Software piracy is largely thought to be the trade of unscrupulous criminals in countries like China, India and Russia. Therefore it’s surprising to learn that most of the world’s large corporations - a veritable who’s-who of the FTSE Global 500 - are software pirates. They are using software that they have not paid for. And as software vendors get more scrupulous in enforcing their contracts - it’s costing companies billions in unbudgeted compliance penalties.
Accidental software pirates
In reality, it’s a misnomer to call companies software pirates - they’re really accidental pirates. They fully intend to pay for all the software they use. But for many reasons it has become virtually impossible for them to do so. First, software licence agreements are incredibly long and complex making it difficult to manually manage compliance.
In addition, new technologies, such as the cloud and virtualisation, increase complexity around licence management. And finally - changes within the corporation itself - such as mergers, acquisitions, spinoffs, employee turnover, hardware acquisition and retirement - all have software licence implications, which must be taken into account to ensure continued licence compliance.
As a result even the largest and most sophisticated companies are finding it impossible to manage the problem with their existing staff and tools, as statistics bear out. According to a recent report on software pricing and licensing conducted by Flexera Software and research group IDC, 85 per cent of corporations surveyed reported some level of noncompliance with their licence agreements. They are accidental pirates.
Ensuring software licence compliance starts with executive awareness of the problem and its associated costs. And it ends with leadership to ensure IT and employees are working together to implement best practices processes and technologies to avoid the common mistakes most organisations make managing their software licence estate.
Those mistakes include:
- Making ad hoc purchases. Lack of controls over software purchases is common and leads to over-buying when end users buy software directly, rather than having IT buy it under a volume purchase agreement. Try having ‘licence amnesty’ where everyone can provide the Proof of Licence for boxed copies so evidence that they were bought can be documented.
- Not fully leveraging global enterprise agreements. Over-buying occurs when, for example, software is purchased under a regional select agreement when the same software is available under a corporate global enterprise agreement.
- Not tracking installation and use. By tracking installations of software and its usage, organisations may be able to substantially reduce ongoing maintenance payments or defer new license purchases for under-used software.
- Not tracking and analysing detailed usage data for certain types of licenses. Optimisation of concurrent (network) licenses and SAP named user licenses requires detailed usage analysis to determine the optimal number of licenses and the optimal named user license type for each user respectively, to avoid over-buying.
- No central asset management repository. A central repository holds proof of entitlement, making them more easily accessible for review. It also allows organisations to quickly comply with vendor audit requests, saving time and money.
- Not tracking renewal dates. Failing to keep track of software licence agreements and renewal dates makes organisations vulnerable to lapses in maintenance and loss of use rights, such as upgrade rights, which can prove costly.
- Lack of communication between departments. IT operations must work with procurement to ensure that software is installed and used in accordance with the respective licence agreements to avoid license compliance issues.
- Not purchasing maintenance at the right time. The right time to purchase maintenance is when organisations are expecting to upgrade and a new release of the software is expected during the term of the maintenance agreement. If organisations buy maintenance before a release is announced, the price will be significantly lower and they will become automatically eligible for that product upgrade.
- Not ascertaining strategic requirements. Ordering licences without determining what the organisation truly requires over the longer term could be an expensive mistake. Check if the product is needed before buying.
- Assuming licencing rules don’t change. Licencing rules change frequently and failure to stay on top of these changes can result in being out of compliance.
- Not applying product use rights. Product use rights define how software licences can be consumed. Accurately applying product use rights can drastically reduce licence consumption and hence reduce the need to buy more licences.
- Not automating software licence optimisation. An optimised licence environment cannot be achieved without software licence optimisation solutions, which enable organisations to automatically collect all the necessary data and apply licence entitlement rules to generate an optimised license position.
Need for software license optimisation
Software vendors are looking to make up for declining profit margins by being stricter about enforcing their contracts with existing customers. And that means making organisations pay more dearly for their licence management mistakes.
It may come as a surprise to some CEOs that most software vendors negotiate into their agreements the right to audit their customers i.e. to send a team of auditors to the company, usually on an annual basis, and examine their systems to determine whether the company’s software usage complies with the negotiated terms.
If a company is out of compliance, the company can be hit up with an invoice for the difference, which is called a software audit true-up. And these can amount to millions, or tens of millions of pounds per audit annually in unbudgeted expense.
According to the Flexera Software report, vendors are exercising their rights to recapture some of that revenue leakage due to noncompliance via software audits and true-ups. 64 per cent of enterprises reported that they have been audited over the last 18-24 months. And large enterprises, defined in the report as those with greater than $1B in revenue, were significantly more likely to be audited three times or more in the last 18-24 months. Moreover, 24 per cent of enterprises said their total true-up paid over the past year was $1 million or more.
In light of these audit risks associated with poor licence management, the following software license optimisation best practices are recommended for any organisation seeking to minimise software spend and maximise use of existing licences:
Define software license optimisation policies
It’s critical for IT organisations to define and implement software asset and licence optimisation policies and procedures to be followed throughout the business. This means that there must be specific policies on every aspect of licence management, with an aim to reduce IT costs and limit the business and legal risk related to the ownership of software, while maximising IT responsiveness and end user productivity.
Focus on the major software publishers
Businesses should focus their software license optimisation efforts on the highest value applications - e.g. engineering and technical apps, databases, etc., and software publishers such as Adobe, Oracle, Symantec, SAP, Microsoft, and IBM that pose the utmost risk of software audits. A true-up with one or more of these publishers represents one of the largest potential unbudgeted expenses if businesses find themselves out of licence compliance.
Carefully monitor virtual environments
Software licencing is often forgotten or under-managed in virtualised environments. The risk of licence non-compliance is greatly increased in virtual server environments for three main reasons:
- It’s easy to create new virtual machines running copies of operating systems and software applications;
- It’s easy to move virtual machines from one physical host to another; and
- Publishers’ licencing rules for virtual environments add significant complexity to the already complicated task of managing software licences.
For these reasons, automated software license optimisation tools are required to manage virtual environment license complexity.
Understand software publisher licence rules and product use rights
Software use rights can significantly impact an organisation’s licence position. Simply put, product use rights define where, how and by whom a piece of software can be installed and / or used. Businesses should take full advantage of use rights, including their rights to upgrade, rights of second use, virtual use, etc. Equally, it is crucial that software usage restrictions are understood to stay in compliance.
For most organisations, the message is clear. The only way to avoid costly true-up penalties is to implement a software licence optimisation program that will help avoid common mistakes in managing the software estate. This will ensure that the organisation buys only what it needs and uses what it has.
