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Software Audits: Are You Ready?
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RobPreston
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RobPreston,
User Rank: Author
1/28/2014 | 10:04:54 AM
Audit Questions
Doug, for the uninitiated (me, for one), under what authority do software vendors have the right to conduct an audit of their customers' software usage? The IRS has government authority. Do the contracts customers sign with their software vendors give the vendors the right to audit at any time? And what (generally) does an audit entail -- an on-site investigation of some sort?
RobPreston
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RobPreston,
User Rank: Author
1/28/2014 | 10:07:02 AM
Re: Audit Questions
I now see that you already explained that the right to audit is part of most contracts. But I'd like to know more about the actual audit process--how intrusive and time-consuming it is. 
Marilyn Cohodas
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Marilyn Cohodas,
User Rank: Author
1/28/2014 | 10:46:08 AM
Re: Audit Questions
I'm also curious about how software companies handle audits of cloud apps licenses, e.g. Office 365. I suspect that would be much easier to police than installed software. 
D. Henschen
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D. Henschen,
User Rank: Author
1/28/2014 | 11:16:11 AM
Cloud (SaaS) Is Easier
You got it right that cloud -- at least software as a service -- is easier. You're logging into the vendor's data center, so they know very well how many people and servers are accessing the service. No auditing necessary. Subscribers also get insight into exactly what they're using, so it should be obvious if there are subscribed capabilities that they're not using.
Marilyn Cohodas
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Marilyn Cohodas,
User Rank: Author
1/28/2014 | 11:25:09 AM
Re: Cloud (SaaS) Is Easier
Easier to control piracy with the SaaS model, too. No suprise that vendors are doing more of their own auditing these days. It's a good conversation starter to get customers to move to from traditional licensing to SaaS.
Dawson Stoops
IW Pick
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Dawson Stoops,
User Rank: Apprentice
1/28/2014 | 3:53:30 PM
Re: Audit Questions
Rob, Software vendors have the authority to audit their customers under the terms and conditions of the EULA (End User License Agreement) that the customer agrees to. The EULA typically spells out the length of time required for audit notification, and how the audit will be conducted. Most companies accept the audit provision terms without understanding or preparing for the repercussions. The audit is typically conducted onsite by a third part firm hired by the ISV.
CaryKing
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CaryKing,
User Rank: Apprentice
2/14/2014 | 10:47:58 AM
Re: Audit Questions
If you install it, you owe for it.  Any installation creates a constructive liability. 

Copyright Law - Title 17 of U.S. Code.

Organizations should, therefore, consider the business risks of uncontrolled installation of software, and the resulting, perhaps unplanned, liabilities.  And, create controls appropriate to the risk.

We see companies that have gotten a single true-up settlement, with a single supplier, of 23% of the total IT budget.  And, then, the other suppliers also seem to find out.  If in an industry with high IT costs, say 7% - 8% of revenue, this can result in a unplanned liability in the 3% to 4% of overall revenue.  Close to a reportable event on annual report.  And, certainly, a huge unplanned expenditure.

Where companies are most at risk seems, these days, to be the uncontrolled use of "Cloud" and copies of platforms to the "Cloud" that create significant liability.  A single Virtual platform can contain $30k or more of software - for which the company is instantly liable, most often without preventative controls.

 
D. Henschen
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D. Henschen,
User Rank: Author
1/28/2014 | 10:39:27 AM
Audits vary in their invasiveness...
I've seen varying accounts of just how invasive these audits can be. In general, you get a couple of week's notice that there's going to be an audit and you can negotiate on the timing and scope of the inquiry. The vendor usually hires a third-party firm to carry out the review. It may be as tame as a self-audit request for data. That's the experience that Carolina Container had. With D&B, Hoovers and so on, it's pretty easy to know how many employees companies have and whether the numbers might be out of step with reality. There are also "phone home" reporting mechanisms built right into a lot of software, so you're vendor may have insight on what's in use within certain networks without having to do much poking around. If there's suspicion of non-compliance, the investigation might progress to code scanning of networks using the same sort of technologies that software asset management vendors build into their software.

In extreme cases at large enterprises, audits can drag on for months, and complications include having multiple generations of software, using snipets of larger software packages, having software that has been migrated to new generations of hardware, and, of course, complicated terms and conditions.  
Lorna Garey
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Lorna Garey,
User Rank: Author
1/28/2014 | 11:21:05 AM
Re: Audits vary in their invasiveness...
The point about virtualization/private-cloud complicating licensing is also key - enterprise software vendors definitely have not kept up with use of server virtualization, never mind desktop. In fact, I think that licensing confusion is one big reason VDI never took off. IT had to pay for the VDI software plus had the same licensing costs.

I'm hoping to do a survey and report on this in 2014, get IT's side of the story.
PaulS681
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PaulS681,
User Rank: Ninja
1/28/2014 | 8:17:05 PM
Re: Audits vary in their invasiveness...
 

@Lorna...Whenever I read about VDI or it was brought up I could never get a clear answer on licensing. I think you are correct, there is a lot of confusion over that topic. I am under the impression it is very costly to implement VDI. That may be incorrect because I never got that clear answer. I look forward to reading your survey.
Thomas Claburn
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Thomas Claburn,
User Rank: Author
1/28/2014 | 5:22:54 PM
Re: Audits vary in their invasiveness...
Seems to me that audit provisions would be something a large company could strike from the contract by threatening to go with a competitor's software. If that doesn't work, there's always open-source...
Dawson Stoops
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Dawson Stoops,
User Rank: Apprentice
1/28/2014 | 6:25:44 PM
Re: Audits vary in their invasiveness...
Yes, audit provisions within licensing agreements are certainly negotiable. I've never heard of a situation where even a large company could have them completely removed.
jagibbons
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jagibbons,
User Rank: Ninja
2/1/2014 | 9:26:01 AM
Re: Audits vary in their invasiveness...
Even when negotiating, It's likely that any competitor also has audit requirements in their contract.


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