License Management Trends

Whilst at IAITAM I had the opportunity for a brief chat with Eliot Arlo Colon, President at Miro Consulting, Inc.

With over 400 clients on retainers assisting clients with license management and 10 years negotiating/re-negotiating Oracle and Microsoft contracts, Miro knows a thing or two about license compliance.

I asked Eliot about trends in license management. We discussed outsourcing or co-managing agreements. You can’t outsource the responsibility for licensing but how about outsourcing the burden? How about the consulting company taking a hit if the client gets stung by a compliance audit but also reaping the rewards?

Q. you can’t outsource responsibility for licensing – but what do you say to the offering of split of savings?

Miro says:

A contingency model where a consulting advisor gets paid a percentage of how much is saved on a licensing deal is the best model for consulting firms as they could make millions; but it’s not a great model for the clients. Here’s why – if a consulting firm is tasked to find as much savings as possible and its payment is tied into that exercise, the firm is only seeking the short-term savings – which is extremely easy to find – but the likelihood is that the consultants are not giving advice based on the long-term health of the IT organization.

Of the hundreds and hundreds of scenarios that we have reviewed, saving clients money is the easiest job we do. If we were true capitalists we’d go with the contingency model – taking a cut (usually 30%-40%) of the shared savings Miro could show to clients for the first year. While this model would give Miro significant short-term profits and our clients could show an initial 30% savings almost right off the bat, it’s a short-sighted model where everyone gets quick results and seemingly awesome savings for the first year, but long-term pain after the first year is up and the reality of being over or under-licensed again rears its ugly head. By then, you’re company will lose the initial year’s savings because it has to look towards repurchasing some of its licenses at current, more expensive pricing, On top of that, the company has lost its older and very likely more beneficial terms of usage because a contingency-model consulting came and started cutting licensing costs without thought to year 2, 3 or 4.

Eliot Arlo Colon

A flat fee or retainer-based model is the most beneficial to the client. With set goals and scope of work, your consultancy can build a relationship with you and it’s in their best interest to do what’s in the best interest for the client – even if it means telling them that it’s best to save only half-a-million dollars this year instead of a million – as the long-term benefits outweigh the short-term.

We always present options to clients as each option has pros and cons. For example, if we present two different options, option A may save the client $1M dollars in year one, but it gives you the least protection and flexibility. While option B gives you significantly less savings – about 50% less – but the licensing is protected potentially by increasing the value, flexibility and scalability of the licensing and/or vastly improving the terms and conditions of the software agreement.

Q. We seem to have a real shortage of case studies or people willing to admit their mistakes regarding compliance and license management – why do you think that is?

When it comes to non-compliance – who is accountable? Is it the contract person that signed the contract? Is it the CFO who paid the cheque? Is it the CIO who required the software to support the business? When technology solves a problem many hands are raised to take acknowledgement for the success. But when it comes to maintaining compliance or talking about blunders in negotiations that have come back to haunt them later – you don’t usually find people who step up and say – Yep. I learned from this lesson, I’ve made my organisation better – mainly because no one took accountability for it in the first place. There was an error and it was on my watch.

Another way of learning from the past without pointing fingers is to ask different questions: If you had to review that contract again what would you have done differently? The perception here is that people answering this question are sharing their knowledge and experience, while not having to admit to the mistake or costing the company money. Asking the question this way usually gets an honest answer.

The most common areas that people talk about paying more attention to are:

1. Worldwide usage rights
2. The definition of a user; and
3. Buying discount scales.

When you get that initial answer, you can drill down and find out the crux of the problem. Most licensing issues are typically a simple oversight with nine out of 10 times being an assumption of usage rights.

Q. What is the biggest blocker to your success?

The major roadblock we encounter is usually from the company decision makers that believe everything is fine and they have the internal resources and expertise to cope with Oracle and Microsoft licensing issues. Ironically, more often than not, we get callbacks from these same decision makers when the vendor audits them. I would say that some licensing and procurement – Adobe, Microsoft Office suite, etc. – can be easily understood and handled by an administrator, a procurement officer or even an IT asset manager, but when you’re dealing with Oracle, the complexity is just beyond most internal IT staff unless you have a person or group following the changes in licensing AND has had experience with what Oracle finds historically acceptable or not when it comes to contract negotiations. Microsoft enterprise solutions are not far behind Oracle’s in terms of complexity. Even Steve Ballmer admitted that the licensing will become more complex in the years to come.

From our view, the lack of understanding of how to deal with Oracle and Microsoft licensing stems from the many internal IT folks making assumptions on usage rights and not taking into account or understanding the various scenarios (and their pros and cons).

Q. What trends do you see for software vendor concerning licensing?

I see three major trends that started a couple of years ago and will continue to build over the next few years:

1. Enterprise software licensing will continue to be increasingly complex. Oracle’s licensing has always been incredibly complex, but it’s also the only major software vendor that has an internal team dedicated to licensing rules, what they mean and how they should be interpreted. While Microsoft’s licensing continues to be complex, the company just doesn’t have the same emphasis around helping clients to interpret the changing Terms & Conditions or any area that might be considered “gray.” That being said, the Business Software Alliance is the external special interest organization that enforces any licensing non-compliance or piracy.
2. There most certainly will be an increase in audits across all software vendors as they seek to protect their intellectual property. With the number of mergers and acquisitions within the various industries as well as the acquisitions by the major software vendors – such as with Oracle and Sun – it shouldn’t be a major stretch to say that there will be more compliance assurance audits by vendors.
3. A bevy of software asset management tools are out there – from embedding tracking tags to self assessment tools to good old Excel spreadsheets – and my prediction is that the vast majority of these “tools” will become shelfware sooner rather than later (or at least until the software vendors acquire the right tool and integrate it into their own offering). We really are in the first/second generation of these SAM tools and there are a number of gaps such as – actual usage measured against contractual terms and conditions; deep knowledge of software vendor compliance; an ability to update licensing changes and to ferret out the nuances. While the idea of an SAM tool as an initial method to jumpstart your SAM program, internal audit or as the first step to understanding your contract negotiation process, it’s not the “end all, be all” solution and is only the initial step. While the SAM tools won’t disappear, I believe many of the companies putting out enterprise software specific tools will likely not have the energy, resources or wherewithal to go the distance and will the tools will languish and naturally die off. Those that persist will likely make a grab for the “big prize” and be acquired by the major software vendors. Those that will succeed will – surprisingly – be the generic SAM tools that is more open-source and allows companies to integrate it into their existing ITAM structure.

Eliot Arlo Colon is President at Miro Consulting, Inc.