Buyer beware: Millions lost from rip-off software licences

Software buyers are vulnerable to exploitation due to the demise of traditional user groups combined with aggressive sales targets

Software buyers are vulnerable to exploitation due to the demise of traditional user groups combined with aggressive sales targets.

In an attempt to redress the balance, IT asset management (ITAM) specialist Martin Thompson has launched the Campaign for Clear Licensing in a bid to give users an independent voice against rogue contracts and the confusing terminology used in software licences.

"There is no real independent voice for buyers. The BSA [The Software Alliance] and Fast [the Federation Against Software Theft] represent software providers. We want to give users a voice," said Thompson.

Due to the economic environment, he says software suppliers are also getting more desperate to hit sales targets, so sales representatives are using more aggressive sales techniques.

Time to address licensing complexities

"We want some transparency around licences," he said. "For instance, one way of buying Oracle may cost 10 times as much as another way. The licence you are sold boils down to the integrity of the sales rep."

Software licensing: Rogue traders

  • SAP is particularly bad in the area of indirect access – also known as multiplexing – because it has no public definition and internally uses a very broad interpretation.
  • Oracle’s rules on licensing processors in virtualised datacentres are unclear. The contract is silent on the topic, but Oracle uses separate documents to introduce new policies and change existing ones – that is unfair.
  • IBM often reserves the right to change the contract unilaterally, or deems a customer's payment of, for instance, a maintenance invoice as acceptance of the contractual amendment.
  • Microsoft’s device rules are too complex because they try to deal with new use cases.

Source: Duncan Jones, principal analyst, Forrester

Thompson, who also runs the ITAM Review site, said industry bad practices are commonplace. He cited one example where an IT department had actively lowered use of an application, but the supplier set the licence renewal fee at the same amount as the previous year.

The campaign aims to build a more positive supplier relationship by ensuring buyers can voice their concerns. One of the issues Thompson hopes to raise is the sheer complexity of licensing contracts.

"Software publishers are selling licence programmes people cannot manage. We need clear wording and for terms not to change," he said.

Thompson pointed out that it is also in the supplier's interest to simplify the wording: "Ultimately, if licences are simpler, more software gets shipped. In virtualisation, more applications would be virtualised if licensing was simpler."

Simpler licensing is possible, as's contract terms demonstrate. "'s licence is only 10 pages long, and it is remarkably good in terms of readability," he said. "If my environment changes, it should be clear how my cost changes."

Thompson hopes to establish a whistleblower scheme, similar to that run by the BSA, to name and shame rogue software publishers. "We will allow organisations to report unfair and anti-competitive practices. I hope to have an escalation path to feed the lead to the Office of Fair Trading."

Aggressive software selling

Aggressive sales tactics by software publishers seems to be an ongoing problem for the industry. Computer Weekly's 1998 campaign, Stamp Out Stiffing, highlighted the problem. 

Several suppliers signed up to a code of conduct as a result. Suppliers generally want to be seen as customer-focused but, according to industry experts, aggressive sales targets are leading to unscrupulous sales tactics. 

A Forrester survey conducted two years ago highlighted several areas of contention between users and software publishers. In the survey of 150 people, 91% cited maintenance repricing as their biggest gripe. This is where customers cannot get a pro-rata cut in their maintenance by waiving licences that they no longer need. Instead, the licensor recalculates the ongoing maintenance based on list price less a much lower discount than the customer originally received.

Aggressive sales targets are leading to unscrupulous sales tactics

Duncan Jones, principal analyst at Forrester, who worked on the research, said at the time: "These results are a damning indictment of the software industry."

Organisations undertaking major roll-outs are often forced to buy all the perpetual licences up front and pay maintenance based on all the licences purchased.

Jones cited an example where he was contacted by a client who was running a custom e-commerce site using an SAP system for the transactional data: "SAP has a real problem with indirect access. SAP charges for the people who use its software – but what does ‘use’ mean when the user interface is developed by a third party?"  

According to Jones, some of SAP’s sales staff have interpreted indirect access to cover every third-party access. SAP wanted to charge this particular e-commerce site for every visitor whose transactions were updated on the back-end SAP system, he said.

More on software licensing

  • Forrester: Tips for software contract negotiation
  • Software license audits come in different forms, expert says
  • Rationalising software licencing in the virtual age
  • Getting to grips with software licencing
  • Check your software licence agreement for these common flaws
  • Lower your software licence fees

Jones has examples of unfair practices from all the major suppliers. "Companies have paid tens of millions of dollars to Oracle and SAP – and the software sits on the shelf and doesn’t get used.” 

Internal procurement is partially to blame, he said. “I had one client that was sold a very bad deal which ended up as shelfware." Ultimately, the money was written off, but Jones said the only solution for procurement is to admit incompetence.

Some products, such as the Hana in-memory database or virtualisation, are difficult to license. In the area of big data, Jones said: “If my data volumes double every year, my $1m Hana database could end up costing $1bn over 10 years.”

He said the nature of software sales is to blame for the apparent exploitation of customers and urged suppliers to move away from aggressive sales tactics that generate short-term revenue gains. Users need to get away from transactional negotiations and instead work at building a long-term relationship over several years.

Read more on IT supplier relationship management