American companies will spend nearly $160 billion on software purchases this year, and another $100 billion on enterprise software maintenance costs. It’s no secret that companies overspend, on average, by nearly 30% on software license agreements and maintenance. The impact on an I.T. budget can be enormous.
Software licensing management (SLM) is increasingly complex, and constantly changing. Oracle alone issued nearly 400 pages of licensing changes last year. Few I.T. experts have the cross-functional expertise to manage the necessary knowledge silos.
What can companies do to prevent overspending on software? Very briefly, here are eight secrets, or best practices, for optimizing enterprise software purchasing and management.
SECRET No. 1:
Conduct an enterprise review.
Why? It establishes what you have, anticipates future needs, and enables you to leverage/redeploy existing licenses and keep in compliance. It also avoids the trap of buying too much, and of procuring licenses on a per-project or per-application basis, which results in overpayment for unnecessary so-called shelfware. No new software procurements should take place until this review is conducted.
SECRET No. 2: Build in time to negotiate large enterprise agreements.
Why? While “all you can eat” vendor-driven enterprise agreements can be very attractive, allow yourself plenty of time—at least six months—to consider and negotiate even better deals tailored to your needs. Obtaining the necessary buy-in from both vendor and your own management typically requires patience, savvy and finesse. Vendors tend to make concessions slowly over time. Likewise, your senior management needs time to consider and approve agreements. Understand and respect these human factors. A rushed enterprise agreement is often a recipe for dissatisfaction.
SECRET No. 3: Conduct an adequate what-if analysis.
Why? Lack of scalability in your licensing contract can cost your company thousands of dollars during unexpected growth or downsizing. Do your agreements have the necessary flexibility? Make sure you have planned for potential growth before entering into new licensing agreements.
SECRET No. 4: Establish a repository for software asset management information.
Why? Knowledge is power. What you don’t know about what you already have can cost you dearly.
SECRET No. 5: Automate database and applications management.
Why? Doing so maximizes flexibility, efficiency and intelligence, and enables you to feed data to the repository.
SECRET No. 6: Develop/hire expertise in validating ongoing license compliance.
Why? Avoid serious compliance penalties and/or additional purchases. Licensing rules are constantly changing as software companies merge and new versions are issued. Your circumstances change as you add or update servers, consolidate architecture, outsource or initiate Web-enabled applications. Who’s keeping score?
SECRET No. 7: Self-audit twice a year.
Why? Software companies are increasingly vigilant in auditing their customers. Bi-annual self-audits help you identify potential compliance gaps and prevent hefty penalties.
SECRET No 8: Track and measure your software usage and efficacy.
Why? Knowing the value you receive from your software licensing agreements will help greatly in anticipating renewal costs, negotiating new licenses and avoiding potential penalties. Tracking and measuring usage and efficacy should take into account production, non-production and disaster-recovery applications.
How Software Licensing Management Can Pay Off
Adherence to these eight practices will save your company thousands, perhaps even millions, of dollars over the course of your software licensing agreements, regardless of your company size or software needs. Examples abound.
Facing database renewal costs of $600,000, Timex commissioned a licensing inventory and enterprise review. The result: restructuring of the company’s support agreements with significant immediate and ongoing savings. After a similar process, PR Newswire saved an estimated 30% on its operating software licensing fees this year, and expects 12% in ongoing savings.
The small but fast-growing GotVMail Communications needed help with scalability provisions and negotiating expertise for its database renewal process. Expert help not only got the company a price below standard discounting, but an agreement that anticipates significant growth.
Software costs will continue to rise. Consultancy IDC estimates that spending on enterprise software maintenance alone will rise by 37% next year. Would you bet your paycheck that your company is in full compliance with your software licenses?
Scott D. Rosenberg is the CEO and founder of Miro Consulting (www.miroconsulting.com).