The rules of IT procurement have changed. The good news is: buyers have the advantage.
Greater access to pricing information has fundamentally changed how IT managers make software procurement decisions. Here’s a brief overview of how IT procurement used to work, how it works now, and what you need to know to make the right decision for your team.
The Old Way
In the olden days of IT, comparing options had a large labor overhead. For big projects, organizations would issue RFPs to a wide range of vendors, analyze the responses, and make a decision after negotiations and deep dives. For smaller projects, comparison overhead wasn’t worth it—it was much easier and quicker to use an incumbent provider than issue an RFP. The reason for such a drawn-out and expensive process was that pricing was hidden and customized.
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The New Way
The RFP lives on, but improvements in information transparency mean that buyers have the upper hand. Many companies provide online pricing for cloud services so that you can put together a price evaluation in minutes. The overhead has been reduced to nearly nothing.
You’ll find that IT vendors fall into roughly three categories:
1. Commodities
These are the lowest-price vendors, and they’ll be sure to let you know it. Companies that can offer the lowest price with no frills are often the “hyperscalers”—companies that enjoy vast economies of scale.
To use a coffee analogy, these companies would be the Folgers of tech: mass-produced, nothing fancy, and it gets the job done for a low cost.
2. Old-fashioned Tech Giants
The old guard of enterprise tech is still playing catch-up and keeping pricing a secret. While this doesn’t necessarily mean they offer an inferior product, it puts the onus on you, the buyer, to do the legwork of figuring out how they add value and whether the cost is worth it.
It doesn’t help that the lack of transparency implies expense. After all, if one coffee shop lists prices and the one down the street doesn’t, you naturally assume that the one that lists prices is cheaper. If the coffee shop is cheaper, surely it would have advertised it.
In the new age of IT procurement, it must be the vendor’s responsibility to prove its worth and justify any costs above market average.
3. Value-Added Vendors
These are the companies that offer more than the commodity and have adapted to the new reality of pricing transparency. They’re not afraid to reveal their cost, but at the same time, they justify their value with facts up-front.
These savvy vendors use case studies, statistics, guarantees, and custom analyses to prove how they add value with increased effectiveness, reduced risk, greater flexibility, etc. They highlight their value-driven advantage over the commodity and earn trust for their honesty.
These are like the Starbucks of tech: premium prices for enhanced flavor, professional execution, and higher caffeine content.
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