Why the recession is the right time to re-look at software licensing

It's an unpalatable fact of life at the moment that large numbers of organizations are downsizing, undertaking forced mergers or having to fundamentally shift their business focus in order to stay alive.

While all of these activities are conducted with the explicit aim of driving down costs in the business at the same time as (hopefully) increasing profitability, there is one area of cost that is often overlooked – the software owned by the organization.

According to research from McKinsey, software licenses are expected to account for 35 percent of the total IT budget in 2010. This represents a significant expenditure for any organization.

In fact, the concept of ‘owning’ software in this context is actually something of a misnomer. As any software licensing specialist will state, you don’t actually ‘own’ software, you buy the ‘right to use’ it. Nevertheless, if your business has experienced a reduction in workforce (whether through downsizing or perhaps merger) or a change of structure, then there’s a very high possibility that you’re currently paying for more software than you are actually using.

Whatever your actual or expected software usage was when the licenses were originally purchased, volume license agreements agreed or support and maintenance agreements established – the chances are that you’re now using less. As such, it’s perfectly logical to consider renegotiating your license agreements as part of your ongoing cost saving strategy.

But you can only do this when you are confident that you know exactly what your present license position is, what software is currently installed on the network and how it’s being used.

And that’s why – contrary to what many people might think – investing in Software Asset Management (SAM) actually makes even more sense in a recession.

If you want to enter into a renegotiation with a vendor, you need to do it from a position of strength. And that means being in possession of the cold hard facts about software installations and usage across your entire network.

Having this information gives you a number of options to explore. First, you can ensure that any unused software dormant on PCs is removed (in most cases, it only needs to be installed for it to need a license, whether it’s being used or not). Then, armed with information on how many licenses are going unused, you can then make decisions about re-deploying those licenses to other parts of the business (where licensing terms and conditions allow) or using the up-to-date usage information to renegotiate volume license or leasing agreements. And don’t forget support and maintenance; according to Forrester Research, organizations can typically waste as much of 10 percent of their total support and maintenance payments on software that isn’t being used.

Against this backdrop of cost cutting and increasingly strict processes for IT operations, there is another key risk that many organizations are failing to address. Despite policies that might stress that all software is purchased and deployed centrally, the fact is that ‘rogue’ purchasing is still rife across many organizations. Whether the organization has volume license agreements directly with a vendor, or perhaps a preferred VAR partner, the chances are that it is receiving some level of discount on its new license purchases. When an individual (often a non-IT member of staff) decides to satisfy a perceived immediate need by purchasing outside of these agreements, they create additional cost for the business. This is because often a license is already available for the required software (perhaps thanks to the identification of unused applications in another department or site) and also because the purchase of a single ‘off-the-shelf’ product is guaranteed to be more expensive that one sourced through the proper channels.

For each instance of rogue purchasing, the individual cost may be small, but totaled-up from across the organization, this can become a significant unnecessary spend.

Whether it’s in the datacenter, on local Windows servers or spread across the wider PC estate, the fact is that failing to have complete visibility and control of your software is hurting the business. At best, unused software represents a cost saving which going unrealized. At worst, the de-centralized purchasing of software and lack of re-harvesting and re-deployment is actually causing the enterprise a significant cost it can ill afford to carry.

Back in 2006, Gartner estimated that the average organization was over-licensed on around 30 percent of their software estate. Today that figure is likely to be much higher – and that’s a real cost to the business that it doesn’t need.

Matt Fisher is a Director of Marketing with FrontRange Solutions