Software License & Asset Management (SLAM) 2012 – Increase in Compliance Audits by Major Software Vendors & Opportunity for Outsourcing Vendors

Analysts at Gartner & Forrester predict Software License Compliance Audits by Software Vendors will increase in 2012 with significant revenue targets. There has been an increase in such audits since 2008 and major Software vendors have set up exclusive audit teams internally and taking help of external consultants for conducting software audits in the client/non client organizations to check whether customers are complying with their contracts and paying for what they’re using. Businesses spend significant amounts of money on the software licenses and software like ERP, OS, productivity software, etc are vital for day to day operations. Software is often bought by the centralized procurement teams who buy the necessary software after evaluating them based on the Organization IT policy. Common types of software licenses are User (access for limited users), Enterprise (unlimited within enterprise), concurrent (simultaneous users limit), CPU/Processor based, device based, etc. Software licenses are complex and entitlement information is not easy to understand. Large organizations have thousands of employees spread across the globe and have of millions dollars worth of software licenses. Software licenses have to be managed efficiently which otherwise lead to rise in costs & penalties due to non compliance or breach.

Drastic rise in number of Software License Audits  

According to Gartner Report titled “The Software Vendors That Are Auditing Now and What to Do About It” in 2011 65% of 228 respondents reported being audited by at least one software vendor in the past 12 months which is significant rise when compared to 61% of 144 respondents reported being audited in 2010 and the percentages were 54% in 2009 and 30-35% in 2008. The reason for such a drastic rise in the software audits can be attributed to the Global Financial Crisis in 2008 which affected the revenues and profitability of major software vendors. Major software vendors started using the software license audits and subsequent revenues generated through non compliance by the clients as a way to bridge the revenue gaps. The top five vendors in terms of numbers of audits were: IBM, Adobe, Microsoft, Oracle and SAP who are also looking for significant ROI from audit teams and providing their total support. Audits not only lead to revenues but also help vendors to safeguard their IPR and proper usage by clients. Most of the major software vendors conducted the license audits intended to increase the revenues. (Chart: E&Y SAM Survey)

Other reasons include protection of the Intellectual Property Rights, as Software vendors invested million of dollars in developing the software and they should protect from piracy, misuse, etc, make sure that clients are using the required number of licenses as agreed and not breaching the license terms. Software vendors as part of their internal compliance should also monitor the clients usage, educate the clients about the importance of the software asset management, cost savings that can be attained due to efficient software license management and issues when breached the license terms like penalties, legal issues etc and use the audits to check customer satisfaction, software improvements and updates, etc. Software Vendors are targeting such clients, who have inconsistencies in purchasing patterns; poor license compliance history, size & growth of businesses in various geographical locations, and during M&A. Vendors are keeping close eye on their clients businesses and are collecting the necessary intelligence regularly. There are many tools available for vendors that help them to track the unauthorized use of software, pirated software and vendors have come across instances where customers have over used which led to million of dollars of fines and also some customers were found using  pirated versions of the software. Software Vendors are working with software asset management tool suppliers to guide & support customers.

Reasons for Client’s Software Non Compliance

Reasons for non compliance range from lack of proper tools for the management & end users to track the software licenses, usage and lack of understanding about non compliance of software license terms. Software licenses have complicated terms and conditions which are very difficult to understand and the types of licenses and the various terms for each type vary so much that it is not easy to understand them and experts are needed to understand the license terms. Another reason is managements often overlook and depend on the IT department on the purchase and maintenance of software but managements has to actively involve and keep track of the software license usage as non compliance penalties run into millions and hurt the company reputation. Some of the Software that businesses use is very costly costing million of dollars and their purchase also involves the hardware up gradation and users in the company have to be informed about the licensing terms and make sure they understand the risks. Software licenses and assets have to be valued during due diligence at the time of M&A and businesses have to be very careful in terms of software assets. Businesses often unintentionally non comply the software license terms and most of them do not have tools and expertise to conduct the software audits and are not serious about audits until the software vendors ask for a audit. (Chart Source: E&Y Software Asset Management (SAM) Survey)

Positive aspect of Software Audits

Software Compliance audits are tedious and both the vendors and clients have to invest resources like time, people and money for conducting such audits. Non compliance may lead to penalties in millions of dollars, legal battles, reputation damages and problems in vendor client relationships. Software audits are costly as it involves buying new tools and technologies, recruiting people or engaging expert third party consultants and also involves IT management time & focus. But there are positive aspects of the software compliance audits like cost savings both direct & indirect in terms of buying additional software or using efficiently existing software, audit is a good practice that provides control on the internal software buying and usage that leads to reduction in non compliance and risk of vendors asking for audits and also helps in preparing in advance so as to face the software vendor audits confidently. Many organizations have framed a formal Software Asset Management policy, bought tools, technologies and have recruited Software Asset Managers and also took help from third party consultants. Most of the large businesses are maintaining a database of all the software within the organization and inventory is constantly updated for effective use.

Software License Asset Management – Opportunity for Outsourcing Vendors

Simply buying a tool, formulating SAM policy and employing Software Asser Manager/experts will not be sufficient; SLAM is a complex process that involves creating a comprehensive database, inventory of all the licenses, verifying each and every license, documenting the license terms, rights, etc, track usage in terms of installations, number of licenses and also safe guard all the relevant documentations in central repository which is easily accessible to all the relevant stake holders. The database has to be constantly updated and should be integrated with the procurement and purchasing teams so as to check the availability internally before purchasing and software license can be easily transferred to the required user without delay as the new software purchases have to go through complex approval process at various levels from IT to finance. The tools generate data about the software being used with in the organizations but relevant reports have to be developed from the data and use it effectively in decision making. SLAM can be outsourced to IT/BPO Vendors.

Outsourcing vendors can support the clients in SLAM by playing a pivotal role in updating the software database, managing software inventory, manage license documents repository, checking the availability in the present inventory, generating savings by reducing the spend on buying software licenses, generating weekly and monthly reports regarding the software licenses, identifying the over usage and informing the procurement and IT teams before the vendor audits and help them renegotiate the licenses. Employees in the client’s organizations have to be made part of the process in terms of the software they are using and making sure they report the usage and understand the license terms. Outsourcing Vendors can play a major role in educating the Client’s employees in terms of the risks both financial and legal involved in SLAM. Software Asset managers also use the support of the outsourcing vendors in the Vendor Audits and face the audits effectively without any problems, conduct internal audits to know the present usage status and outsourcing vendor resources are low cost and have domain expertise in the SLAM process which helps in decoding the complex Software license terms and agreements and make sure that the breaches do not occur. SLAM is one of the areas of revenue growth for Outsourcing Vendors in 2012.