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Knowledge Is King for Software Licensing Negotiations

Walker White

Negotiating software licensing is not a task most CIOs and IT organizations are anxious to undertake. The process is time-consuming and burdened with uncertainty about exact usage, requirements and entitlements. Of course, there is also always the fear and risk an audit may follow and perhaps fines levied by a software vendor. The cost of software licensing, coupled with the resources necessary to maintain the systems to meet the software needs of an enterprise, account for the lion's share of an IT organizations' overall budget. A lack of visibility into systems and control issues results in many IT organizations unknowingly overspending on software and vulnerable to meeting compliance standards.

Because today's business climate dictates IT budgets that are tighter than they have ever been before, it's no surprise CIOs are looking for creative ways to cut costs. One such way is to end the trend of overspending for unnecessary and unused software licenses. The CIO needs to buckle down and work at limiting risks associated withinfringing licensing agreements, which could put the organization on the hook for unauthorized software distribution. Without transparency into IT environments, CIOs haven't had the tools and insight at their fingertips to make the optimal decisions for their organizations. According to a recent Forrester report, "software licensing and pricing will continue to be marred by complexity, especially as maintenance costs and a lack of flexibility continue to grow."1 This makes CIOs' jobs even more difficult to accomplish, as they try to keep costs and risks under control while staying aligned with business goals and objectives.

This article discusses ways a CIO can arm himself with accurate, timely information, so IT organizations can work at reducing software spending and mitigate the risk of software vendor audits in an industry where the vendor landscape and pricing models continue to evolve.

Essentials for a Successful License Negotiation

For a successful software license negotiation, the following questions need to be addressed and pondered: what are you entitled to; where exactly are the assets deployed and where are they being used; and what are the business requirements? This may seem overly simplistic, but many companies struggle to gather this data and in a timely manner. Having this knowledge and insight and ensuring the data collection process is flexible to meet future requirements as license models continue to evolve is essential.

Typically procurement teams are responsible for gathering information about existing entitlements. This is not a trivial task by any means, particularly if different departmental groups have undertaken purchases, or if an IT organization has experienced a merger or acquisition, for example. Information on existing entitlements should always exist in a procurement system with the applicable data populating an asset management system.

Industry analyst firm Gartner has observed that "clients that go into a software negotiation prepared with good asset management information will buy more optimally."2 However, most companies have incomplete and outdated information in the procurement system with the rest stored in the original form as a paper document in a dusty old file cabinet. Unfortunately, there is no quick solution to close the gap in the procurement and asset management systems without the manual work required to pore over the agreements and enter them into the system. Usually large companies will close that gap contract by contract as they near the end of the agreement.

Reliable and Relevant Information: A Must-Have for Success

Knowing where enterprise assets are deployed or being used is especially challenging with mergers, acquisitions, and departmental purchases and deployments. The purchasing organization may not know of each and every purchase, much less where and how those licenses are deployed. Information on where the software licenses are deployed can be extremely useful in a software negotiation as some vendors offer site licenses and other pricing options related to geographical distribution.

Information on the number of software licenses deployed by location is just not sufficient today as software-licensing models continue to evolve. Some vendors charge for an upgrade to a new license or the pricing may differ by platform. Therefore, information on the number of deployed licenses by version and platform will need to be collected. In addition, improvements through new technology have been counter-balanced by new licensing models that diminish gains that might have been obtained using this new technology. For example, two recent changes in licensing models were both precipitated by new technology that improved the overall output of a server -- CPU cores and virtualization. Licensing models were modified to take into consideration the number of cores on a server and counted the number of deployed licenses by virtual machines, not by physical servers. These unanticipated changes in licensing models make it difficult for manual inventories to collect all the information needed for future requirements. Automated tools that collect relevant information and are flexible to future requirements are now essential for all software negotiations and maintaining compliance.

The physical attributes of the IT environment and where the assets are deployed are not the only factors that are pertinent to a license negotiation, as vendor information is also a very key piece of data. Mergers and acquisitions in the software industry are common today and can change the vendor landscape for most companies. For example, an answer provided for "Where are Oracle's products deployed?,"can change dramatically six months down the road as Oracle's portfolio of products expand to include software from two new acquired vendors. Software vendors that merge or acquire other vendors more than likely want to renegotiate licensing terms. This is beneficial to a customer if the customer owns products from both vendors, as volume discounts and lower combined maintenance agreements can be negotiated. Vendors can also cut support for existing products when releasing a new product, something that may not have been known to the customer or may not fit within the customer's timeframe, requiring the negotiation of special support contracts.

Considering Sources of Information

Having the right information undoubtedly gives more control and leverage in any software negotiation situation. There are endless sources of data to support these negotiations; however, no one source holds all the right information, and even as a whole, the data from these existing systems is incomplete and insufficient.

Asset Management Systems: These systems normally do not do proper discovery and inventory analysis, and rely on other systems to feed in the data necessary to determine where and how the assets are being deployed and used.

Configuration Management Database (CMDB): A CMDB also relies on other sources of data. The major CMDB vendors offer a suite of products including discovery tools that will populate the CMDB. These discovery tools do discover deployed software assets. However, vendor information remains relatively weak, requiring the gap to be addressed through other means. These CMDB vendors also support a federated data model and can take data feeds from multiple sources. The primary function of a CMDB is to manage configuration of IT assets for operational purposes. Therefore, the information is not represented in a way to support data analysis for software license negotiations. Some of the CMDB vendors have acquired IT asset management systems to close the gap, but their sweet spot remains in operational management of data centers.

Configuration and Patch Management Systems: The majority of configuration and patch management systems are agent-based and have been difficult to deploy, as they require access to a privileged account, which raises some security concerns. These systems often give an incomplete view as software needs to be installed and maintained on every asset, which does not always occur.

These automated systems and methods also bring a lot of manual overhead given these systems often serve a different primary function, and the data is usually not structured to support a license negotiation.

Currently, most companies tend to cobble together information from various sources, augmenting it with manual inventory and prodigious amounts of data manipulation in Excel. The manual effort itself can take several months to gather and cleanse all the pertinent information, and the data is left at risk of being obsolete once it has been completed. Therefore, the more the process is automated, the less time and manual overhead is needed.

Automated Discovery and Inventory Management Tools

Fortunately, today's market brings new discovery and Computer Inventory management tools that are faster to innovate and have closed the information gap on data collected from existing tools.3 These new tools offer point solutions to address various initiatives including the support of software license negotiations and compliance. The technology is easy to deploy, as it is agent-less, and significant investment has been made in the ability to bring in relevant vendor information to avoid the time consuming and error prone data aggregation and manipulation in Excel. With these new discovery and inventory tools, the information can be analyzed by many dimensions including location and vendor, as well as by version and platforms that are in or out of support by the vendor.

In a software negotiating situation, it's essential the negotiation team be armed with data from a few key, yet reliable sources, such as a strong discovery tool and the relevant license information. The negotiation team can then compare their facts to the vendor's facts and identify where inconsistencies lie in the data sets. The simple fact that the customer even has hard data already provides the customer with an advantage in the negotiation, since vendors generally rely on a complete lack of knowledge and information on the customer's part to extract significantly more revenues.

Conclusion

Whether companies choose to piece together various sources of information augmented with manual work or invest in a new solution that addresses the information deficit for software negotiations, the most important aspect still remains reliable and relevant information that can be accessed by all parties involved. Armed with this information, the negotiation team can make the best decisions possible about what they need and understand the true costs of different licensing agreements offered by the vendor. They can also better determine whether a site license makes sense or would be unnecessary spending, and evaluate the potential benefits of bundling or other volume purchase agreements. This information can trim spending on licensing and support. It is important that the data remains up to date for current software negotiations and that the data collection process is flexible to accommodate future requirements. Software license negotiations and remaining compliant is an ongoing process that requires streamlined best practices and the right technology.

References

1. R. "Ray" Wang and Elisse Gaynor, "Trends 2008: Applications Licensing and Pricing", Forrester, January 23, 2008.
2. Frances O'Brien, "Software Asset Management is a Prerequisite to Good Software Procurement," Gartner, March 2007.
3. Patricia Adams, "What You Need to Know about Inventory Tools for IT Asset Management," Gartner, August 2007.


About the Author

As vice president of technology for BDNA, Walker White is responsible for working closely with customers to improve efficiency in their IT environment. Previously, White spent 12 years with Oracle as vice president of Applications Technology, chief technologist of Oracle Service Industries, in addition to other technical management positions. White is a regular speaker at commercial, government and educational information technology forums and is a graduate of University of California, San Diego, with a B.S. in Computer Engineering.

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