
- Problem: Subscription models restrict customization options, limiting a customer's ability to optimize their software usage and potentially forcing them to pay for unnecessary features to achieve their desired functionality.
- Example: A company uses a project management subscription that offers limited customization options for user roles and permissions. They require a more granular permission structure to manage access for different team members, but this feature is only available in a higher-tier subscription with additional functionalities they don't need.
- Future-Proofing: Negotiate for some level of customization within your subscription plan.
- Response: Explore alternative suppliers offering subscription plans with built-in customization features or open APIs that allow for integration with custom solutions.
“Enterprise technology buyers that get proactive about their agreements will benefit greatly from these counter-measures, enabling them to protect the value of their current and future technology investments for the long term."
- Philip Thomas
CPO, Hargreaves Lansdown
Conclusion
By understanding these tactics and implementing the recommended strategies, client organizations can proactively defend themselves against cost inflation from technology suppliers. Remember, knowledge is power. By staying informed and negotiating effectively, you can ensure you receive fair value for your technology investments.
Stay Tuned
Join us for next month’s installment where we reveal the 11th way technology suppliers jack up your costs, and that’s by inventing entirely new fees that didn’t exist previously and then forcing you to pay for them. In subsequent months, we will reveal the 28 worst offending technology suppliers of 2024, and then detail the top 5 absolute worst.
- Aug: Part 2 of 4: Way #11: Top 5 Examples of Newly Invented Technology Supplier Fees for 2024
- Sep: Part 3 of 4: Top 28 Worst Offending Technology Suppliers of 2024 (How do yours rate?)
- Oct: Part 4 of 4: Top 5 ‘Absolute Worst’ Technology Suppliers of 2024 (surely yours isn’t on the list, right!?)
Call to Action
Please Contact Us to let us know what you think of our list, or to share your stories of what you are seeing that didn’t make our Top 10.
NET(net) can help you combat these types of value-grabs, and maximize your savings and value on all your IT spend categories, so contact us for a Free Consultation or Act Now if you’re ready to start saving.
About the Author
Steven C. Zolman is a leading expert in technology investment optimization and the founder, owner, and executive chairman of NET(net), Inc., the world's leading technology investment optimization business-to-business services firm. With over 30 years of industry experience, Mr. Zolman has helped client organizations of all sizes maximize the value of their technology investments by minimizing cost and risk and maximizing the realization of value and benefit.
About NET(net)
Founded in 2002, NET(net) is the world’s leading IT Investment Optimization firm, helping clients find, get, and keep more economic and strategic value in their technology supply chains. Over the last 20 years, NET(net) has influenced trillions of investment, captured hundreds of billions of value, and has helped clients cost and value optimize all major areas of IT Spend, including XaaS, Cloud, Hardware, Software, Services, Healthcare, Outsourcing, Infrastructure, and Telecommunications, among others. NET(net) has the experience you want, demonstrates the expertise that you need, and delivers the performance you demand and deserve. Contact us at info@netnetweb.com, visit us online at www.netnetweb.com, or call us at +1 (616) 546-3100 to see if we can help you capture more value in your IT investments, agreements, deployments, and relationships.
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