Strategic License Management: Maximizing the Return on Your Software Investment

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  • 1. W H I T E PA P E R Strategic License Management Maximizing the Return on Your Software Investment

2. STRATEGIC LICENSE MANAGEMENTStrategic License ManagementMaximizing the Return on Your Software InvestmentIntroduction To help IT managers navigate through the software licensingManaging software effectively means treating it as a maze, Flexera Software is offering this guide to the businesshigh-value business asset. Managing software assets canand IT communities. It includes a five-step implementationbe difficult to manage for two primary reasons the plan and management tool selection criteria designed toincreasing complexity of licensing and the lack of adequatehelp managers maximize the value of their software assets.software asset management tools. With an effective license management strategy in place, managers will be able to:According to IDC, 33% of software customers in medium Increase productivity through global license sharing/and large companies now manage more than 70 softwarepooling 1contracts. Managing multiple software contracts requires Optimize IT spending with usage-based purchasingconstant negotiations as different licenses require renewal at Simplify license administration by centralizingdifferent times.licensing operationsThere are a variety of software acquisition methods andPitfalls of Software Mismanagementlicense types which differ from vendor to vendor and evenEnsuring applications will install and run predictably ondepartment to department. These include software pre-Managing software assets effectively means minimizingloaded on computers, software downloaded via the Internet, costs while providing sufficient capacity and flexibilityvolume purchases made directly from publishers or throughto meet business requirements. While most managersresellers and hosted applications. understand how to manage physical assets, 67% of companies polled noted that they do not track theirFurther complicating matters, licensing may also include software usage.4 Few know how to manage softwaremulti-user software with enterprise, transaction, processor, licenses as business assetsdespite the fact that they mayconcurrent user or named user constraints. Given these be responsible fortracking millions of dollars worth ofoptions and variables, its no wonder that 70% of customerssoftware products.surveyed by IDC say the complexity of managing software2contracts has increased in the past year.Because IT managers lack visibility into actual software usage, they frequently overestimate or underestimate theirUntil recently, effective software asset management toolssoftware needs in their efforts to balance cost control andthat streamline management and prevent misuse have end user productivity. These mistakes can significantlynot been available. The resulting lack of visibility intoimpact the profitability of the entire enterprise, as thehow, when and by whom software is being used causesfollowing scenarios show.enterprises to over-license some applications and under-license others.Excess licenses (shelfware). To ensure that users have access to all the software they need, IT managers routinelyFaced with ongoing budget constraints, corporationsbuy more licenses than their organizations actually require.increasingly recognize the value of software asset This eliminates denial-of-service problems, as in situationsmanagement. According to IDC, companies spend $140 where a user tries to access a license to a particularbillion on software each year, and 65% of software application but is denied access because other userscustomers surveyed state that it is likely they will start have already checked out available licenses. But it alsocollecting more accurate usage data to help guide purchase increases software costs and lowers corporate profitsnot 3decisions in the next year.an acceptable outcome for most businesses.1 IDC Future of Licensing Study, 2004.2 Software Licensing, The Recognition of Value, IDC, May 2004.3 IDC Future of Licensing Study, 2004.4 Ibid.2 3. STRATEGIC LICENSE MANAGEMENTInsufficient licenses. To contain software costs, managersmay purchase too few licenses. This often results in denialof service when end-users need access to applications. Need SmarterBudgets TightPurchasingAlthough this approach cuts software expenses up front,it can create productivity problems that cause delays anderode profitability, as is the case when a product arriveslate to market. Again, this is not a good outcome formost businesses.Excessive No VisibilityExcess and insufficient licenses. Sometimes a softwareCosts & PoorInto Softwareapplication is over-licensed by one department and under-ProductivityUsagelicensed by another within the same organization. Sharinglicenses would save costs and promote productivity, but mostmanagers have only a limited, local view of their softwareToo Many/ Too Fewassets, making it difficult to identifylet alone resolve Licensesthese kinds of allocation issues.Figure 2. Inefficiencies driven by poor visibility into softwareusage.The key to avoiding these and other costly errors is astrategic license management solution that providescomprehensive information about the organizations actual33% license usage. Butler Group recommends the use of softwareasset management tools to centralize licensing operations,leverage usage statistics to track the number of licensesan organization holds, and determine the effectiveness of567%software.Implementing Strategic License Management:A 5-Step MethodologyThe two main components of strategic license managementare 1) license sharing and 2) usage-based purchasing. Track License UsageSimply put, these measures allow enterprises to purchase Do Not Track License Usage and pool software licenses in a way that correspondsexactly with their usage needs. No more money wasted onFigure 1. The majority of software customers do not track shelfware, no more productivity lost from denial-of-servicelicense usage.delays. With strategic license management, organizationsSource: IDC Future of Software Licensing Study, 2004obtain the maximum return from their software investmentsby optimizing every dollar spent on software-related costs.Using Strategic License Management to OptimizeExpenses and Increase ProductivityFollowing is a 5-step methodology for implementingMost IT managers currently make software purchase and strategic license management that illustrates the value ofrenewal decisions by relying on whatever local usagelicense sharing and usage-based purchasing across theinformation they have available. They allocate currententerprise. At each step, unnecessary spending is reduced,licenses and guesstimate the number and type of licensesunder-utilized licenses are redeployed, and end-userthey will need in the future on this basis. This approach may productivity is enhanced.sound reasonable, but in real-world terms it is fundamentallyflawed. Without a global view of their licensing operations Step 1: Centralize All Licensing Operationsand actual usage data to base decisions on, they frequently Decentralized licensing, a common feature of todays ITmiscalculate their licensing needs. As a result, they commitlandscape, makes it difficult to see how, when and wherecostly errors by buying too many or too few licenses, which licenses are being used. This lack of visibility can result inperpetuates the self-defeating cycle illustrated in Figure 2. too many or too few licenses purchased (see Figures 3 and4). It also has the unfortunate side effect of forcing multipleadministrators to become licensing experts, resulting instaff redundancies and operational inefficiencies.5 Pressure Forces Flexible Software Licences, by Arif Mohamed and Steve Hill,August 4, 2003. 3 4. STRATEGIC LICENSE MANAGEMENTDistributed retailing offers an analogy regarding theCentralization also enables proactive management andproblems of decentralized software licensing. Some large usage alerts that notify administrators of potential problemschains found that, in decentralizing operations to regionalbefore they affect end-users and customers. Resolvingwarehouses, it was necessary to maximize stock to make issues early helps ensure ongoing productivity and lowersure that there was enough merchandise on hand to satisfyadministrative costs.demand. But demand for products wasnt equal in all areas.This resulted in overstocking certain items in one region, Lastly, centralization makes much better use of valuable ITwhile under-stocking the same items in another.staff resources. Instead of managing licenses locally with multiple licensing experts, IT departments can now designateRetailers solved this problem by consolidating and one administrator to manage all servers and licenses globallycentralizing warehouses. Using the retail experience using a streamlined, web-based interface. This frees senior ITas a guide, centralizing software licenses means thatstaff to focus on more mission-critical tasks.headquarters and satellite facilities can pool their licensesso that enough are available at all timesparticularly Step 2: Leverage Accurate Usage Statisticsduring periods of peak activitywithout buying moreManaging user demand and optimizing software costslicenses than are actually needed. require absolutely accurate usage data. Relying on data that is accurate only within 4% to 5% can result in costlyBy centralizing their licensing operations, IT managersmistakes. Consider an organization with 4000 licenses,and administrators gain a single console view that allowseach costing $5,000. A 5% error in peak usage datathem to manage and maintain licenses and servers acrosstranslates to over $1 million of unnecessary costs.the global enterprise. This in turn allows them to inventorycurrent software assets to see (a) which licenses areBut how do you get accurate usage data? Some softwareavailable and (b) when they will expire. Under-utilizedasset management tools do not monitor the use of licenseslicenses can be re-deployed or shared among departments, or specific modules, but monitor only when users installeliminating shelfware and unnecessary purchases whilesoftware on their desktops. Users cant check in a licenseboosting end-user productivity throughout the organization.when they are done with the application, which forces their companies to buy excess licenses. These sub-optimal license monitoring packages present this information as a crude approximation of license use. This, however, is a grossly inaccurate usage estimate of anything but the most basic software licenses. For example, this approach does not accurately report on bundles of software sold as software suites. Managers should therefore avoid using this rudimentary approach to software asset management. Few people will debate the accuracy and completeness of software asset management data when it matches the software vendors license management results. Armed withFigure 3. Decentralized licensing requires extra inventory and can insight into how many and what type of licenses they willresult in excess licenses and denial-of-service delays.need in the future, IT managers can base their purchase and renewal decisions on accurate data derived from historical usage over time instead of using best estimates. Step 3: Analyze Usage Reports By segmenting and analyzing usage data by project or user group, managers can gain granular insight into their organizations actual software usage. This enables them to address key issues such as: Reducing Spending on Unnecessary Software Purchases. Many organizations routinely pay periodic software update and support fees without reviewing how many users are still using the associated products. Eliminating or reducing update and support costs for unnecessary, unused, or under-utilizedFigure 4. Centralization enables license sharing, eliminating software is a painless way to reduce software costs.shelfware and unnecessary purchases while boosting productivity.4 5. STRATEGIC LICENSE MANAGEMENTOrganizations can also recover value from shelfware andother software they no longer need. Vendors often sell softwarelicenses at significant discounts if the licenses are purchased asUnder-Licensedpart of a competitive upgrade. There is no better software totrade in than software your organization isnt using. Total licenses neededTotal licenses purchasedTotal licenses purchasedUsage Over-LicensedTotal licenses used UsageTime Figure 6. Monitoring usage for peak demand ensures end-user productivity. when users refuse to exit applications not in use because Time theyre afraid they will be denied service the next time they try to access the application.Figure 5. Overlicensing results when license usage falls below thenumber of licenses purchased.Optimizing Software Renewals and Remixes. Managers can also analyze usage data to help determine softwareManaging Peak Demand. The best way for managers to renewals and remixes. Many organizations automaticallydetermine how many and what kinds of software licenses topurchase new updates or stay on annual maintenancepurchase is to define their peak demand periods. A goodcontracts for all their software licenses. However, theoperational definition of peak demand is any time 90% of number of licenses they actually use may have declinedavailable software licenses for a given product are beingsignificantly. Making incorrect assumptions about usageused. For example, if an organization has 10 licenses, peakcan be a costly mistake. In fact, its been estimated thatdemand occurs when only one or none is available.some IT departments spend 10-20% of their budgets on software updates and maintenance they dont even need.By understanding the usage patterns that emerge relative Accurate data on actual usage, however, gives managersto time of day, week or month, IT managers can determine the information they need to negotiate successfullyaverage duration of usage and decide whether to allowwith software vendors, and get the most value fromdenial of service, and, if so, for how long. For example,their software.a denial of service that lasts only a few minutes may beacceptable because it significantly reduces licensing costs. In addition, a robust reporting system that provides usageA denial of service that lasts more than an hour, however, data over time can help managers verify whether shifts inmay be unacceptable due to its adverse impact on users usage trends are permanent or just upturns and downturnsor customers. In both cases, analyzing usage data gives IT in the business cycle. This allows them to optimally remixmanagers a choice in whether they manage peak demand (i.e., redistribute the mix of) software offered by a vendor.by allowing or denying service, and provides the granular, For example, a product design project may require one setuser-level and department-level information they need to of software tools to build a conceptual model, another setmake usage-based purchasing decisions. to build a prototype, an...