I was at a CFO conference last month and had an interesting discussion with another attendee over lunch one day.
This attendee (we'll call him Jeb) is the CFO of a small firm in California. This is not his first time at being a CFO and is an intelligent, articulate gentleman who endorses an entrepreneurial spirit within his company.
The conversation started out the usual way with him asking what my firm does (Software Asset Management-SAM) and then asking a variety of questions about how SAM benefits companies. The conversation then turned towards compliance and he shared that a former company had been audited by the Business Software Alliance (BSA) right before he had gone to work for them and had been fined due to inappropriate use of software licenses. He described some of the financial and operational pain the company had experienced as a result of not being properly licensed.
Finally, the conversation turned to the financial impact of outfitting an organization with software licenses. Being a business owner myself, I could definitely commiserate with Jeb over the costs to properly outfit an organization. However; I was amazed to hear him share his viewpoint that start ups and small businesses shouldn't be expected to license every computer.
Frankly, I was blown away. Here was an intelligent, financial professional stating that companies should be allowed to break the law, steal intellectual property, and essentially mis-state their financial earnings (when you realize that they wouldn't be including a major cost to doing business...buying software).
Desperately trying to stay off of my soap box, I raised these issues with Jeb. I tried every logical argument to try to have him understand how integrally unethical his viewpoint is...I hope I at least gave him something to think about. Unfortunately, he's not alone in his viewpoint...can someone please explain to me how you can morally or ethically justify software piracy?
Weeks later and it still amazes me...
Monday, April 09, 2007
Tuesday, March 27, 2007
Software Asset Management - Past, Present and Future
While enjoying a nice bottle of wine with a friend and fellow Software Asset Management consultant last week the topic of the future came up (which I think is probably pretty common when alcohol is involved), the future of Software Asset Management.
Well, we couldn't really discuss the future without rehashing the past and disecting the current.
History of Software Asset Management: SAM has been very cyclical in its popularity over the years. In the mid to late 1980’s when desktop computers were gaining in popularity within business there was a constant eye on the cost of such technology. Volume agreements and product use rights were very different from today with the minimum entry point for a volume discount being much higher and use rights flexibility such as concurrent usage being more current. Also during this time we saw the formation of the industry watch dogs (the Software Publishers Association and the Business Software Alliance) to educate and “police” organizations in regard to copyright infringement on software. In the early 1990’s there was a strong concern for the potential fees associated with being audited on improperly licensed software causing companies to implement SAM programs. The mid-1990’s saw a dramatic shift in volume license programs and product use rights creating a need for education on these changes and their impacts on organizations. The late-1990’s saw organizations moving away from a focus on SAM as publishers and industry watchdogs became more concerned about potential litigation. While there was some increase in attention due to the concerns around the Year 2000 problem, the cost cutting requirements of the early 2000’s had the effect of eliminating many internal controls as organizations cut positions. Now, in the mid-2000’s we see an increased focus on internal controls with the various regulatory requirements, an increased aversion to risk and an increase in industry audits.
SAM Present Day: As I mentioned, we're now seeing an increased focus on internal controls and increased regulation. This is resulting in a renewed interest in SAM. For some companies that threw out their programs in the 90's with all the other cuts - that means starting from scratch. For others, it's just a brush-up to become current with new product use rights, new licensing programs and better tool options. Unfortunately for a few, it means continuing to stick their head in the sand and hope that they don't have to deal with it.
Future of Software Asset Management: OK, so I don't really have a crystal ball. I'm actually going to raise more questions than I answer...
Many that I talk to think that we will be facing more regulations and therefore SAM will continue to grow. Personally, I don't think business will continue to support that model...how regulated can private industry become (and how much money can companies spend on regulation compliance versus increasing profits) before it rebels?
Others feel that Software as a Service (SaaS) will remove a lot of the licensing demands on companies making it a pay for service commodity. While I think we've already seen an increase in SaaS (or ASP for the old school), I also think there are basic desktop applications that are going to remain being exactly that...desktop applications (OK, not sure betting against Google is a smart move...but I also don't really think they expect to win big business). Mind you, I've predicted for the past 10 years that software licensing would move to a "lease" model...but this isn't the way I expect to see us get there.
So, what does this mean for SAM? Personally, I think it means that SAM will be an ongoing part of business and just like it has for the past many years the true adoption of it will be more a basis of the maturity of an organization rather than an indication of the industry.
What do you think?
Well, we couldn't really discuss the future without rehashing the past and disecting the current.
History of Software Asset Management: SAM has been very cyclical in its popularity over the years. In the mid to late 1980’s when desktop computers were gaining in popularity within business there was a constant eye on the cost of such technology. Volume agreements and product use rights were very different from today with the minimum entry point for a volume discount being much higher and use rights flexibility such as concurrent usage being more current. Also during this time we saw the formation of the industry watch dogs (the Software Publishers Association and the Business Software Alliance) to educate and “police” organizations in regard to copyright infringement on software. In the early 1990’s there was a strong concern for the potential fees associated with being audited on improperly licensed software causing companies to implement SAM programs. The mid-1990’s saw a dramatic shift in volume license programs and product use rights creating a need for education on these changes and their impacts on organizations. The late-1990’s saw organizations moving away from a focus on SAM as publishers and industry watchdogs became more concerned about potential litigation. While there was some increase in attention due to the concerns around the Year 2000 problem, the cost cutting requirements of the early 2000’s had the effect of eliminating many internal controls as organizations cut positions. Now, in the mid-2000’s we see an increased focus on internal controls with the various regulatory requirements, an increased aversion to risk and an increase in industry audits.
SAM Present Day: As I mentioned, we're now seeing an increased focus on internal controls and increased regulation. This is resulting in a renewed interest in SAM. For some companies that threw out their programs in the 90's with all the other cuts - that means starting from scratch. For others, it's just a brush-up to become current with new product use rights, new licensing programs and better tool options. Unfortunately for a few, it means continuing to stick their head in the sand and hope that they don't have to deal with it.
Future of Software Asset Management: OK, so I don't really have a crystal ball. I'm actually going to raise more questions than I answer...
Many that I talk to think that we will be facing more regulations and therefore SAM will continue to grow. Personally, I don't think business will continue to support that model...how regulated can private industry become (and how much money can companies spend on regulation compliance versus increasing profits) before it rebels?
Others feel that Software as a Service (SaaS) will remove a lot of the licensing demands on companies making it a pay for service commodity. While I think we've already seen an increase in SaaS (or ASP for the old school), I also think there are basic desktop applications that are going to remain being exactly that...desktop applications (OK, not sure betting against Google is a smart move...but I also don't really think they expect to win big business). Mind you, I've predicted for the past 10 years that software licensing would move to a "lease" model...but this isn't the way I expect to see us get there.
So, what does this mean for SAM? Personally, I think it means that SAM will be an ongoing part of business and just like it has for the past many years the true adoption of it will be more a basis of the maturity of an organization rather than an indication of the industry.
What do you think?
Tuesday, January 09, 2007
Mergers & Aquisitions - the importance of software licensing
I got a call the other day from a former co-worker. It appears that her new company had recently spun off from it's parent and in preparing for their software upgrade they got an ugly surprise...their former parent had never bought the software they contractually "transfered" to my friend's company. About $400,000 worth of software needed to be bought.
Knowing for sure about software licensing during Mergers and Acquisitions or any other type of change of control activity is extremely important.
Divestitures
When a company splits off from a parent company there is a lot to be figured out, including who gets the software.
If the company has only purchased OEM software then the software rights transfer with the machine – however; documentation is key. The onus of ownership remains with the company using the software.
If the company purchased retail software, will this be transferred to the new company? If so, physical transfer of the licensing agreements and records needs to occur as well. It would also be wise for the new company to insist on financial records showing the initial purchase.
If the company purchased under volume agreements (non-contractual), then the publisher needs to be notified of the transfer (transfer fees may be involved) and appropriate documentation needs to be retained by both companies.
If the company purchased software through a contractual agreement then there are additional considerations. Is the contractual agreement also covering any of the former parent’s software as well? In most cases it would be. Does the contract allow for separation or transfer of licenses? Is there a license transfer fee or notifications? Will either company still be of appropriate size to qualify for the contract?
Acquisitions
The last thing a company wants to do is acquire someone else’s software licensing nightmares. Ensuring that you receive full documentation of what you are paying for when you acquire the company and its software assets is key.
Additionally, a company that is acquiring another company generally has its own software assets already under various forms of contracts (or through acquisition a company might finally be of a size to qualify for a contractual volume agreement). Maintaining separate agreements or being able to wrap multiple agreements together is one of the items to be considered. Additionally, some contracts have language in them requiring a company to wrap acquisitions into an existing contract. It is important that a company be aware of any such requirements upfront so there are no costly surprises.
Knowing for sure about software licensing during Mergers and Acquisitions or any other type of change of control activity is extremely important.
Divestitures
When a company splits off from a parent company there is a lot to be figured out, including who gets the software.
If the company has only purchased OEM software then the software rights transfer with the machine – however; documentation is key. The onus of ownership remains with the company using the software.
If the company purchased retail software, will this be transferred to the new company? If so, physical transfer of the licensing agreements and records needs to occur as well. It would also be wise for the new company to insist on financial records showing the initial purchase.
If the company purchased under volume agreements (non-contractual), then the publisher needs to be notified of the transfer (transfer fees may be involved) and appropriate documentation needs to be retained by both companies.
If the company purchased software through a contractual agreement then there are additional considerations. Is the contractual agreement also covering any of the former parent’s software as well? In most cases it would be. Does the contract allow for separation or transfer of licenses? Is there a license transfer fee or notifications? Will either company still be of appropriate size to qualify for the contract?
Acquisitions
The last thing a company wants to do is acquire someone else’s software licensing nightmares. Ensuring that you receive full documentation of what you are paying for when you acquire the company and its software assets is key.
Additionally, a company that is acquiring another company generally has its own software assets already under various forms of contracts (or through acquisition a company might finally be of a size to qualify for a contractual volume agreement). Maintaining separate agreements or being able to wrap multiple agreements together is one of the items to be considered. Additionally, some contracts have language in them requiring a company to wrap acquisitions into an existing contract. It is important that a company be aware of any such requirements upfront so there are no costly surprises.
It's also important to know your rights. It's not unusual for software publishers to limit what rights can be transfered when a company is bought or sold.
If you need to know more, contact us through our website at www.cynthiafarren.com
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