There are many ways to mitigate the risk of paying too much for software licenses—but you can't expect vendors to help you much on this front. Even as many software offerings have drifted towards commodity status, it seems that many vendors are working hard to bolster license revenue by making fee structures ever more complex and non-standard. Many of these license structures heavily favor the vendor interests and tend to inflate costs beyond what is necessary and reasonable. For example:

1. Some use-based licenses add a premium for peak periods, complicating cost calculations and potentially producing unexpectedly high fees
2. Enterprise licenses base pricing on tiered or target numbers of users, rather than the actual install base. In such scenarios, companies can end up paying for unused seats.
3. Vendors offer discounts for prepaying years of maintenance fees (e.g., three years) at today’s “lower” prices and usually based on projected levels of use. In reality, software fees generally fall over time, due to competitive pressures and increasingly cheap base technologies. As a result, locking in fee rates can commit companies to paying fees that are, over time, higher than rack rate.

The worst part about these structures is that customers feel they have no choice and must accept disadvantageous license and use-auditing structures in order to continue using software products.

In some cases, however, customers might have more power and options than they realize. Few customers “push the envelope” and explore licensing alternatives that are not standard for the vendors. Negotiating with vendors on a per-license basis is just one option. Customers should also look carefully at their entire software portfolio, software market trends, and how proposed software purchases will actually be used. All of these factors can indicate options and leverage points for license agreements. Consider: 

1. Many customers license similar products with largely redundant functionality. Consolidating similar types of software into a single product can not only reduce the IT burden and support costs, but can also give purchasing managers more leverage in license negotiations. Vendors typically give higher discounts for ongoing maintenance with a larger number of product licenses.
2. Understanding how software will be used can help purchasing managers negotiate with vendors for the licensing structure that provides the most return on the investment (ROI).
3. Incorporating a variety of licenses based on how software products are used (e.g. concurrent usage, named usage, etc…) can help avert unnecessary usage fees and per-seat payments.
4. Since vendors make most of their profit from the annual maintenance fees, some will write off initial purchase fees entirely and charge only maintenance fees (anything to get you hooked!).

What are your most successful tactics for negotiating licenses? We would be interested to hear other perspectives and success stories related to this topic.

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