Vendors to IT: No economic stimulus package for you

July 21, 2008 (Computerworld) On the same day last week that Federal Reserve Chairman Ben Bernanke gave a gloomy assessment of the U.S. economy to members of a House committee, SAP AG announced plans to shift all of its users to a new support plan that will increase their software maintenance fees.

SAP's price increase isn't the only one users are facing. Oracle Corp. raised the list prices of some of its key products by 15% or more last month. And last week, Emerson Network Power hiked the price of some of its data-center cooling and power systems by 5%, passing along the higher costs it's paying for raw materials.

Such actions beg the question: Are IT vendors out of touch with reality?

As the economy goes from bad to worse, many IT managers are seeking new terms and price breaks from vendors, and some are delaying planned hardware upgrades and application deployments. But judging from interviews with nearly a dozen IT managers, the economic problems aren't resulting in a buyer's market for IT just yet.

For instance, Phil Chuang, IT director at the home health care division of Sacramento-based Sutter Health, plans to seek price reductions from his technology suppliers as part of his negotiating strategy. However, he said, "I don't see vendors really changing their behavior at this point."

Chuang and other users said that vendors of IT equipment and applications that could easily be replaced with other products are likely to face particularly tough negotiations in the current economic climate.

On the flip side, open-source vendors, software-as-a-service (SaaS) providers and outsourcers could see new opportunities as users move to maintain or improve their IT capabilities while reining in costs.

IT execs also may put some purchases on hold while their companies ride out the economic storm. Chuang, for one, still has a laptop refresh in his budget for next year. But he said the planned upgrade is low on his priority list and may well "slip" to a later time.

Similarly, Tridel Corp. CIO Ted Maulucci decided to postpone the usual three-year replacement cycle on laptops at the Toronto-based condominium builder this year. The end-user performance gains don't justify an upgrade during an economic downturn, Maulucci said.

Matthew Kesner, chief technology officer at law firm Fenwick & West LLP in Mountain View, Calif., said the prices he's seeing from IT vendors "continue to go up, not down." That probably results partly from ongoing consolidation among vendors of legal applications, Kesner added. "The big companies are getting bigger," giving them more leverage with users, he said.

But like some of his peers, Kesner is considering a range of options. For instance, he's interested in the possibility of using an online service to help offload some of the 250TB of data that he now stores, although he said a compelling offering hasn't surfaced.

Some vendors are responding to the economic downturn, according to IT managers such as Greg Morrison, CIO at media conglomerate Cox Enterprises Inc. in Atlanta.

"I'm not sure it's a buyer's market yet," Morrison said. But he added that some of the vendors he deals with "are acknowledging the difficult economic environment by proactively reaching out to customers with cost-reduction suggestions." Most of that activity is focused on maintenance costs, as opposed to new product sales, Morrison said.

Kevin Bott, CIO at Ryder System Inc., a Miami-based transportation and logistics services provider, said that IT pricing is "definitely more in favor of the buyers" now than it had been over the past couple years.