MYTH 2 :

Low software costs depend on having good negotiators.

Reality: The data is compelling: "best-in-class" companies spend less than half of what an "average" data centre spends on software costs. In fact, they do so well on pricing that an average data centre would have to negotiate all of its ISV software for "free" to achieve the same cost structure. Many people assume that is because the best-in-class boys have been able to negotiate a better price than their peers running average data centres.

Not true, Swanson says. In fact, some of the best negotiators have the worst cost structures. They negotiate 50 to 90 percent discounts on artificially high cost scenarios. What a company may perceive to be a good negotiation, can, and often does, work against them.

"Many vendors want to build relationships and offer discounts based on relationships," Swanson says. "When a company's approach to a vendor is to try to get the biggest discount possible, a vendor will often stiffen in their position of discounting. They may even raise the base price offered to the customer and then offer a discount, only getting the customer back to a 'negotiated' list price.

"To be sure, a company will never benefit from creating a hostile negotiating environment. But in reality, although SAM managers may negotiate with great fervour, a well-managed data centre can pay full list price and still end up with a lower cost data centre."

So if the perception is that data centres manage software cost through good vendor negotiation, the reality is very different: a data centre's savings come primarily from factors outside of vendor negotiation. Price accounts for just 5 to 15 percent of potential savings, product placement for 25 to 35 percent more, but there is potential to save between 50 and 60 percent on product quality, Swanson's data shows.

"A focus on price is the basic role of corporate procurement, and organizations like Gartner Group and others say that focusing on price in negotiating discounts is the easiest thing to do and gives you the most political awareness; everyone applauds when you negotiate a 20 percent discount. The reality is your cost has more to do with what you have than how much you paid for it. Those are the issues that they need to be concerned about," Swanson says.

"What it comes down to is: how many software products do you have to run your data centre, and how are your software products licensed? That is more critical than the price you pay for your software products. We all need a database in our data centre, but I may have three different databases, and you have just one. So the issue is not how much did I pay for my database versus what you paid for yours, but that I have three databases and you have one database," he says.