It’s a high-tech buyers’ market out there — and the right time to put the squeeze on IT vendors for more value.
So says Nauman Haque, a research analyst with Info-Tech Research Group Inc. in Toronto, who adds that today’s much-improved tech sector market means there’s more room for customers to negotiate with vendors for better pricing and additional service.
Vendor margins are higher, there’s a more stable community of IT suppliers, competition is greater, and there’s a slew of Canadian buyers that are spending more on computing technology, he says.
It’s a far cry from a few short years ago when vendors and customers were scrambling for their business lives and focused on trimming costs.
“Earlier in the decade we used to caution companies not to push vendors too hard on prices,” Haque says. “Vendors then had really thin margins and if you looked for anything more, it would usually come at the expense of service and quality.”
Things are much different today, he says. What’s emerged from the meltdown of the tech sector a few years ago is a more consolidated vendor community of multifaceted suppliers. Vendors generally have a much greater breadth of products and services, and operate leaner and meaner as a result.
They’re also “flush with cash,” Haque wrote in a recently published report entitled Trends in Vendor Relations: Time to Put on the Squeeze.
To prove his point, Haque cites a Goldman Sachs report that contends “cash balances among tech companies are at an all-time high and growing. The median technology company has 28 per cent of its total assets in cash, compared with 20 per cent for the median company in the S&P’s (Standard and Poor’s) 500.”
Good times mean customers should be able to benefit from the upswing, Haque says. And it’s not just the big guys who can reap the benefits. “I think there’s an equal opportunity for small and mid-sized companies to squeeze vendors as there is for large companies,” he says.
Not everyone agrees — the fact that they’re ripe for squeezing is probably news to most tech vendors. For example, Richard Knock with F3 eBusiness Inc. in Toronto, a custom Web application development company, admits that his company’s business is pretty good these days. “But if a vendor needs to be squeezed to provide more value, then it implies that they weren’t providing adequate value in the first place.”
Knock contends any vendor that is able to offer customers significantly more for less when business is on an upswing may have, in fact, been “padding” their products and services. Clients will pay a fair price for value no matter what the business climate, he insists.
And whether a customer can actually get more added value from a vendor these days really depends on the nature of their business, adds Andrew Leslie, a principal consultant with Monarch Telecom and Network Services in Toronto.
Communication companies like his, for example, have been squeezed by the convergence of voice and data services. His customers have many more choices around how and from whom they buy services, and there exists a “buyer’s market” in communication services.
As a result, service is where many are adding their competitive value.
“Application vendors who are flush with strong sales should be more willing to offer incentives, like free professional services, to complement a product sale,” he says. “Systems integrators, on the other hand, are fully booked with projects and are more likely to raise prices than deliver more value.”
Meanwhile, Greg Dorbeck, president of Pivotal Technologies Inc. in Hamilton, Ont., says it’s not about whether or not the IT market is experiencing strong growth. Any time is the right time to squeeze IT vendors for value, he says.
“Customers must consistently make these demands of any vendor,” he says. “Otherwise, how will they ever get ‘value’ for products and services? Only when the company is flush with cash? I think not. Is the ‘value’ of the customer’s purchase worth less in ‘up times?’ Why should a ‘down’ industry time period reduce or dilute a customer’s right to demand more?
“I think the opposite. The customer’s purchase in a ‘down time’ is worth much more to the vendor, and they will fight to add value when and wherever they can.”
The bottom line, says Dorbeck, is that buyers should consistently demand more. And there are some tricks companies can use to give their demands more impact with a vendor.
Hague suggests a few fundamental strategies when attempting to put the squeeze on IT suppliers. For starters, always have a plan B when dealing with a tech company.
“Have an alternative. Even if it’s not a viable alternative for you — if it’s a competitor of your vendor, then you can get some leverage,” he says. “They’ll take notice. Just bringing up alternatives is a good strategy.”
Try to sweeten the deal. In an age where the market is served by IT suppliers that generally have more product and services offerings, look at buying combination “bundles.” Combine the purchase of products with cheaper support services, for example.
Many vendors these days are thinking long-term and are motivated to add value through additional services and lower costs if it means winning your business now and in the future, says Dorbeck. Suppliers want sustainable revenue streams and many are willing to go a long way to make you a regular customer.
And work the salesperson. While your company’s business alone may not be a big deal to a large vendor, it probably means a whole lot to the individual salesperson who’s trying to achieve a target and who might be inclined to work more diligently on your behalf.
Truth be told, timing probably matters a lot less than the efforts of a customer to be an informed consumer.
“You have to know your way around,” Haque says. “You’ll have to do your research as a buyer. You have to know the vendors, their products and the competition.
“If you put in your work, you really can save a lot of money.”
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— McLean is editor-in-chief of IT World Canada and can be reached at dmclean@itworldcanada.com.