Euro bargains - get them while you can!

The euro has launched so smoothly that it's hard to remember the frayed nerves of a few weeks ago. But IT directors would be wise to look beyond the simple changes in their accounting software to a widespread panic in the European hardware market. It's a free-for-all out there, as price discrepancies in different countries are exposed by a common currency. Now is the time to insist on the lowest price, before the market adapts and the customer is screwed once more.

Every IT company is guilty of pricing its products differently in different national markets, according to Jean-Louis Previdi, European director of global networking strategies at the Meta Group. Admittedly, in some cases the price differences reflect the varied costs of retaining employees and providing technical support across Europe. But even when the vendor is not to blame, the tables have turned in the customer's favour.

"Vendors that do not change their price list will have to offer discounts," says Previdi. "We have not seen any big changes in pricing so far, but big customers will start to shop around." Martha Bennett, VP European Research at Giga Information, agrees: "Retailers without a coherent pricing strategy will be forced by customers into adopting their lowest price."

Unsurprisingly, many vendors have not dared embrace the euro. Big multinationals such as Cisco price 99 per cent of their European products in US dollars. Even local services such as online bandwidth broker, Band-X, advises European customers to trade in dollars, on the grounds that most big buyers in Europe are subsidiaries of US companies.

But this is changing. Band-X co-founder, Marcus de Ferranti, says: "We expect to start recommending the euro currency to our customers later this year."

He claims: "US companies will gradually start to understand the euro." And Cisco is preparing for a surge of customers requesting euro accounts. "Although we haven't had any requests yet, we're expecting a drastic increase in the use of the euro in the next six months," says Etienne Hoepfner, Cisco's EMEA finance director.

Smart IT directors are not only pushing for their supplier's lowest European price, but are forcing the market to become more competitive. Xerox, for example, recently announced plans to cut its European suppliers from 10,000 to 1,000, in preparation for the common currency.

"End users are using the euro as a catalyst for their global procurement strategy," says Giga Information's Martha Bennett. "Many customers are centralising their purchasing across Europe, and it is going to polarise the market into clear winners and losers."

But vendors of network equipment are already fighting back. Most of them understand that their prices must coalesce at a certain level, but the smarter ones have already ensured that it will not be at rock bottom. Rather than raise prices, which would alert customers to their wiles, many chose last year to drop prices by a mere 5 per cent, rather than the 15 per cent industry norm. Previdi says: "This is particularly the case for hardware and telco services in the UK, whose prices were already well below the European average, and GSM services in Scandinavia." He cites Cisco and 3Com's UK pricing strategy as cases in point, although Cisco's Hoepfner insists this is not the case.

So IT directors should exploit their power now, before the market adapts. Bennett predicts the increased competition will eventually give dominance to big players and niche suppliers, who will no longer be held back by national barriers. She says network giants such as Cisco and 3Com will gobble up commodity suppliers, and take the bargaining power of their customers with them.

But even if the IT director's power is short-lived, conversion to the euro is heralding a new procurement culture. Comparing a supplier's prices across different markets is only the beginning. Experts believe the euro will encourage IT purchasers to start using other benchmarks, such as environmental laws, level of service and the terms of supply contracts.

Meta Group's Previdi says: "The big legal issue of the future will be where to sign the contract. Comparing the cost of social security has been possible since the Maastricht Treaty, of course, but customers aren't doing it. The arrival of the euro will get them into the habit of comparing everything they can."

Cisco's Hoepfner agrees. "The euro will make purchasing habits uniform across Europe," he said. Although most Cisco contracts are already standard throughout Europe, terms of payment are harsher in Northern Europe than in the South.

Martha Bennett says: "A common currency will highlight some of the future obstacles to efficiency, ranging from different levels of VAT to product warranties and courier rates. Multinationals are already changing the location of their distribution centres, and we may see looser legislation."

So it looks like in the short term, the IT directors will gain from the opening market, as they will be able to insist on low prices and efficient delivery of services. But the euro is opening up comparison points that never existed before. IT directors can expect to waste time and money researching rival vendors, and perhaps look back with moist eyes to the days when they had long-term relationships with a few trusted suppliers.

And if the market does consolidate, we may find we have come full circle, and simply swapped those familiar faces for a few market-leading conglomerates.