Software Licensing: Maximizing the Value of Your Investment

In times of tight budgets, it's never been more important to squeeze the greatest value from your software licenses.

by Scott D. Rosenberg

Microsoft licensing isn’t simple, never has been, and probably never will be.
-- Steve Ballmer, CEO, Microsoft

Mr. Ballmer should have added that for vendors such as Microsoft and Oracle, software licensing is very lucrative, always has been, and probably always will be. Any serious discussion about maximizing the value of an enterprise’s software investment begins with software licensing agreements (SLAs). The knowledge, discipline, and everyday best practices required for building advantages into negotiated SLAs are the very heart of software asset management (SAM) programs that can provide initial savings of up to 25 percent and ongoing annual savings of 15 percent to 20 percent.

Good SAM programs accomplish all of this by giving companies a solid foundation for renegotiating SLAs, avoiding costly non-compliance penalties, and right-sizing software investments, policies, and usage based on changing enterprise needs and constantly changing Terms & Conditions section of your contract.

Many members of the C-suite may not understand all of this, but they certainly understand the size of their software investment -- estimated at over $200 billion on software purchases and at least another $137 billion on enterprise software maintenance and licensing fees in the United States this year. At this level, even single-digit annual savings are very attractive and one of the key aspects to maximizing value for your software IT investments.

Software licensing is a multi-dimensional challenge, with issues ranging from differing product versions and varying product releases to minimum and maximum user requirements, license types and terms, rule changes and more. Keeping up with routine licensing changes from just one provider is hard enough, but many companies have dozens of different software vendor relationships.

Due to the multi-faceted expertise involved with licensing, most companies are either over- or under-licensed. Both scenarios lead to unnecessary costs and risks. For that reason, it is imperative to be cognizant of licensing rules and regulations, and to be extremely diligent when deploying and using software. Continuous business changes, as well as changes to the user population and the underlying computer environment, can easily and unwittingly place your company outside of the boundary of what is permitted by your particular set of licenses.

Building Value into Your SLAs

Organizations can easily reduce expenses and get more value from their software investments by building advantages into their contracts, focusing on three main areas:

  • Understanding what you have, how it’s being used, and what you need
  • Reading and understanding the Terms & Conditions section of your SLA or enterprise user licensing agreement (EULA) and matching to your internal business plans and ITAM best practices
  • Negotiating or renegotiating the licensing contract

Understanding What You Have and What You Need

As the late management expert Peter Drucker famously said, “You can’t manage what you don’t know.” If you don’t have reliable and thorough knowledge of your software deployments and usage at the most basic level, you simply aren’t ready to negotiate optimal, flexible deals with software vendors. Managing your software licensing and negotiating the best Terms & Conditions depends on establishing licensing best practices to ensure you don’t fall prey to costly mistakes. First and foremost, corporate executive management and IT must have a defined governance model with steering committees to provide oversight to the enterprise software decision-making process and software component of the budget. Critical steps include:

  • An audit of enterprise software (to understand the organization’s potential vulnerability) and a plan to prevent or resolve issues
  • The creation of a single repository of information on software assets in order to have a complete “big picture” understanding of the organization’s requirements
  • Regular enterprise monitoring to identify changes and reconcile them with the repository (for example, re-harvesting and reassigning MS Office Suite licensing to coincide with resignations, layoffs and new hires), but be careful because not all licenses can be harvested
  • Validation of license compliance

Lack of control and management of any software deployment usually means a significant overspend, beginning with the initial purchase and each succeeding procurement thereafter. Each software deployment should be looked upon as purchase price plus maintenance and licensing fees. Even seemingly simple desktop deployments of the Office suite should be relatively easy to deploy, maintain, and track. Two main issues arise: mobile devices and how the software is licensed (per user or per device) within your Terms & Conditions.

Establishing and maintaining software compliance is crucial. Failure to accurately understand your Microsoft or Oracle assets will result in non-essential purchases of extra software or licenses. With the formation of the Business Software Alliance, software audits are much more common, and software companies are increasingly vigilant about routine audits.

Understanding Terms & Conditions

The Terms & Conditions section of most SLAs are complex and arcane; they are also constantly evolving. Understanding them requires specialized expertise. Many IT managers are still amazed to discover that they do not own the software they paid for -- they merely purchased the right to use it in a very specific manner (once again, based on the Terms & Conditions), like leasing a car or renting a home. With that in mind, here are some key questions you need to ask during any SLA negotiation with regard to Terms & Conditions:

  • Which license model (enterprise, CPU, etc.) works best for your company -- currently and in the long term?
  • What quantities are required now?
  • Are there any dynamic, corporate milestones within the next 18 months that could affect the SLA status? Which usage rights will define the license metrics?
  • Are there restrictions to the licensing based on location of company, server(s), type of usage, etc.?
  • What are the migration terms regarding upgrades, enhancements, or changes?
  • Is my original price protected or are increases allowed?
  • Is this discount right for me?
  • Do I have transfer rights for my license(s)?

If you don’t understand the full implications of these questions, or why they are critical, then you definitely need an expert -- internal or external -- to help with your negotiations.

Negotiating Expertise

Legal, technical, and software licensing expertise are needed to negotiate a successful, optimized SLA. In addition to a lawyer, it is critical to have a software licensing specialist involved because your legal counsel typically won’t understand the technical or operational aspects of the EULA.

A good example is a standard vendor clause stating that: “Any new contract supersedes the terms and conditions of any previous contracts with the company.” This standard language can be found in most legal contracts, and lawyers seldom change the wording. In the case of SLAs, however, it is not a best-practices scenario for the licensing company. That small clause results in giving up potentially rich and extensive usage rights to assume more limited and restrictive usage rights, leading to significant additional fees.

This is only one among dozens of reasons why experts who understand the ramifications of software licensing should be included in any discussion of corporate software strategy. Without that expertise -- legal, technical, and licensing -- you simply cannot begin to maximize the value of your software IT investment.

Scott D. Rosenberg is the CEO and founder of Miro Consulting, Inc., Oracle and Microsoft licensing consultants that analyze and negotiate software licensing agreements.