by Kathleen Lau

Software Licensing Gone Wrong

Sep 16, 2009
Enterprise Applications

It can be a juggling act to curb unnecessary costs on additional software licences while ensuring there are enough licences for all users.

It can be a juggling act to curb unnecessary costs on additional software licences while ensuring there are enough licences for all users.

IT departments will often procure more seats than they actually require so users don’t run into productivity problems, but that means paying for unused software, said Gareth Doherty, research analyst with London, Ont.-based Info-Tech Research Group Ltd.

“A lot of organizations will buy more resiliency than they need in terms of the software licence,” said Doherty.

Negotiating the right software licence agreement is made complicated by the fact that organizations often have no benchmarks with which to compare pricing, said Doherty.

But a “veil of secrecy” maintained by vendors regarding licence agreements makes it difficult to get the standard cost for, say, deploying 30 seats of a latest customer relationship management offering, said Doherty.

It’s only when seated at the negotiating table with the sales agent that the dollar amounts are revealed, he said.

“Without having benchmarks, you really don’t know if you are getting hosed by a vendor,” said Doherty.

Non-disclosure caveats written into licence arrangements mean other organizations won’t talk about their contracts either, said Doherty. However, he does suggest consulting an analyst firm that may have amassed that sort of data on different software.

Another myth that affects IT departments, said Doherty, is the belief that there is no wiggle room regarding standard terms and conditions in a licence agreement. With business intelligence applications, for instance, Doherty said, organizations can have options included in the agreement to alter the licence model partway through the contract should conditions change. A young company that initially wants to deploy 10 seats on a seat-based licensing model may need the flexibility to upgrade to a server or site licence model, he said.

But the key issue is that it’s very difficult to predict what will happen over the lifecycle of a contract, and even harder to know what will happen when the contract comes up for renewal, said Stewart Buchanan, U.K.-based research director in the IT asset management and procurement group with Gartner Inc.

“Customers’ eyes are very much bigger than their stomach,” said Buchanan. “They sign up for an all-you-can-eat menu and we find them not consuming as much as expected.”

Buchanan has observed many enterprises agree to, and subsequently regret, an unlimited licence agreement. While he’s not against unmetered agreements allowing unlimited use of a software, he advises a certain degree of due diligence beforehand.

Enterprises agree to unlimited licence agreements either because of particular current conditions in their IT environment, or they are encouraged to do so by the vendor, said Buchanan.

But regardless of the motivation, it won’t end well if the company’s actual usage turns out to be significantly above or below the forecast, said Buchanan. If usage is lower, then money was spent on unused licenses. If usage is higher, the company will get value for the agreement but the downside is they then cannot revert to a traditional limited licence moving forward, said Buchanan.

Unlimited licence agreements can often appear an attractive option, especially when a vendor won’t grant a discount in any other way, he said.

Many enterprises don’t make “informed investment decisions” before entering into agreements, instead allowing the vendor to push them into a decision, said Buchanan.

Making assumptions on things like usage levels before signing a software licence contract is the “enemy of accuracy,” said Dean Williams, services development manager with Toronto-based IT products and services vendor Softchoice Corp.

“You’re either leaving money on the table, or worse, you’re putting yourself at risk of non-compliance,” said Williams. “Worst case scenario: penalties, levies, fines and potential legal risk.”

Making assumptions about usage levels is often driven by the erroneous logic that it’s cheaper to play it safe, said Williams.

But while choosing the appropriate software licence contract is important, another element is choosing the right software to deploy, said Williams.

He suggests understanding available product options, users’ behaviour, and the processes that support distribution of the software.

Depending on the size of the company, Williams said there may not be a dedicated person in charge of software procurement nor a standard process to follow.

But while software license compliance isn’t necessarily an everyday activity, he said “there does need to be a regular rhythm of review that does leave enough time for something to be done about the findings.”

Williams suggests a 90-day window to allow time to take action on the data collected on usage.

Buchanan said assessing the current IT environment is part of an organization’s overall software asset management strategy.

Organizations should plan the investment lifecycle, ensure a return on investment during that lifecycle, and in general “think of what happens throughout that lifecycle which may be much longer than your contract,” said Buchanan.