When software licensing goes wrong

There are many pitfalls to watch out for

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, says Gareth Doherty, research analyst with London, Ontario-based Info-Tech Research Group. "A lot of organisations will buy more resiliency than they need in terms of the software licence," says Doherty. Negotiating the right software licence agreement is complicated by the fact that organisations often have no benchmarks with which to compare pricing, says 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, he says. It is only when seated at the negotiating table with the sales agent that the dollar amounts are revealed. "Without having benchmarks, you really don't know if you are getting hosed by a vendor," says Doherty. Non-disclosure caveats written into licence arrangements mean other organisations won't talk about their contracts either, says 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, says 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, he says, organisations 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 says. But the key issue is that it is 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, says Stewart Buchanan, a UK research director in the IT asset management and procurement group with Gartner. "Customers' eyes are very much bigger than their stomach," says Buchanan. "They sign up for an all-you-can-eat menu and we find them not consuming as much as expected." He has observed many enterprises agree to, and subsequently regret, an unlimited licence agreement. While he is 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, Buchanan says. 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, he says. If usage is lower, then money was spent on unused licences. 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, says Buchanan. Unlimited licence agreements can often appear an attractive option, especially when a vendor won't grant a discount in any other way, he says. Many enterprises don't make "informed investment decisions" before entering into agreements, instead allowing the vendor to push them into a decision, says Buchanan. Making assumptions on things like usage levels before signing a software licence contract is the "enemy of accuracy", says 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," says 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, says Williams. But while choosing the appropriate software licence contract is important, another element is choosing the right software to deploy, he says. 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 says 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 says "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 says assessing the current IT environment is part of an organisation's overall software asset management strategy. Organisations 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," he says.

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