While stories abound of users being stiffed by suppliers, getting a
good software licensing deal isn't impossible - you just need to
know how to negotiate a good deal.
Software licensing sits at the cusp of IT, procurement and finance
and so it is hardly surprising that many companies come to grief in
this area.
The most common mistake reported by users and consultants is that
companies allow themselves to be put on the back foot. "People come
to us because they don't know what is happening in their
organisation and Microsoft or the BSA is giving them a hard time",
says Paul Sloane, CEO of Monactive, a software audit tool
supplier.
Reasons for this reaction are manifold but all stem from the fact
that software is a notoriously difficult asset to control. While it
may be easy to count company cars or PCs, software can be
downloaded over the Internet or smuggled in on the front of a
magazine.
Most significantly, organisations rarely have someone dedicated to
software licensing. "It's usually the last thing on IT's mind,"
observes one reseller.
Take control of the situation
Even when companies do
realise that their software is out of control, it's not too late to
renegotiate a decent deal. The key thing is not to go cap in hand
to supplier who then has an expectation of licensing revenue that
can be milked from a user.
Once a supplier has such an expectation it is very hard to
renegotiate the price down, warns Zak Virdi, software services
director at licensing specialist Bytes Technology Group
Virdi urges users to arm themselves not only with accurate audit
information but also with a strategy for desired usage before
approaching the supplier. Arriving at this point may require the
advice of a trusted third party or consultant, he suggests, but
users should do this sooner rather than later to reap maximum
rewards.
Virdi cites two examples of large retailing outfits that Bytes
worked with recently to renegotiate their software licences. The
company that enlisted advice up front was able to secure a £2.8m
saving over three years, whereas the retailer that sought
assistance at a later stage in negotiation was unable to make any
savings.
Rupert Battcock, of law practice Nabarro Nathanson, also advises
early involvement of the experts. Issues that lawyers need to look
at include warranties, the scope of the licence itself (the "scope
of use" clause), limitation of liability, any warranty exclusions,
and intellectual property indemnities.
There are also practical matters to consider, which often need to
be picked up in the licence agreement. For example, do companies
have access to source code (otherwise known as software escrow) if
the supplier goes bust?
"Tactically I'd say the important thing is to raise these issues as
early as possible and practicably in the circumstance. There are
many cases where involving your legal team early at the invitation
to tender stage can both make it easier for you to negotiate the
deal you require, and also save time and legal expenses later on"
he points out.
However Battcock warns against lawyers who are over zealous in
specifying their client's requirements. "Any lawyer setting out or
reviewing requirements or comments in an invitation-to-tender (ITT)
document needs to be commercially aware of what it is sensible to
specify as being required - being too inflexible can just mean the
legal requirements are just ignored or will not really be of value
as negotiation benchmarks"
Inevitably, the amount of negotiation leverage will be determined
in part by the size of the deal on the table. Virdi recommends that
users try to be as big a fish as possible in their supplier's pond.
"With a small vendor, a company with 1,000 users has a lot of
clout. With big vendors, you need at least 5,000 to have any real
input and 10,000 seats to have the muscle to change any major
contractual terms," he says.
In addition, adds Battcock, there is a big difference between
purchasing licences for off-the-shelf software where scope for
negotiation may be limited, and purchasing on a higher value basis,
or where there is an element of customisation which may offer real
scope for negotiation on a lot of issues.
Know your true worth
The most common reason for
companies paying over the odds is that they are over-licensed
according to their real usage needs, says Monactive's Sloane.
Figures from Gartner Group confirm this pattern of over-licensing
among enterprises in order to be on the safe side: According to the
analysts group, 60% of applications are over-licensed, 30% are
under-licensed - thus presenting a legal liability, while just 10%
of applications are spot on.
Monactive's auditing tool, dxPRO, reconciles what software is
installed against what is used and what is licensed on a daily
basis, thus enabling a company to build up a picture of
requirements. Sloane names four packages as the most under-utilised
across organisations and a main reason that companies shell out
unnecessarily: Microsoft Access, Visio, FrontPage and Project
Manager.
However, Microsoft is not the only supplier which benefits from
over-licensing. Two sources interviewed for this piece identified
redundant implementation of Bloomberg financial information feeds
as key wastage. At up to £20K per seat, such financial services
represent a major outlay and need to be carefully monitored.
Key options for SMEs
Small and medium -sized companies
face the same problems but on a different scale. A key decision for
these companies is whether to adopt the traditional Open Licensing
Programme offered by Microsoft, or to opt for the more recent Open
Subscription Licensing model.
James Hall, team leader at reseller Softcat, says that for a recent
customer - a dynamic media company with 700 staff - OSL offered
better value. "It's cheaper than buying outright plus there is the
flexibility of being able to upgrade.
Hall points out that OLP, by contrast, represents a capital
expenditure over three to four years and is therefore best suited
to companies that have limited and specific needs. A firm of
independent financial advisers that just uses word processing,
Excel and e-mail is probably better off with OLP, he recommends.
Virdi counsels all users, whatever their size, to take a
three-pronged approach to getting the best software licensing deal:
"There are three aspects: the contractual rights of how to use
software, the physical issue of how and where software is installed
and its usage and finally, the financial element of cashflow," says
Virdi.
But regardless of the process pursued, the company that takes a
long-term view will secure the better result. Far from being a
one-off negotiation exercise, software asset management should be
ongoing and supported by corporate policies.
"Often audit projects fail because they are delegated too low. A
software licensing committee needs heavyweights on it, representing
finance procurement and HR," says Sloane.