The downturn has given organisations the opportunity to revisit their software licences and maintenance contracts to make cost savings.
Renegotiating contracts is a key strategy for reducing IT costs. But before embarking on that road, experts advise organisations to carry out a thorough software audit.
Robert Stanley, head of Microsoft solutions at IT services firm Dimension Data said, "We've found software audits to be highly effective in showing exactly how many users, computers and systems are used per license and identifying over- and under-use."
As well as a thorough audit, users should review all of their contract models, rather than letting them roll over, said Richard James, head of category for ICT at procurement specialist buyingTeam.
Software maintenance and support is often seen as a fixed cost but there are several ways in which these costs can be managed, renegotiated or simply cut, he said.
"Headcount reductions can mean redundant licences. Terminate support for them, or consider hibernation. Encourage use of internal helpdesks as the first port of call. It's good for suppliers, reducing their costs so they can pass on the benefits.
"Also consider if legacy, stable platforms can be supported more economically under time and materials arrangements," said James.
When it comes to renegotiating licences and contracts, suppliers may expect a quid pro quo, particularly if the aim is to reduce service charges, said several legal experts.
"Unless the customer is fortunate, the chances are that the supplier will want something in return for reducing the price. That probably means a relaxation of service levels, a reduction in scope and potentially a renegotiation of some of the other contractual clauses such as liability provisions," said Duncan Pithouse, partner with the IP and Technology group at law firm DLA Piper. He added that this could lead to short-term financial gain, but lack of key services.
Another legal expert, Mark Henley, partner at Wragge & Co, said that before opening a renegotiation with a supplier, customers need to look carefully at the terms of their existing contract and at the alternatives available from the supplier's competitors.
"If moving away from the supplier will be prohibitively expensive or not technically feasible, then there is every possibility that they will stonewall any attempt to improve on the original deal," he warned.
David Chan, City University London's director for the Centre for Information Leadership, encouraged businesses to use their commercial leverage to negotiate. "Perhaps you are intending to extend a service contract in a year's time. By offering a longer commitment the supplier may well drop the rates."
Alternative licensing models
New models of software licensing can benefit users in these tough economic times, and one of these is the pay-per-usage model, also known as Service Provider Licensing Agreements (SPLA), popularised by the likes of Salesforce.com.
Woodson Martin, vice president EMEA marketing at Salesforcesaid, "IT directors everywhere are facing the nightmare of expensive fixed contracts for software maintenance for licenses they have never deployed. This broken model of shelfware is causing many to look for alternatives like cloud computing where they can start small and pay for what they use."
One enterprise software provider that recently changed the way it licences its software, is Embarcadero. The supplier offers users open access to every product, with customers paying for what they use, including third-party applications integrated into Embarcadero's platform.
"At Embarcadero, we've found it useful to demonstrate to some third-party software providers the actual usage and distribution of the product as a way to justify a lower per-user cost or fee," said Jeff Anders, All-Access product marketing manager at Embarcadero.
One final way organisations can ensure they are not overpaying on their software licences is to check the application is licensed to the right processors, and not being linked wrongly to multiple processors, said Gary Barnett, analyst at The Bathwick Group.
Suppliers such as HP help users to make sure they are using the most cost-effective processing scenario for their enterprise applications such as Oracle. This might mean scaling up using an HP Integrity or Himalaya server, or IBM z series mainframe, rather than scaling out, which uses more server boxes.
"When looking at your licensing you have to do the maths. Different vendors treat multi-threaded processors in different ways, and it might even pay to buy a single SMP machine, particularly with the financing and discounts available," said Barnett.
"At the end of the day, my experience is that a willingness to play hardball and have very vigorous negotiations with your software partner nearly always pays off," concluded Barnett.
This was first published in August 2009