Scaling Up Your Business, But At What (Licensing) Cost?

What do IT leaders need to do to manage contracts, usage, and price of their software assets?

Thanks to virtualization, the cloud and other delivery models such as software-as-a-service (SaaS), scalability and flexibility, have become must-haves for businesses of all types and sizes. However, most discussions about scalability and flexibility take the benefits for granted and fail to consider all of the costs. When looking at areas of operational expenditure, such as software licensing, costs can often be far greater than business leaders may expect. Working closely with IT departments to manage the contracts, usage and price of their software assets helps them to not only scale as and when they need to, but also minimize risks to the bottom line.          

Licence to Bill

Software licensing is easy for business and IT leaders to ignore or leave on the wayside. As a company evolves and expands, it uses more types of software in greater volume, making licences harder to track as well as more expensive to acquire (if not centrally managed). Increasing available licenses for enterprise software in efforts to keep up with a growing staff or changes in staffing not only consumes budget, but often proves to be very time-intensive. This is especially evident when migrating to new versions of a software platform (think of a Windows 8 migration). The license compliance requirements of software agreements, including the use rights, terms and conditions, are so often overlooked when installing a new program. This usually proves to be a fuzzy process to any organization lacking specialized software asset management, licence entitlement and legal knowledge: in short, most businesses.

While the rapid growth of SaaS delivery models promises to relieve the stresses of some of these issues, businesses need to be mindful that SaaS and cloud-based software still require license agreements to be managed. These contracts will often apply usage and/or user-based license metrics. This may seem more cost-effective to the business, but it can also introduce additional complexity when managed alongside physical software licenses.

When it comes to software licenses for both traditional and SaaS packages, ignorance can seem like bliss – that is until a software license audit and associated unbudgeted true-up fees occur. True-up is the accounting term for payments to software vendors to bring an organization back into compliance when software installations or usage exceed their license entitlements.  A recent survey by Flexera Software, “Software Pricing and Licensing Survey,” almost 1 in every 4 enterprises globally paid more than $1 million in audit true-up fees in 2012 alone. Unsurprisingly, one third of enterprises said they were dissatisfied with their current methods for managing software licenses and usage.

These large costs of license non-compliance can be all the more dramatic due to the surprise nature of most license audits. In many cases, the abrupt introduction of unexpected (and unbudgeted) true-up costs or penalties means resources must be diverted away from strategic programs required by the organization – which can be difficult to explain to the C-suite.

Putting software on the board

Long story short, mismanagement of software licenses can have severe repercussions that escalate to board-level discussions, not just day-to-day IT operations. To avoid this, business leaders need to work alongside their IT and purchasing counterparts to get a clear picture of how licensing policies and practices could affect their growth strategies and organizational responsiveness. When it comes to IT managers, they need to implement transparent policies and tools that not only increase IT asset visibility, but optimize software licensing throughout their organization.

For many businesses, the tools currently in use to manage software licensing may be outmoded or inadequate for the task. A typical IT ecosystem today consists of traditional on-premise, installed-on-the-endpoint software, SaaS and hosted applications, virtual servers and virtual desktops – each of which adds an additional level of complexity that a spreadsheet or basic database can’t track (at least successfully). Software license management solutions need to provide several things to really streamline processes for businesses:

  • End-to-end visibility of hardware and software assets and licenses in the organization
  • Automatic processing of software purchase orders and reconciliation with software inventory
  • Contract management capabilities to keep track of renewals, payments and contract expiration
  • The ability to automatically apply vendor specific “product use rights”, as defined in the license agreement, to optimize license consumption and reduce ongoing costs

If performed well, those functions will give business and IT leaders a clear snapshot of their current licensing position at any given moment to ensure that the organization buys only what it needs and uses what it has.

The most powerful software license management tools perform software license optimization and also offer insights and capabilities to help optimize existing licenses, supporting scalability at the foundation. Business leaders should also consult with their IT managers on what policies and technologies can assist the efforts of these license optimization solutions to ensure greater compliance, optimization and operational efficiency. For example, an enterprise app store may assist in transitioning the enterprise to more cost-effective software procurement and fulfilment, limiting the risks that result from each individual or department buying their own applications. In most cases, license management solutions, working in conjunction with the enterprise app store, will be able to automatically reclaim and reassign licenses to where they’re needed most, and ensure the full utilization of available licenses at any given time.

Naturally, the best remedy is having an understanding of what optimized license management means to the company. While an in-house software asset management (SAM) expert, or team, may be realistic for larger businesses, software license optimization providers will also be able to deliver counsel on best-practice processes. Like most strategic initiatives, gaining control over the software estate requires people, processes and technology. Beyond the use of software licence optimization solutions, training IT staff in best-practice license management will not only reduce the risk of costly true-up or penalty fees, but also allow them to see significant savings on future software investments. This allows decision-makers to refocus on growth priorities and changing business conditions, freeing up the business to respond when, where and however it needs to.


Steve Schmidt is VP of Corporate Development at Flexera Software