In large enterprises, purchasing and administering software has never been more difficult. Unlike chairs or stationery, software contracts and licenses come in a variety of forms. At one end of the spectrum, small software vendors typically use simple licenses and pricing. At the other end of spectrum, many large enterprise software vendors use complex contracts to define multi-million dollar deals.
License complexity per se is not the only challenge. In recent years, a growing number of software vendors have engaged in audits, enforcement actions and other activities that cause anxiety and large bills for IT departments in the Fortune 500 and beyond. Several options are available to manage software contract compliance including legal advice, specialized consulting and technology. Major IT buyers and vendor managers tend to use a combination of these approaches to reduce risk.
The dollars and cents of software contract compliance
Failing a software license audit is far from a hypothetical problem. According to Flexera, a software asset management company, software “license true ups” (i.e. paying for the gap between what a company uses and their license) regularly clears the $1 million mark.
- Cost Reduction Opportunities. The British government reduced IT spending by $124 million U.S. (£85 million) by renegotiating contracts in 2014-2015. Software license reviews can be triggered by the user and deliver cost reductions.
- Oracle in the News. A July 2015 report in Fortune states that Oracle sales staffs are being incentivized to sell certain products aggressively. Related reports of aggressive software audits and license reviews have meant large, unexpected bills for Oracle customers.
- The Unused Software Opportunity. A survey of 300 IT decision makers by 1E found that 28 percent of software in the enterprise has gone unused in the past 90 days. This suggests an opportunity to scale back software especially for vendors that use a “per seat”/per user license model.
Managing software licenses is comparable to managing an investment portfolio. Underperforming assets that play no clear role are candidates for elimination. There is no reason to wait for a determined software audit representative to review an organization’s portfolio. Instead, leading companies regularly review their IT portfolios to make optimization decisions on their own.
Get legal advice before you respond to a software audit
With multi-million dollar contracts and penalties on the line, calling in legal experts is often a smart move. Julie Machal-Fulk, partner at Scott and Scott LLP – a technology focused law firm in Southlake, Texas — has served a number of clients in software contract and audit matters. Assisting IBM’s customers facing audits and similar challenges has been a recent area of focus.
“I have seen cases where IBM is seeking millions of dollars in fees. Fortunately, I have seen negotiated settlements between IBM and their end customers that reduce those amounts,” Machal-Fulk says. “Monitoring tools provided by software publishers are sometimes required in order to receive discounts. However, installing and operating this software is difficult. In those cases, the vendor finds out that the customer has not used the tool. This discovery leads to a discussion about paying additional fees. It is difficult for users to fulfill these requirements even when they wish to do so,” she says.
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