Tuesday’s Tip: Dealing With Pesky Software Licensing Audits

Published on April 19, 2011 by R "Ray" Wang

Organizations Report Increase In Software Licensing Audits

Across the board, the largest complaints about software vendors and their business practices have come from increasingly aggressive software auditing practices.  Once thought to be a small possibility, the software vendors now wield this big stick to drive up sales and of course ensure compliance.  Given the 32 percentage gain since Q1 2008 in the percentage of respondents faced with a software audits, procurement managers, CIOs, and CEOs have paid attention (see Figure 1).   Even the recent Gartner report from star analyst Jane Disbrow et al. shows that 61% of their customers have been audited by at least one software vendor.

Figure 1.  Software Vendors Ramp Up Software Audits

Software Licensing Audits Masquerade As Sales Tactics In Disguise

Is this shocking?  Should customers be concerned?    Given the relatively strong compliance rates in the high 80’s, customers should be livid that vendors are willing to jeopardize a relationship to shake down for cash (see Figure 2.).  Here are some key reasons for the audit:

  • Check for compliance
  • Identify installed base competitors
  • Drive incremental license sales
  • Prospect for up-sell/cross-sell

After speaking with 13 major software vendors, most admitted that software audit served two purposes.  The first – keep customers in compliance.  The second – shaking the bushes for new deals during the recession.

Figure 2.  Most Organizations Were In Compliance Post Software Audit


The Bottom Line: Be Prepared Or Pay Up

To avoid the loss in time and significant agony of participating in a software licensing audit, customers should do the following:

  • Keep good records and centralize contracts. Put all our contracts in one place.  Keep historical records.  Track changes in contract language. Don’t forget to include merged and acquired entities.
  • Deploy software license management tools to proactively monitor usage. Track your license usage and shelfware.  Use software license management tools to automate the process.  Advanced users can provision, deploy, manage, and retire licenses with automated tools.
  • Include auditing rights provisions in contracts. Secure written notification of an audit at least 60 days in advance.  Ask for a project plan and timeline that lists what the audit activities will include.   Seek a list of products to be audited. Agree on a noncompliance resolution process.  Keep the process nonpunitive for noncompliance between 5 to 10% of total licenses.
  • Avoid the upsell and aggressive software sales tactics. As for the right to choose an independent third party to conduct the audit.   Customers should have freedom from sales threats of audits as a negotiation tool.  Guarantee protection from future audits for at least 24 months if noncompliance remains less than 5 to 15%.

Your POV.

Experiencing an upgrade?  How has the experience been? Was your vendor cordial? Was it a sales shakedown or was it sincere?  Add your comments to the blog or reach me via email: R (at) ConstellationRG (dot) com or R (at) SoftwareInsider (dot) com.

How can we assist?

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Please let us know if you need help with your next gen apps strategy efforts. Here’s how we can help:

  • Providing contract negotiations and software licensing support
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20091012 Research Report: Customer Bill of Rights – Software-as-a Service

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Reprints

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Disclosure

Although we work closely with many mega software vendors, we want you to trust us. For the full disclosure policy, stay tuned for the full client list on the Constellation Research website.

Copyright © 2011 R Wang and Insider Associates, LLC All rights reserved.

  • Krista

    Software licensing solutions are great additional tools in contract negotiations. anyone else want to add to this?

    R

  • Software by its nature is constantly evolving, that is why, the more expensive and complex systems and applications become, the more benefit an organization gains from implementing a software asset management solution to keep up and deliver the right mix of technology to support the company’s business goals.

    Accurate metering and usage reports can enable IT managers to negotiate with their service providers/software vendors, so they can adjust contracts to match the documented usage of their software licenses by using pay-per-use agreements.

    Use the software usage reports to renegotiate software contracts. Take advantage of contract renewals and apply for additional incentives. Revisit those contracts that charge a fixed enterprise fee, and see if the provider can charge based on actual usage instead.

  • Clive – We see most contracts being too complicated for this b/c of the number of license types. License management tools will play a role for more complicated environments. What do others think? – Ray

  • Vendors can shift Audit to Service by providing usefulness:

    1.Diagnostic analytics on the database.
    2.Matching versions between clients and server. 3.Watching latency spoiling productivity.

  • not specifically tracking audits – although do talk to lots of sw companies about piracy – some of them listed in the Gartner report. From my view – in general sw companies prefer to avoid audits unless there is enough proof that the abuse is systemic and intentional (so they usually like a whistleblower). Lots of post sale “true up” activity has its root cause in confusion regarding current state. SAM not really solving the problem – or only solving part of the problem.
    I think that this is another way that cloud software provides an advantage over traditional sw that is still not being full realized. Other thoughts over on http://www.licensinglive.com

  • Chris – Thanks for the kind words. What are you seeing in your market? – Ray

  • Other tips would be:

    Have your own audit consultant.
    There are plenty of “poachers turned game keeper” out there who have worked for the audit companies and will prepare you.

    Start gathering your Agreements now!
    In addition to having an accurate inventory of what is deployed you also need to know what the entitlement is.

    Focus on the expensive stuff (servers)
    The 90/10 rule applies to license management. Your biggest costs are server side so focus there.

    Use Time
    Don’t be afraid to drag things out if you need time. So long as you are engaging with the vendor you are OK. It also encourages them to do a deal. Remember audit=sale

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