2009: The year the buyer/vendor balance shifted

As we look back on 2009, it becomes apparent that the single story of the year might have been “doing more with less”. For too many companies, this meant closing plants, reducing their workforce and cutting costs wherever possible. CIOs were charged with cutting IT budgets without affecting productivity, which was most easily done by eliminating unused software licenses, renegotiating maintenance pricing and consolidating software agreements wherever possible.

Since it was seen as mission critical, engineering and data management software solutions were often not subjected to the same price/benefit or total lifecycle cost measurements that were applied to more traditional corporate assets such as manufacturing equipment.

That may all have changed in 2009. Companies cut new license expenditures to the bone, relying instead on prior purchases. For the first time, many conducted software audits to tie specific users to software licenses to determine how many concurrent licenses of a product were really needed, then got rid of any overage. “Shelfware” (unused software of all sorts) was eliminated. Enterprises that had grown by acquisition tried to renegotiate deals with vendors to take advantage of volume discounts and pressed relentlessly for ever larger discounts. Formal training became in-house mentoring, both as a way of controlling costs and to manage and retain knowledge.

The result, as vendor after vendor has said: license revenue will only go up once employment in their customer base rises. Maintenance rates may take longer to recover since there is a lag between the sale of a license and the start of the maintenance contract. But one thing that may never recover is the “lock” many vendors had on that nice, profitable maintenance revenue stream; more customers are looking at buying software under plans that don’t require maintenance or that have far lower maintenance payments than has historically been the case. Very short duration software subscriptions, token pools and other schemes that allow the buyer to limit financial risk by providing flexibility are in demand as the economy picks back up. The impact on the vendor community is very real: significantly lower revenue for 2009 and some recovery in 2010 with the customer in the driver’s seat, calling the shots on discounts and bundling.

One long-term implication of the 2009 budget freezes is still unclear. If an IT budget was slashed by eliminating “waste” in 2009, how can a CIO justify any 2010 budget expansion without giving the impression that the company has been overspending on IT in the past? It will be hard to argue for a budget increase unless the expenditure is directly tied to an increase in users or has a compelling business improvement ROI. Will budgets return to prior levels as a percentage of revenue? When? Or has the expectation been set that the current level of efficiency is permanent?