Software License Optimization

IT evolution entering a “Software Asset Management 2.0” era

By: Laurent Clemot

You might approve or disapprove of the plan in Australia regarding National Broadband Network (NBN) development in rural regions, but one’s got to admit that the recent elections showed how ICT infrastructure has become strategic for the development of the country, in many respects.

For the individual and the business, the development of a better broadband network to lower cost areas directly translates into capital savings opportunities through the development of home offices and the relocation of city based data centres.

But above all, high speed brings more agility to the business, with new approaches to deploying and using software, and drastic hardware and operational cost reduction. Centralised application virtualisation, cloud computing, Software as a Service, ASP, etc., are not only the latest buzzwords, but a new ecosystem through which businesses become more agile, thanks to a lighter infrastructure.

With the fastest growing and most innovative Information and Communication Technology (ICT) industry (12% growth rate over the last five years), Australian organisations have been getting ready for this inevitable evolution, and preparing for new ways of consuming software. There is no Big Bang change or hasty adoption here, but more of a simple and pragmatic preparatory approach among the most prominent businesses of Australia. The seductive part of these modern offerings is the reduction or even elimination of the upfront capital expenditure: license cost, hardware cost, and administration cost.

The major obstacle though on the way to adaptation, for most decision makers, is the lack of visibility and the loss of control, as the offerings introduce subscription models based on estimated or measured usage of the software: “how do I know the cost of my future software usage if I do not even know today how much I own, and how much my business uses, and needs?” In effect, most organisations struggle today with hundreds of legacy perpetual license agreements, with complex licensing metrics and hard to decipher T&Cs, making decisions for new and more flexible models literally impossible.

Therefore, the first step leading towards business agility is to get a clear picture of what the company owns and of what the business really uses and needs today, in order to be in a position to negotiate a change in licensing and delivery models tomorrow. These projects introduce the need for renewed cooperation between IT procurement and IT operations to reconcile data until now disconnected, and to form some sort of “Software Asset Management 2.0” collaborative platform.

In 2009 and 2010, many large Australian organisations initiated application usage assessments and implemented systems to continuously measure their software consumption against their entitlements. This was probably driven by the increased number of software audits we saw during the global financial crisis, and might also reflect the need to spend more wisely. In effect, by better knowing their current application usage, these organizations were already able to make significant savings, thanks to a better alignment between their software needs and their rights to use.

But above all, they gained the insight they needed to drive their ICT strategy and become change ready. They now know their application usage and license position, their costs under the current conditions, and hence can forecast their costs (and benefits) under the conditions of more flexible offerings.

It is hard to predict how companies will adopt these new computing and software licensing models and how this will transform our IT landscape in the long run. However, it is fair to say that having clear visibility and understanding of the current license rights, software consumption and usage trends within the organisation is the path to an improved IT, that is business centric, cost effective, and ready to adapt.

Flexera Software Acquires ManageSoft

by: Randy Littleson

We are very excited to announce that Flexera Software has acquired ManageSoft (you can read the press release here).   ManageSoft is a global supplier of enterprise software management solutions that combine asset recognition and inventory, license compliance, contract management, and software/OS deployment.  ManageSoft solutions manage over 3 million devices across more than 250 enterprise customers.

The enterprise has awoken to realize that applications are one of the least well managed of all strategic corporate assets.  Corporate procurement is bringing the lessons learned from strategic solutions such as Supply Chain and Spend Management to the world of software.  Procurement is no longer just the final tactical step before a contract gets signed.  Increasingly, procurement is actively driving more and more of the business dimension of the software asset lifecycle.  Procurement focus is moving beyond a narrow focus on software price discounts to a broader strategy of optimizing enterprise-wide usage.

The bedrock of effective strategic procurement is information.  IT and Procurement executives at the leading enterprises turn to Flexera Software for a standard solution to acquire and deliver comprehensive, rich information needed to optimize software assets.  Flexera Software routinely saves our customers hundreds of thousands or millions of dollars in unneeded application usage costs, often freeing up those dollars for other needed software solutions.

A strategic solution for usage management is a “must have” for managing software spend.  For most organizations, software spend is among the least well managed spend categories – and the category most ripe for breakthrough savings – in the enterprise today.

The addition of ManageSoft’s next generation software asset management capabilities, combined with our existing solutions for engineering applications, Oracle and SAP, creates the first desktop-to-datacenter Software License Optimization solution for enterprises and governments.  A single solution to optimize application usage for Adobe, Microsoft, Oracle, SAP and other high-value applications.

Why software license optimization is a priority to senior management

by: Randy Littleson

If you enter into conversation with any successful CEO you will quickly find a person with an excellent grasp of the company’s future vision.  They will also be well versed in the makeup of the company's profit and loss statement and the revenues and expenses that contribute to them.

CEOs and senior managers relate to an IT department's costs—especially how much the IT department spends as a percentage of revenue. Most are strategic thinkers who do not want to get into the details of how a CIO is spending the company’s money. Yet, they usually have a picture of how much the company can afford for corporate services to support the revenue generating operations of the company and want to understand how that spend is changing and how that effects or benefits the business.

Astute executives want to know how the IT department in their company compares with the IT departments in similar companies. So using the IT expense as a percent of revenue figure lets them compare one IT shop to another and enables them to understand the potential benefit of any future technology investments.

For example, in a retail company, senior management will want to look at the percent of revenue figure for IT departments in other retail companies. If the technology expense in their industry sector is typically 2.5 percent to 3 percent and their IT department has a percentage much larger than that, they will need to understand why the IT department is not functioning as efficiently as others within the industry. They will also want to know what is being done to enable the company to beat the industry averages.

How Software License Optimization helps
IT costs are increasing anywhere from 3 percent – 9 percent per year (see the graph) and this is mainly due to software. This means that unless the company’s revenues are significantly increasing, unchecked software spending will drive IT as a percentage of revenue even higher.

Software License Optimization delivers two benefits in this area,
• It enables the organization to effectively use what is has, thereby limiting the requirements for an ever increasing budget
• It enables the business to understand how applications are actually being used so you can understand how effectively the investment is being used before making any future investment decisions

Example
Assume that you are the CIO of a $35 billion manufacturing company. The company spends more than $1.4 billion annually in IT (4 percent of revenue) and $420 million (about 1 percent of revenue) on software licenses and maintenance. You have been given the task to reduce this to 2.5 percent of revenue in 5 years and to make 20 percent of the budget available for new projects.

As software licenses and maintenance will account for about 30 percent of the required savings, an optimization here of 20 percent can deliver a 6 percent savings contribution to the overall IT budget and a 0.25 percent improvement on IT as a percentage of revenue.

However this is not a onetime benefit. By eliminating the initial spend you also remove the wasted spend on un-needed annual support and maintenance in subsequent years and slow the growth of the software budget by putting in place stricter controls on justifying new purchases. Over 5 years this could contribute more than half of the overall required reductions in IT spend as a percentage of revenue. It can also help in limiting the software compliance risk potentially created by the use of new hardware optimization strategies such as virtualization and cloud computing.

Application Usage has Become Strategic

Application usage has turned strategic; in the enterprise, application usage has moved from aiding the business to running the business.  The enterprise has awoken to realize that applications are one of the least well managed of all strategic corporate assets.  We now see corporate procurement getting more and more involved, and in some cases assuming leadership, as the enterprise moves beyond a narrow focus on software price discounts to a broader strategy of optimizing enterprise-wide usage.  IT and Procurement executives at the leading enterprises are seeking strategic solutions to drive these key initiatives and to deliver the information and savings they need to ensure their success. 

What is your company doing to proactively manage applications usage and spend?

Improve 2010 Forecasting and Software Budget Accuracy by Analyzing Software License Usage

By Brent Pietrzak:

Working as part of a sales and services team, I live and breathe my services forecast.  Although my goal is always to overachieve and exceed my quota, I am equally concerned with forecasting accuracy—there is nothing worse for a services professional than over-promising and under-delivering.  Likewise, procurement and finance organizations are focused on software budget accuracy and staying within a planned budget over time. For these professionals, there is nothing worse than large unplanned expenses. That’s where software license usage analysis can play a role.

As I look towards my 2010 forecast and think about the budgeting process occurring across the Flexera Software client base, I believe there is a more sophisticated and predictable way to forecast and budget for software expenditures that equally benefits software producers and enterprise consumers.  Often, the key to figuring out how much additional software should be purchased is understanding how much software is in use today.

Analyzing software license usage and having a complete understanding of software usage over time benefits enterprise customers in many ways, including:

• Identifying shelfware and avoiding additional unnecessary purchases (decreased maintenance spend)
• Avoiding license shortages (decreased productivity and unanticipated spend)
• Standardizing on the most popular software titles in a given genre (reduced complexity and cost due to standardization)

Likewise, software producers experience the following benefits from a software usage analysis within their respective client bases:

• Identifying additional software titles of potential interest to a client based on usage (increased revenue)
• Replacing unused titles or modules with titles or modules that add value (improved customer satisfaction)
• Mapping of used vs. unused features (improved resource allocation and additional competitive advantage)

During the past year, I have worked with a number of sophisticated enterprise companies that are utilizing software usage analysis as a purchasing strategy.  Relative to their peers, these companies are doing a superior job of purchasing the software they truly need to run their business, rather than making educated guesses at how much additional software to purchase. 

Software publishers are benefitting from working with these companies because these companies are buying equivalent or greater amounts of software than forecast—the need is driven by use.  Additionally, these enterprises are happy customers who often look to make additional purchases from the software vendor because the perception of shelfware is eliminated or reduced.  Additionally, the relationship between software vendor and enterprise is further improved because the perceived and real benefits received from maintenance dollars spent is enhanced.

In the following video, I address the benefits of transparency and usage for software producers and enterprises.

So, as I look to develop my 2010 forecast, I am excited about working with clients who are embracing the concept of usage analysis.  I know these customers will be purchasing the software and services they truly need based on realistic budgets and I can accurately forecast the revenue that will service their needs.

What are you doing to improve your software budgeting accuracy in 2010? Are you currently analyzing the usage of your software assets?