Don't let software licensing become a car crash

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This article appeared in the September 2014 issue of CRN magazine.

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Don't let software licensing become a car crash

If traditional licensing was Sudoku, then licensing for a multi-platform mobile and cloud world is like a broadsheet newspaper’s Cryptic Crossword. But this increased licensing complexity created by digital business model transformation, especially cloud and mobility, offers up an unintended opportunity.

Resellers can add value by alleviating customers of compliance burdens, cutting their risk and directing their scarce resources to the most efficient licences through effective software asset management (SAM). While perpetual and seat licensing for software will persist, there’s a new game in town.

In theory, software asset management is much simpler in the cloud, where SaaS can guarantee up-to-date versions and automatic billing. But an emerging concern with the shift from perpetual licences (charged out for each PC or ‘seat’) to cloud services is that organisations could be at their vendors’ mercy, says Gartner analyst Guriq Sedha.

"Absolutely these fears exist," Sedha says. "This is where we see cloud application deployment is not only a commercial decision. We have heard over many years about things getting cheaper but we know how the industry operates, that software vendors control the market."

Traditionally, vendors would maintain software that was two versions before current. But customers – especially SMBs or corporates with bespoke or highly customised software – often sat on outmoded software. Cloud models of software deployment should, in theory, cut costs to all, Sedha says.


"The investment put in by software vendors to get to the next [version] depends on adoption and, if most people adopt, the cost is shared by most clients," he says. "Theoretically, it means that [customers] should get more value out of this process."

Cloud subscriptions also tend not to be very transparent, Sedha says, which makes direct comparisons difficult. "[Gartner] defines cloud as an industrial solution that offers the flexibility of scaling up and down. If those key ingredients don’t exist then it’s not really cloud."

Also, hidden costs such as data transport, promo pricing, storage, activations and sandboxing act to mute the attractiveness of cloud, which is where resellers add value by simplifying the process and streamlining the final result so it’s predictable. Sedha says: "Incumbent vendors have more to lose by offering true cloud."

He says that resellers need to put the needs of their customers over their relationship with their vendors if they are to deserve the tag of trusted adviser. "If resellers can keep a true thinking cap on about what is in the best interests of clients, they will continue to gain the respect of their clients and also steer them in a direction that’s also profitable."

A leading problem is that customers want it all – perpetual and cloud, upfront and subscription – requiring vendors to keep a dizzying spread of options on their books.

Scott Caulfield, general manager of digital and marketing services at Nextgen Distribution, says the perpetual licence is here for a while longer, especially in the enterprise. It’s also the case that big, publicly traded software vendors are managing a shift to subscriptions without shocking the market over dips in quarterly revenues.

"It’s not something you can easily turn off and switch over to a subscription licence; there are a lot of implications on short-term cash flow," says Caulfield, who nominates Adobe’s Creative Cloud as a "standout" performer.

Caulfield notes certain "triggers" for software audits where resellers can help their clients. This includes if the customer is engaged in a merger or acquisition, is virtualising or going cloud.

"The end-user customer and IT buyer have to contend with a complex, hybrid mix of on-premise, cloud, perpetual, subscription, PC client-based apps and mobile apps," Caulfield says. "There’s software everywhere." Adding to the complexity from the reseller’s point of view is that many customers are well informed – or think they are. "By the time the reseller gets engaged, their original solution sell is mitigated because the customer has done so much in the background and they’re coming to get a price, and that doesn’t leave much opportunity. You have to accept that the customer doesn’t always know what’s best for them."

Caulfield says resellers can reinsert themselves into the sale by adding value and that may come through talking to line-of-business managers. Helping with audit compliance could help the resellers ingratiate themselves. Easing the audit, Nextgen has allied with Navicle to help resellers and their customers navigate Oracle licences.

"It helps to construct the right licensing bill of materials for their customers. There’s a multitude of ways you can license at the moment; by end-user, core, device – there are 10 different ways to license the same solution and the price can vary."

Managing software assets, risk, compliance and cost is a growing area for resellers to develop skills and methodologies. Caulfield says: "That’s a great opportunity for resellers, its not going to go away – it will get more complex."

A licence checklist

Terry Green and Elizabeth Sherwin run a consultancy to help customers get the biggest bang for their software-licensing buck. The partners in the Australian Software Asset Management Association (ASAMA) say they are bringing US best practices home.

"There would be very few [big] organisations that would be measuring their software in the most effective and efficient manner in a sense of savings and negotiating their contracts," Green says. "And the extent to which they’re saving themselves litigation because they don’t know their software base. The issue with resellers and vendors is, while they can provide advice, the organisation’s name is on the contract."

Green has a background in leading software asset management in the Australian Department of Defence, while Sherwin is a software asset management specialist.

ASAMA is writing methodology that dovetails with IT Infrastructure Library (ITIL), ISO 19770 and Prince2 that covers control, governance, process, policy and how people and technology intersect. "ITIL talks a little about SAM but it doesn’t go to the extent of the ISO standard," Green says. "We put it all together as a standard approach; we don’t isolate it from service management. It’s integrated into that flavour and procurement and policy."

Green says that the client’s IT architecture determines licensing but siloes that often build up between purchasing and IT complicate compliance. This may lead to spending too much on software "just to be sure". Resellers can bring the parties together to eliminate doubling up and ensure the saved spending is better invested.

Green tells resellers and their customers not to accept the vendor’s gospel: "We never accept what a vendor puts forward as a contract." He typically saves customers a third of their vendor-proposed, upfront software bill, he says.

"Go back through the contract and if the vendor won’t negotiate, look for substitutes," Sherwin says. "Make sure the vendor understands that you’re not [locked in]."

Resellers should also be alert to any "true-up" at the end of a licence period – customers can get caught if they don’t consume a certain number of licences or if they go over set maximums, Green says.

Sherwin says: "The biggest thing is uncomplicating your licence model… You need to manage the new world [cloud, mobility] with the old. It’s really important to focus on those risks. You need to understand what’s coming down the path in two or five years and negotiate upfront. Too many people accept the vendor’s terms and don’t look to the future."

Green puts it bluntly: "You can say ‘no’; vendors will get the message."

An issue that often arises is fear of getting licensing wrong. This can lead the IT buyer to overspend on items that don’t run the business or innovate. Vendors are very effective at using the stick of reputational damage, Green says. "No organisation wants to be seen in that light and taken to court for use of software they haven’t bought."

Manage the transition

Microsoft has been working to reduce complexity through allowing for per-user licences and effectively making its operating system free for small tablet devices.

Philip Goldie, Microsoft director of partner business and development, says the software vendor is working to alleviate the licensing pangs that come from digital business model transformation.

"Almost all customers have some level of on-premise capability, and many are moving to the cloud so we have to enable that transition as well," Goldie says.

Licensing for the user instead of the device is enabling end-customers to get on with their mobility deployments, he says: "Moving from device to user requires a lot of deep thought in maintaining customer value through that transition."

The next step on from Office 365 licensing is a billing API that will enable partners to develop their own solutions on Microsoft’s cloud and charge accordingly.

"The Cloud Solutions Provider Programme is essentially billing APIs in the product – Office 365 initially and will extend across our products – that will allow the partner to be inserted into that billing relationship between customer and Microsoft," Goldie says.

The software licence discussion between reseller and customer is an ongoing one, says NewLease senior vice-president of strategic alliances, Warren Nolan.

"You must be prepared to provide ongoing services and meet expectations on a month-to-month basis because that client can easily migrate from you to another service provider who does," Nolan says. "All that investment and resource allocation you made… you may not get your return on investment because you lost that client too early."

NewLease provides an automated software reporting system and business intelligence tools to monitor software licences and report irregularities that need to be fixed.

And just having enough licences may not be sufficient if the customer has the wrong ones, says Tom Canning, Asia-Pacific vice president for software asset management vendor Flexera (formerly known as Macrovision). He says there’s a lot of money tied up in desktop software.

"Organisations may have bought 1,000 licences but are only using 800 and because of technicalities they may still be out of compliance," says Canning. "That’s where we see our partners providing a managed service to organisations."

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