SBA

Managing Software Costs

A journalist rang me recently to talk about the cost of enterprise software and the “sharp” licensing practices of some major software vendors, which reminded me that many businesses still have a problem with controlling their software licensing costs so it’s probably a topic worth writing about. I must admit to taking it for granted because I have a method, but until you’ve learned to tackle the software licensing maze it can be daunting and mistakes are expensive - either you have too many licenses and are overpaying for your software, or too few and are at risk of having to settle with your supplier or go to court for your illegal use of unlicensed software.

The first reaction of many business people to software licensing issues is “That’s what we pay the IT Manager for” - but is it? I suggest that most companies pay their IT managers to keep the IT running, keep people working, and keep the company and its data safe - bureaucratic housekeeping is rarely high on the list.

The most important thing to understand about software licensing is that it is complex and often obstruse - for example there are over 24 ways of licensing Microsoft Access. A software license is a legal contract to have the right to use a piece of software under certain conditions, usually for a price, and the conditions and the calculation of pricing vary depending on the supplier and the software package concerned. A typical small to medium business will likely have entered into between twenty and a hundred such contracts over the years which are still active so keeping track of all the conditions can be difficult. Typically there are five facets for each software contract - users, installs, duration, support and maintenance, and nature of use. Misunderstand any of these and it will cost you.

Users may mean the number of “concurrent users” - for instance you can install the software on as many computers as you like but only five of your staff may be using the software at the same time, or it may mean named / individual users - John, April, Mark and Erica are permitted to use the software and if you want more people to have access then it will cost you more.

Installs is the number of machines it’s installed on; the number of servers, or PCs or both. Some vendors allow you extra installed copies for test / backup / disaster recovery systems, some don’t. Worth noting that for some software both the number of servers and the number of PCs and / or the number of users are specified in the license.

Duration is straightforward, either it’s perpetual - you may use it forever, or it’s fixed term - you are licensed to use it for a year, or it’s whilst you continue to pay support and maintenance.

Support and maintenance may be part of the license, but often it is separate. If you have a perpetual license the software supplier has received an up-front payment from you but no ongoing revenue - he is dependent on new sales for survival. Many software packages therefore require annual support and maintenance fees if your relationship with the supplier is to continue.

Nature of use varies - the Oracle database for example has a license which specifies that if you configure and use the software in one, simple, way you may pay the cheaper “standard” license, but if you use it another way, including some of the clever functionality, you must pay the expensive “enterprise” license. Either way it’s the same software and it’s easy to unintentionally cross the line from simple usage to complex and expensive usage. Similarly some vendors will agree a licence price based upon the business purpose for which the software is to be used, and if you decide to use it for another business purpose you must declare it and they may say that they’re entitled to more money from you.  

Understanding these dimensions of licensing, and how they apply to each software license you have, is the first step. Ideally you will gather all your software licenses into a file so that they are easy to find and refer to, and provide the body of evidence that you are licensed. Where software is licensed to named users you should keep a record of the named users in the registry. It’s remarkable how few companies actually maintain a central registry of their software contracts.

Next up is knowing how many licenses you are actually using, and because of some of the complexities listed above this is harder than it seems. The first step is a regular audit of the software on of all your computers. Because your needs may change rapidly,  and people may unwittingly install unlicensed software between audits, software audits should be frequent, ideally at least monthly. That sounds very burdensome and would be if you had to do it manually, but there are several good software license audit programs available; you can install one of these on one of your servers and the package will then interrogate all of your computers via the network on a regular schedule and create a database of the software you have installed.

With the metrics from your software license register you can determine exactly how many licenses you have, whilst the software audit will tell you how many you are using. Many software license audit packages allow you to tell the software how many licenses you have so that the audit process will automatically tell you whether you are over-licensed (wasting money) or under-licensed (breaking the law).

This simple discipline, of having a central registry of software licenses and a regular audit process, lies at the heart of software license compliance. The reality is that very few companies, probably fewer than 10%, actually do it. Most companies are either over-licensed or under-licensed, and the latter is so common that there exist businesses whose sole purpose is to find and prosecute under-licensed companies to recover the lost revenue for software vendors.

Having determined your licensing needs you will probably need to buy more of some licenses, and reduce your liability where you’re over-licensed by terminating licenses or the maintenance and support of them. There is a temptation to over-buy so that you have licenses in-hand if and when you need them, and to buy in bulk to reduce the problem of license renewals invoices trickling in through the year in dribs and drabs causing you to process many small payments. In many cases these problems can be avoided simply by agreeing co-terminous annual billing with the software provider - they may have to pro-rata the year 1 license but from then on all is much simpler because they only have to issue one invoice each year, and you only have the hassle of paying once a year.

Software licensing specialists estimate that as many as 60% of companies are over-licensed, spending more on their software than they need to, and in some cases could save up to 40% of their software fees with proper management of their licensing. There are numerous examples of large companies wasting over a million pounds per annum on excess software licenses. On the other side of the coin the Business Software Alliance estimates that around 30% of UK SMEs are under-licensed on some of their software; the BSA and the Federation Against Software Theft (FAST) regularly bring actions against under-licensed companies, they use sources including whistle-blowing by disgruntled employees to gain information and commonly achieve six-figure settlements from under-licensed companies.

Software Asset Management (SAM) is a tedious and boring bit of IT bureaucracy that most businesses would rather avoid, but the reality is that shortcuts mean either wasting money or risking prosecution and penalties. As your company grows or shrinks your software licensing needs will change, especially during acquisitions and disposals when the bureaucracy of IT is probably the last thing on your mind. A structured approach to managing the problem can minimise the bureaucratic hassle and eliminate the financial waste and legal risks.