Bank of America/Merrill Lynch last week published results of a survey of 20 CIOs, highlighting that IT spending is still expected to decline in 2009, just not as steeply as earlier predicted. ML asks CIOs to comment on their spending priorities, budget shifts into and out of particular time periods, how they see different licensing models and the like. It’s a good measure of sentiment (although they have apparently dropped PLM as a software investment category and refer mostly to ERP, office, security and middleware now) designed to help ML analysts see which enterprise IT stocks are likely to do well.
I was unable to secure permission to reprint parts of the report so can’t discuss too much of the contents but: ML found that many of the CIOs were negotiating maintenance contracts with major suppliers — as many as 70% were negotiating with Microsoft, for example. Their success rate was not huge and varied from vendor to vendor but there were reported successes.
The challenge for suppliers right now is to be responsive to customers while themselves remaining profitable. Many software providers are seeking to retain as much of their maintenance revenue stream as possible. Maintenance is highly profitable and, in PLM at least, makes up a significant portion of most companies’ total revenue. A meaningful reduction in maintenance revenue could be disastrous.
But most software suppliers are also doing the math: “Keep customer X happy with a Y% reduction in maintenance now or risk losing them altogether the next time there’s an economic uptick? Or make huge concessions then to keep them at the next renewal? …” I’m sure they’re reviewing individual account histories, looking for buying patterns that might give a clue to the cyclicality of purchase patterns, trying to decide how much, if any, discount can be given.
So, if I were a customer with any leverage at all, I’d ask. After all, if more than half of the CIOs interviewed by ML were willing to negotiate with Microsoft, what have you got to lose?
If you are interested in more details from the ML report, please email me at monica AT schnitgercorp DOT com and we’ll see what we can do.