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Software Licensing: Move From Defense To Offense

Avoiding audits and vendor fines isn't enough. Take control of licensing to exact deeper software discounts and match purchasing to actual employee needs.

specific users hasn't been used in the last 60 or 90 days (or whatever threshold a company chooses), it can uninstall that software and eliminate that license or reallocate it to another user.

Hearst is in the early stages of its optimization efforts, but Bennett says it already has reallocated more than 1,000 Adobe and Microsoft licenses that weren't being used. Let's say that's a corporate-discounted license for Adobe Acrobat or Microsoft Office that might have otherwise set Hearst back $75 to $125 a seat. That's $75,000 to $125,000 in savings on those titles alone.

Bring On Complexity
Software optimization doesn't always involve a binary, buy-another-license-or-not scenario. For sophisticated enterprise applications such as business intelligence, CRM, and ERP, usage analysis might reveal that specific employees can be downgraded to less-expensive licenses. In simple cases, that choice might be "read-only," "contributor," or "power user" licenses. SAP, for one, has more than 60 different user categories across its Business Suite licensing schemes.

Server-based licensing schemes and virtualization, as well as private and public cloud schemes, have introduced yet more complexity (see related story, "Cloud Won't Cure Licensing Woes"). The majority (55%) of the respondents to our survey say they prefer flat-rate site licenses, but they often have to deal with per-user, per-CPU, per-core, or even per-VM licensing approaches. IBM came up with its PVU metric in response to virtualization -- meaning it charges based on how many processors the software runs on, not on how many chips (which might hold multiple processors) or servers. Licensing levels can quickly change depending on variables that aren't fully captured in the IBM License Metric Tool, says Christof Beaupoil, co-founder and president of Aspera Technologies.

IBM's DB2 database, for example, might be free when provided as part of another product, but IBM will likely charge for it if it's used with anything other than the product with which it was bundled. "If an audit reveals that a third-party product is connected to the database, guess what: It has to be licensed," Beaupoil says.

It's often the case that software is initially installed and used in accordance with licenses, but access and usage patterns evolve over time, getting out of sync with the original terms and usage entitlements. "Every time you have a change in how software is being used, the software vendors realign how they license their software, so customers have to reassess how they capture and count licenses," Beaupoil says.

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With client computing, for example, we've gone from having desktops to having desktops, notebooks, tablets, and smartphones, as well as virtual desktops. Employees access software in the cloud, and they're allowed to bring their own devices to work. On the server side, licensing has evolved from mainframes to servers to multi-CPU and multi-core servers to today's virtualized and private cloud deployments.

Evolve Your Approach
Software management and optimization tools give companies comprehensive information on installs and usage that they can compare to licenses, but software alone won't solve the license management problem. Business leaders, IT teams, and purchasing departments must team up to ensure that their good intentions don't backfire. Purchasing departments, for example, are known to strike special deals that can't possibly be enforced by IT. "We're seeing more usage-based licensing, with pay-per-use or concurrent-user approaches," says IDC's Konary, "but IT could tell them that there are typically no tools available to track and meter usage and ensure that they're not exceeding that limit."

Another licensing gotcha is what Konary calls the "honor system" approach, which makes it all too easy for administrators to install and turn on features not covered by a current license. Software vendors defend this approach, arguing that it makes it easy for customers to obtain software and try new features. But it also creates the distinct possibility of using features that haven't been paid for. And audits uncover those discrepancies. When that happens, true-up fees might apply whereby companies lose discounts and face full list prices applied retroactively.

Oracle is the leading practitioner of the honor system approach. Most software vendors have switched to what Konary calls a "trust-but-verify" approach, whereby customers who download software or try to turn on optional features will get pop-up messages that say something like, "You don't have access to this feature. Call your sales representative and we'll turn it on for you."

License management teams should create policies and education programs around key software titles known for tricky licensing and frequent compliance problems. "Oracle Database, as an example, is not friendly within virtualized environments," Konary says. "A simple rule might be, 'Oracle Database does not go into virtualized environments, and if it does, here are the steps that must be followed.'"

Microsoft Office is another source of frequent compliance problems because it's difficult to track decentralized desktop software and reconcile usage with complex licensing terms. All the more reason for clear processes and policies around buying software, choosing licensing levels, installing and handling upgrades, and transferring licenses that aren't in use.

First Things First
Audits are bad enough, but when companies aren't prepared for them or they don't go well, they can turn into time- and energy-sapping disputes. Seventeen percent of our survey respondents said their organizations have had at least one contract or usage-rights dispute with a vendor over the past two years. To avoid this scenario, start your software compliance and optimization efforts with the titles that represent most of your spend and your biggest audit risk.

The five vendors most likely to audit corporate software licenses are Microsoft, Adobe, Autodesk, Oracle, and SAP, in that order, according to a 2013 survey by Express Metrix. Among customer organizations with 10,000 or more employees, IBM jumped to the No. 4 spot, bumping the others down one spot. Rounding out the survey's seventh to 10th most-frequent auditors are McAfee, Attachmate, VMware, and Symantec.

Don't be content to just make sure licenses are in line with installations. Do a discount double check to try to lower your bill. Eighty-eight percent of the respondents to our survey say they have negotiated discounts of more than 5%; nearly half (47%) say they've negotiated discounts of 11% to 20%. With centralized knowledge of all purchasing (even if decentralized units still do some of the buying), you'll be able to take advantage of every discount available.

With that victory, push to the next level of sophistication by acquiring a deeper understanding of how employees use software so that you can optimize purchasing. Maybe you're buying expensive power-user licenses for casual users, or maybe those casual users aren't really using the software at all. With knowledge of usage and entitlements, you'll be able to choose the right license levels for each user. And like Bennett of Hearst, maybe you'll be able to reallocate unused licenses and save tens of thousands -- if not hundreds of thousands -- of dollars by avoiding unnecessary purchases. You still won't be thrilled when the software auditor knocks on your door. But you'll be ready.

Related stories:

5 Signs You'll Face A Software Audit

Cloud Won't Cure Licensing Woes

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