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IBM’s year-end is looming: time to plan your negotiation strategy – Part 3

In Part 1 and Part 2 of ‘IBM’s year-end is looming: time to plan your negotiation strategy’, we looked at how to ensure your IBM estate is optimized and future-proofed, looking at everything from the IBM Effective License Agreement (ELA) renewal process, getting audit ready and creating a watertight Effective Licensing Position (ELP).

In Part 3, we’ll take a look at how to effectively exit an ELA, as well as those all-important levers to make the most of during vendor negotiations.

An ELA isn’t for me

If you’re looking to exit your ELA, or you don’t have one and aren’t looking to sign one, here are some ways of effectively stepping away from that commitment whilst reducing spend and optimizing your estate:

Resolve all compliance issues – Do this as soon as you can by optimising your estate and ensuring your license numbers are correct. This also removes the audit risk when it comes to negotiation time.

Reduce your product footprint – Apart from the obvious removal of some of your software, you can also look at whether you can do any technical optimization and consolidation. For example, look at how your virtualization estates are configured to maximize full capacity deployments. You can also actively consolidate deployments onto a limited number of dedicated hosts and remove any excess capacity and resources. If you have any VMs running ineligible operating systems like Windows Server 2003 (and soon to be 2008!), prioritise consolidating these to limit the full capacity impact.

Maximize application of product rules – Be aware that not all bundling and support products need to be deployed on the same server, as it depends on the product sets. Also check to see whether any deployments that don’t need licenses aren’t counted and what your non-production and disaster recovery use rights are.

Look at maintenance reductions – If you no longer need maintenance at a particular site, you are well within your rights to terminate it for that designated site. Partial reductions based on deployments can see huge cost-savings, as can moving to third party support which could see 50% cost reductions. For this, look at stable legacy systems where there are no upgrade plans. Examine your use of support to see what level you need.

Review entitlement crystallization clauses – If you are exiting an agreement with a crystallization clause, read it in detail. Most don’t allow you to crystallize entitlement for products not currently deployed, even if you have drawn down the value historically. Most are also “use it or lose it”. If you have significant funds left in the pool, you can fast track future requirements to maximize the value you get out of your current agreement. This step needs detailed analysis and shouldn’t be overlooked.

Key negotiation levers

Whether exiting, renewing, or signing up to an ELA for the first time, understanding the levers is key to getting the best deal. Below are just some of the key negotiation levers to keep in mind when the discussions start.

For the customer:

Ability to move to Cloud Paks – If you are able to make this move, then you’re likely to see very favourable contract terms. We’re currently seeing a huge amount of momentum around Cloud Paks from IBM, as well as an increase in price for non-Cloud Paks deployments, so it could very well be worth your while if you can make the change. Look at the potential benefits of the Red Hat products, and if you are using containerization, consider the benefits of the recent licensing rule changes.

Third-party support –  You’ll need to understand what’s involved and look at where it’s feasible, but this approach can see some beneficial contract terms, either by reducing cost (and maybe even improving the service) by going with the third-party support or leveraging concessions. You will need to have planned ahead so that this is a realistic option.

Having your roadmaps in place – The more you understand about your future plans for IBM, the better, especially since IBM will also have something in mind for you, a plan that won’t necessarily align with your needs. Indeed, IBM will have a good insight into your estate, especially if your IT team have a good relationship with IBM’s technical team, so it’s time to get planning.

Looking at ‘Big Plays’ – Knowing what IBM’s main focus is – currently Cloud and AI, IBM Q and Security – and looking to see how these can fit into your own plans will put you in a good position during negotiations. Watch out for IBM news and read their annual reports and quarterly announcements to see what their big plays, acquisitions and divestitures are.

Knowing IBM’s competitors –You’ll need to do your homework on this one. If you’re hoping IBM will take you seriously when you talk about moving to another vendor if they don’t capitulate, you’ll need to know what you’re talking about, so start researching well in advance of IBM’s year-end.

For IBM:

Audit activity – Non-compliance - Customers who cannot demonstrate compliance with their agreements strengthen IBM's position.

Transparency – Something we see all too frequently when it comes to negotiations is customers that have little insight into their estates. Very often, this is because when IBM negotiates, it’s usually with high-level or procurement people, but these aren’t necessarily the team members that understand the nitty-gritty of the licensing or use of the software. It’s vital then, that every stakeholder understands your deployed product base when it comes time to negotiate.

Price changes – It’s important to know the current state of pricing at IBM before you head into negotiations. For example, as of January 1st 2020, IBM had a 3% price increase worldwide, 5% in the UK, and 10% in Sweden. Most recently, RSVP discounts were removed as of July 1st 2020 for over 7000 products, including everything in Cloud Paks.

Cloud and containerization – Cloud is currently a big focus for IBM who will undoubtedly be trying to leverage Cloud Paks into your estate during negotiations, something to be aware of even if a larger move to the cloud isn’t something you can currently support.

Cost of internal change – If you’re talking about making a big change within your organization, for example, changing your infrastructure to optimize licensing, IBM will have a good idea about what this could cost you, so, like everything else when it comes to negotiations, be prepared.

There are many other tactics and levers besides the ones mentioned above, but by taking these into consideration, reviewing all your currents assets and planning your future IBM roadmap, you’ll be in a good position when negotiations start so you can get the best deal possible.

To learn more, visit our dedicated IBM page or listen to our webinar Not long until IBM year end: time to get moving on your negotiation strategy!



Niall Eddery – Senior Consultant, IBM Practice Lead

Niall has worked in the IT industry for over 26 years and more specifically in Software Licensing for 16. His experience has taken him on both sides of the audit fence, having audited for KMPG and managed IT assets for EY and Macquarie Bank at a global level.

Niall has been a senior consultant at Livingstone for over 7 years, during which time has managed well over 100 audit projects.  His expertise is around IT Asset Management, Software Asset Management & Licensing and he has been involved in contract compliance for software licensing, royalty, service level agreements and channel compliance in the UK, Australia, Europe and Asia Pacific.

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