Software Contracts - in a Pandemic led Recession

OK, so I am not a financial expert - but if our current world-wide pandemic (COVID-19) does not put us officially into a recession then I will be extremely surprised.

Frankly, I think we are already there - experts are debating.  I'll leave it to them to figure out and in the meantime speak to you about your software contracts and what to think about them in a recession.

As we all know, the US was in a recession just a few short years ago and it was a doozy!  But at that time many companies still had not made the transition to subscription based licensing for most of their business productivity software.

Think about your companies software contracts today - Adobe, Microsoft, Autodesk, Oracle and others on your productivity software are probably all heavily subscription based today.  On your infrastructure/platform software they are also probably heavily "hosted" or subscription based.

Why is this point important in a recession?  Old licensing models were perpetual licenses with maintenance. In most circumstances you could continue using the software regardless of whether or not you maintained the maintenance. So in a recession, if you could get out of the maintenance contract you were arguably still in business. If you are tasked with saving money on software costs your options are more limited in a subscription world.

Subscription licensing models is a pay as you go model.  While that is useful in moving costs to the expense line rather than amortizing it also means you must continue paying or you can no longer use the software.  Your software vendors are now in the drivers seat (although here is a very interesting read on the financial impact of this for software companies by Gavin Baker which I thoroughly enjoyed and you might,too).

So, here are some keys to consider:

• Are your subscription users going to be reduced?
• Inventory your existing contracts to know specific clauses and dates:
• Many multi-year software contracts have an option to reduce subscriptions on an annual basis as long as you do it by the prescribed deadline. 
• Some also have an option for reduction based upon a reduction in force.
• When are your contract expiring for those that do not have a built in reduction option?
• How will this impact your hosted infrastructure/platform needs? Make sure you are aware of those contract terms and dates as well.
• If your user base is not expected to be reduced, will you be asked to cut costs regardless?
• Look for the fat in your current contracts.
• Identify critical vs nice to have suites
• Ensure you are leveraging your legacy licensing benefits when available in your hosted environments.
• Those software audits that have slowed down over the past 2-3 years, expect them to gear back up in different fashions:
• Microsoft - do not be surprised for a server focused "assessment"
• Adobe and Autodesk - I expect to see them come back around to see who still has old on-premise software that is not covered under the existing subscriptions.
• Micro Focus - remember all that software they picked up in the deal with HP Enterprises? They have already been an active auditor, expect that to continue or pickup.

We know the pandemic is hitting us hard, but we cannot afford to be so distracted by life or death news (she says, sadly and somewhat sarcastically) that we get caught by surprise by the longer term economic impact we will all be facing.  If you need a refresher just go back to my blogs from 2007-2010 such as this one.

While each turn is unique, there are aspects that are the same...with over 21 years in the Software Asset Management business Cynthia Farren Consulting can help. Reach out to schedule a conversation with me to discuss a game plan for your organization.

Stay safe and stay well...

Software Asset Management in the Cloud World

Eons ago I was a panel speaker at the SAM Summit and the question came up about the future of Software Asset Management in a SaaS (Cloud) world.  One of the other panel members scoffed and said we'd all be out of jobs...my answer was the opposite - that the role would be just as important the only thing that would change is the data that we needed to review.  I'm guessing that was easily 8-10 years ago.

Well, we're in a heavily Cloud (SaaS, IaaS, PaaS, etc) world and I'm happy to see I was fairly accurate but with some different nuances that I had not necessarily anticipated. While I have always joked that I am the accountant of the IT world, in many ways today it is reality (fortunately for me I like numbers in all their forms).

For example, think of your Microsoft environment (always one of my favorites as it is so pervasive).  If you have an Microsoft Enterprise Agreement and are actively using Microsoft Office 365 then you have probably seen the impact of un-managed Active Directory accounts.  In the old world of on premise usage, User accounts were determined by the number of humans using your Microsoft infrastructure (although far too many organizations incorrectly thought this was just the number of employees at the company) but in the online subscription world you realize that it is every account needing to function as a human (not resource accounts, but in this world you can easily find your smart conference rooms suddenly requiring User licenses).  Likewise users who are on Leave of Absence (LOA) are typically now consuming licenses so that their data and settings are preserved for when they can return to work - something that was not required to consume a license in the on-premise environment. Typically in our clients we see this to be about a 10% uptick over old on-premise days.

Now, that is in a closely managed environment where we are appropriately identifying types of accounts and auditing to ensure that numbers correctly correspond to headcount and contractors and that discrepancies can be explained based upon business need.  In an loosely managed environment we have seen over 30% of overages when we audit their accounts. 

The effect of loosely managed usage can destroy IT budgets. Unlike the old on-premise model, it is easy for Cloud solutions to grow unchecked as Brian Kirsch notes in his article "Avoid runaway costs to keep a cloud budget in check".

In a 10,000 user organization we recently found 3,784 accounts that should have been Resource accounts but were incorrectly identified as User accounts. Since their User Account monthly fee was $39.73/user/month that was a $1.8m/year waste of money.  You cannot go back and get that money back as it is not Microsoft's fault, and if you are mid-year (and assuming you correct it and report it in the appropriate time window so that it does not carry forward to the following year) you still need to pay for it through the end of that anniversary year (although in this case we are still in discussions with Microsoft to see if we can change that since there was some Microsoft involvement in the setup of the environment, I am hopeful).

Microsoft is just one of the many vendors where we have gone to subscription based licensing - the same applies to Adobe, Autodesk, JetBrains, the list goes on and on.  The need to re-harvest licenses and manage entitlements through proper processes, tools and people has not changed in the over 20 years I have had my business - all that has changed is where we go to get the data and that the licensing rules that apply will continually evolve.  But the need for a proper Software Asset Management program remains - we just may need to come up with a new title...