Across the enterprise IT ecosystem, more and more vendors are passing on some of the burden of high inflationary costs to customers. In the past, a 1 to 3% rate hike was within Fair Market Value (FMV) standards in most cases. In 2022, the perception of “fair” looks more like 3 to 5% as vendors grow increasingly inflexible in their minimum price increases.
As record inflation highs continue, we’ve seen vendors attempt to make increases of 5 to 8% the new de facto standard. Initial proposals with 10, 20 or 30%+ have been observed in some cases.
One example that caught NPI’s attention recently was IBM’s announcement that several z/OS software items are getting an 8% price uplift instead of the typical 5%. IBM’s MLC increase covers the following products: VWLC, AWLC, EWLC, AEWLC, PSLC, CMLC, MWLC, FWLC, TWLC and ESLC for Tailored Fit Pricing.
IBM’s price increase is noticeable as the 5% annual increases announced for many of their other products and agreements was already on the high end of industry standards. Now, IBM seems to be reinforcing a higher “norm” for year-over-year hikes in the foreseeable future. Given the high switching costs of IBM’s products, and decades of establishing strong vendor lock-in across much of its customer base, many IBM customers will have little other choice than to pay these heightened annual increases.
Although some aspects of these annual increases may be unavoidable, NPI has a few pointers for how to help maintain price protection when possible.
Look to Lock in Pricing Proactively for Longer Terms Where Appropriate…
The easiest and most available way to create price protection is through multi-year terms and upfront term payments. But these methods have their own disadvantages as well. Overcommitting or losing flexibility in agreements can often drive costs up over the long term if they’re not analyzed carefully.
NPI encourages clients to conduct deep dive reviews of their IBM licensing agreements and look for opportunities to calibrate terms. Choose longer terms for only a few key line items (as appropriate) and reduce terms on items that may not be needed for an extended period of time.
…But Beware of ELA Pitfalls
Many vendors will sell enterprise licensing agreements as a way of keeping price increases in check. NPI finds that the upfront and minimum purchase requirements vendors push as necessary components of ELAs can at times make them more expensive in the long-term than purchasing ‘a la carte’ licensing options. Additionally, many vendors are asking for larger annual commitments without providing the appropriate value back to customers.
Craft Messaging to Push Back on Unfair Increases Outside of Fair Market Value Thresholds
While some price increases in more niche areas like mainframe solutions may be more heavily affected by inflationary pressures, NPI has seen vendors and resellers over-exaggerate the degree of pricing impacts. In fact, certain IT hardware subcategories have begun seeing costs come down. For example, GPU prices have fallen more than they’ve increased recently due to collapsing demand from crypto miners. This macro effect has started to hit PC/workstation prices with downward pressure now as many consider using n-1 GPUs in current configs because of the cheaper costs and minimal drawbacks.
This underscores the importance of performing IT price benchmark analysis on purchases such as your IBM renewals to determine two things: (1) Are you paying a fair price to begin with? (2) And are the proposed increases justified? Well ahead of your renewal date, start preparing to position yourself to apply competitive pressure. Understanding switching costs for competitive solutions can help you determine if IBM’s price hikes are worth it (and sustainable, given the current trajectory) – and will also signal credible competitive interest that may positively impact price negotiations.
Need help mitigating the impact of IBM’s MLC increases on your IT spend? NPI can help – contact us today.
- Bulletin: What to Do Now to Prepare for Increased Software Audit Activity
- Blog: Is an Enterprise License Agreement Worth It?
- Blog: 3 Tips to Help You Better Manage Enterprise SaaS Costs
- NPI Service: Enterprise Software License Optimization Consulting
- NPI Service: IT Price Benchmark Analysis and Negotiation Intel