The software industry is a leading driver of economic growth.\u00a0 But the industry\u2019s sales model stifles innovation.\u00a0 The clearest example of this phenomenon:\u00a0 software audits.\nWhile software audits are not popular, most people consider them a necessary evil.\u00a0 The software industry argues they need to audit usage to protect their investment in their intellectual property.\u00a0 At first glance, this seems like a fair point.\nIndeed, software users acknowledge they struggle to control the deployment of software.\u00a0 Companies invest considerable resources to track and restrict use of the many software products deployed in their environments.\u00a0 And those efforts are rarely totally effective.\nAnd when the inevitable audit demands come, customers incur substantial costs responding to them. \u00a0An asset management industry has grown up to help companies cope with audits.\u00a0 Customers pay consulting firms, lawyers and other professionals to manage a process that adds no value to the customer.\nBut those costs are not the fundamental problem.\u00a0 The real problem is a misalignment of incentives:\u00a0 software audits are a revenue center for software firms and, the more revenue they generate, the less incentive those firms feel to win new business by innovating for the benefit of their customers.\u00a0 Put more simply, software audits are a drag on innovation.\nSoftware audits are about revenue\nAudit or not, corporate America is not interested in software piracy.\u00a0 Companies are too busy running their core business to spend time plotting software theft.\nSo, why do some of them fail audits?\u00a0 Two reasons.\u00a0 First, it\u2019s hard to monitor software use, particularly in a large organization.\u00a0 And, second, those companies that try struggle to understand their license agreements.\u00a0 The agreements are long, complex and ambiguous.\nSome software firms have promised to simplify their contracts, and most will argue compliance costs are a normal part of doing business.\u00a0 Those arguments ring hollow, however, because the software industry has the ability to make compliance painless \u2013 and cost free.\u00a0\nHow?\u00a0 One option: \u00a0concurrent licensing.\u00a0 In a concurrent license, the software itself limits the number of users at any one time.\u00a0 The model would require software companies to update their products.\u00a0 But the cost will be insignificant compared to the time and energy they spend on complicated contracts and audit notices \u2013 not to mention the damage they do to their customer relationships. \u00a0\nAnother option:\u00a0 link the license to the customer\u2019s employee count, as reported in its 10-K.\u00a0 A company\u2019s employee number is a good proxy for usage of an enterprise product.\nWhy hasn\u2019t the software industry adopted one of these approaches?\u00a0 They have no incentive to change.\u00a0 They may not need audits to protect their IP but the audits are a great source of incremental revenue.\nThe (negative) impact of software audits on innovation\nBusinesses license software to improve their business performance, increasing sales, boosting productivity and making data accessible.\u00a0 \u00a0\u00a0When software audits become part of a company\u2019s sales model, however, its focus shifts from innovating to benefit their customers to generating more revenue from yesterday\u2019s products.\u00a0 When a customer fails an audit, the quality of the vendor\u2019s software becomes irrelevant; the only question is how much the customer owes. \u00a0\nA better conversation between the parties would be one in which the customer approaches the limits of its use rights and has to decide whether to buy more or choose an alternative, including competing products.\u00a0 When that happens, the software firm is not arguing about compliance.\u00a0 Instead, they are focused on persuading the customer their product is \u00a0the best on the market or on offering their client an even better tool.\u00a0 That sales dynamic \u2013 not audits \u2013 fosters innovation.\nAn innovation argument can be made for audits.\u00a0 Innovation is hard, after all.\u00a0 Many great products die an early death because the market doesn\u2019t recognize their value.\u00a0 Why?\u00a0 Because people are resistant to change, even when change has obvious benefits.\u00a0 Innovators are justified, therefore, in using every tool at their disposal to drive adoption of their products.\nThere\u2019s an obvious flaw in this argument:\u00a0 it assumes the innovator\u2019s only responsibility to society is to come up with great ideas.\u00a0 Great innovators recognize, on the other hand, that the sales process is a key part of the innovative process.\u00a0 Selling ideas forces you to think about what value they have for your audience.\nWhat is to be done?\nThe answer is simple:\u00a0 just say \u201cenough.\u201d\u00a0 Call your software vendors in and ask for a proposal that will focus them on how they can continuously improve their product not only for your benefit but for theirs as well:\u00a0 you get better technology, they get more revenue. \u00a0Software companies should embrace that:\u00a0 it\u2019s that spirit which made their industry great.