Companies that have annual contracts with Salesforce, Oracle, and other software vendors are trying to renegotiate payment terms - and it shows just how much pressure CIOs are under to cut costs during the coronavirus pandemic

• Chief information officers are looking to cut IT budgets as the coronavirus pandemic forces corporate America to rework its short-term plans.
• One way tech leaders are seeking to do that is by renegotiating multi-year contracts with software providers like Salesforce and Oracle, according to Peter Wokwicz, the chief information officer at management consulting firm Tatum.
• The exact impact on budgets, however, is still unclear. "There's less [IT] spend right now. How that goes into percentage, it's impossible to tell right now," he said on a Tuesday call hosted by Wall Street analysis firm Cowen.
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Chief information officers are scrambling to cut down IT costs as the coronavirus pandemic hammers corporate America.

And many companies are putting projects on hold. That push includes even those deemed essential, like transitions to new digital platforms that help divisions like human resources and supply chain operations manage workloads, according to Peter Wokwicz, the chief information officer at management consulting firm Tatum.

Hiring is also on hold, Wokwicz said on a Tuesday call hosted by Wall Street analysis firm Cowen, as executives wait to assess the full damage caused by the outbreak that has forced businesses to, among other things, quickly transition to remote work, shutter physical stores, and lay off employees.

It's still unclear, however, exactly how much companies will look to curb spending as the timelines for practicing social distancing get extended.

"There's less [IT] spend right now. How that goes into percentage, it's impossible to tell right now," said Wokwicz, who also serves as chief operating officer of Alpine Consulting, which counts Chevron, Allstate, and other large enterprises as customers.

And now, those corporations that have longer-term contracts with service providers like Salesforce and Oracle are looking to renegotiate the terms of the agreements - a push that could impact near-term earnings for those vendors, according to Wokwicz.

"They'll have to have a little more cash flow to weather the new payment terms," Wokwicz said, referring to those types of service providers. He added that 40% of his clients are seeking more lenient payment terms.

Wokwicz said he hasn't seen vendors try to entice prospective clients with more significant deals - like a few months free - or cut prices. But he noted that some are touting offers including slower ramp-ups to delay payments or withholding payment altogether until systems are live.

Other companies may seek to elongate discounts they received during initial roll-out periods. Those implementing an enterprise resource planning platform from SAP, for example, might have received six months of licensing for free and could request an extension on that, said Wokwicz.

While he says no clients have pursued it yet, the push "may come up here in a couple of months" as the outbreak continues.

Firms on monthly user subscriptions are cutting costs there

Finding ways to cut costs significantly can be difficult.

Many companies have multi-year contracts with software providers that don't offer much flexibility.

But those organizations that have monthly subscriptions based on a specified number of users with vendors such as Salesforce, Oracle, and Adobe could switch to a smaller package.

"Often on the per-user, per-month you overbuy because of the future. And now everyone is starting" to cut down, said Wokwicz.

Some companies will purchase services based on the minimum number of users they want to be able to access the platforms. They pay on a month-to-month basis for this, so the contracts are often priced higher more than annual agreements but offer more flexibility.

Those firms are often prohibited from paying for less than the agreed upon number of licenses, but can add users on top as needed for additional money.

So, as businesses reduce their workforce or change job descriptions amid the shift to remote work, Wokwicz said they may not need the same level of subscriptions as before the coronavirus, and could trim those as one way to reduce overall spending.

"It's really going back to see where places aren't being utilized," he said.

Wokwicz said roughly half of all software spend in most divisions is monthly recurring, while the other half is a multi-year license.

To be sure, some analysts have argued the opposite: that corporations are unlikely to make any drastic overhauls to their monthly recurring charge because those charges make up a small portion of overall spend that is worth maintaining to ensure continuity in the business.

And monthly subscriptions likely make up a smaller amount of revenue for firms like Salesforce and Oracle than the multi-year licensing agreements. That's one reason why many expect the industry behemoths to emerge from the pandemic in a strong position.

"We encourage investors to focus on long-term franchise names that have been successful disruptors over the past five to 10 years, and will have an opportunity to widen their competitive moats as weaker (and lesser-capitalized) competitors have to tap the breaks on spending and investment," Stifel analysts wrote in a note earlier this month.

And get the latest coronavirus analysis and research from Business Insider Intelligence on how COVID-19 is impacting businesses.