Media Center

Media Center

It's not how much you spend; it's how much leverage you have and keep

Contrary to what the providers tell you, the correlation between commitment and great prices is a lot lower than the correlation between leverage and great prices.

The provider sales teams get compensated in part on the basis of the commitments they secure. Commitments (unlike actual spend) are “bankable,” and a customer who has committed all of its traffic can’t be tempted to try another provider (or threaten to do so if it doesn’t get what it wants). The result is that the providers will do a lot to get as close as they can to a 100% commitment.

The standard tactics for doing this are changing. There’s less emphasis nowadays on pushing the actual MARC or annual commitment than on hidden or circuit-specific commitments that turn out to be much more constraining. That said, the providers will still strive for large MARCs and the way they do this is to say—whatever your traffic—that they can’t deliver a market-leading price point without a commitment number that magically turns out to be about 90% of your expected spend.

It’s garbage—and basically proves that when you get to mid-seven figures and beyond how much traffic you deliver isn’t what drives pricing. After decades of negotiating communication and information technology deals, we’ve seen countless instances in which very big customers get much worse deals than middle sized customers because the big customer is overcommitted, unwilling to move traffic, etc., while the smaller customer is willing and able to take its business elsewhere if it doesn’t get what it wants.

Bottom line:  the customers who get the best deals are those who say they will go elsewhere if they don’t get a market leading price—and have the ability to do so. That’s leverage.