Change is the order of the day as software suppliers seek to
protect revenues with new contract arrangements while anti-piracy
measures get ever tougher. So what's the outlook for the user
caught up in such interesting times?
Software licensing is a perennial source of grief for IT directors.
Year after year we've heard complaints about "stiffing," where
software suppliers use any change in a customer's business to
extract more money from licences, and aggressive anti piracy
measures from organisations such as the Business Software
Alliance.
This year the issues are more fundamental than dealing with
opportunistic and exploitative software suppliers. They are rooted
in the long-term strategic and technical vision of the software
suppliers.
They see Web services and software-as-a-service as the future.
These promise predictable, long-term revenue streams from existing
customers in the face of saturated markets and the global economic
slowdown.
Existing forms of software licensing are unlikely to cope with the
growth of Web services, which depend on accurate measurement of
usage.
Facing up to the future
To reach their future suppliers
are adopting a twin track approach - trying to establish
subscription-based licensing models while at the same time
extracting maximum value from the software they have already
sold.
Users are not helpless in the face of this, but they need to raise
their game if they are to cope with the new environment. In the
last year both Microsoft and Oracle have been forced by user
opinion to make hurried changes to subscription licensing
plans.
Microsoft has twice delayed the replacement of enterprise
agreements -which end with the user owning the software - with the
Software Assurance licence where the user is locked into a
continuous upgrade cycle and never owns the program.
Microsoft chief executive Steve Ballmer has admitted the company
had little choice in the matter: "People said 'either you make
changes or we'll go to the opposition or we just won't upgrade'."
Faced by the backlash Microsoft has struck special deals with the
National Health Service, Ministry of Defence and some blue-chip
companies including the Royal Bank of Scotland.
It is still negotiating with the Treasury's Office of Government
Commerce and Socitm, the local government IT directors'
organisation. But while Microsoft is offering special deals to its
largest customers, many businesses are being left out in the
cold.
Peter Scargill, IT vice-president of the Federation of Small
Business, says: "Half of Britain's workforce are employed by small
companies. Those companies spend a lot on software and they are not
represented in negotiations with Microsoft."
Oracle too has struggled to strike a balance between the demands of
its own bottom line and those of its customers. Last year, under
user pressure, Oracle changed its database licensing to a model
based on processor power.
Last month it again responded to user demands by announcing a new
licensing regime offering different pricing for power and
occasional users of its 11i applications suite, but the move left
many users sceptical.
Some suppliers are making more subtle changes to their licensing.
Borland's new licences, for example include increased powers to
audit the use of software at customer's premises.
This does not surprise John Marwood, partner at IT law specialists
Tarlo Lyons. "In good times software suppliers may have been quite
happy to waive their right to an audit. However, when revenue
streams begin to slow, they need to find alternative ways to beef
up their bottom line," he warns.
"An obvious way is to revisit their customers' use of software and
to undertake an audit to confirm compliance."
The point was echoed by analysts group Gartner last month in a
briefing paper issued in response to a new initiative from the
Business Software Alliance, the software vendors' anti piracy
organisation.
Vendors chase pirates' treasure
"In tight economic
times software vendors will look at every avenue that might help
them generate revenue and ensuring that customers pay for all
copies of their software in use provides one such route," warned
Gartner.
"Microsoft, the world's largest software vendor, has made
aggressive pursuit of software pirates a priority."
The Business Software Alliance, funded by Microsoft, Symantec,
Adobe, Corel, Autodesk and Macromedia, is spearheading that drive.
The latest organisation it named and shamed was Clackmannanshire
Council in Scotland, which was ordered to pay close on £150,000 in
fines and licence fees after it purchased invalid Microsoft
licences.
The BSA's tactics have, for many years, upset IT directors. They
involve approaching chief executives of organisations rather than
IT directors, trying to get user organisations to fill in an annual
software audit and publicly exposing those found not to be
compliant.
David Roberts, chief executive of The Infrastructure Forum, a user
group of FTSE 500 companies, says: "There is an absolute
requirement on organisations to have their software licences in
order, but there is no requirement to register with the BSA. No
business would knowingly use unlicensed software."
He advises users: "Any contact from the BSA should be ignored.
Their phone calls should not be returned and their letters thrown
into the bin."
That advice is echoed by other user groups, but ignoring
organisations like the BSA is not going to be enough in 2002.
Anti-piracy initiatives will not go away, nor will the suppliers'
efforts to fundamentally recast the way software is licensed.
Mike Newton, the BSA's campaign manager, estimates that half the
£350m suppliers lose to unlicensed software is through unwitting
use by companies. Not surprisingly, he is promising to keep up the
pressure.
Check up and cash in
The short-term prescription for
user organisations is to be whiter than white. Philip Virgo,
strategic adviser to the Institute for the Management of
Information Systems, says this is not just a defensive measure.
"People should update their software audits now," he advises. "It
should be done as a matter of good housekeeping, not as a result of
fear or threats. With all the downsizing that has been going on, a
properly conducted audit will probably reveal surplus licences and
you could end up paying less, not more. It can be a quick
win."
Gartner puts it bluntly. "Show that your firm doesn't pirate
software," a recent First Take note urged. It recommends that
organisations immediately:
- Establish an audit response team and involve the legal
department.
- Use autodiscovery, inventory and usage tools to determine what
software is installed, what software is in use, and by whom.
- Reconcile inventory figures with purchasing records to give an
accurate picture of usage.
- Implement as part of a long-term strategy an IT
asset-management repository that links to inventory and usage
records.
- Recover licences from retired hardware.
- Develop or institute a software compliance policy that includes
a component that holds employees liable for illegal software
usage.
- Renegotiate pricing when significant business or technical
changes threaten non-compliance.