Understanding application usage is the key to software license optimization

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Ray Wang

Our most recent industry expert interview was with Ray Wang, Partner – Enterprise Strategy at Altimeter Group, a research-based advisory firm that helps companies and industries leverage disruption to their advantage.  As Partner – Enterprise Strategy, Ray focuses on bridging the gap between today’s enterprise landscape with an emerging class of enterprise business solutions adopting the spirit of social technologies and Enterprise 2.0 concepts.  Research topic areas often include ERP, CRM, Project Based Solutions, Order Management, Master Data Management, and SaaS. Ray is the author of the popular enterprise software blog “A Software Insider’s Point of View.”

Flexera: Many companies are either looking at entering into or are already in an enterprise software license agreement.  What are your thoughts on whether or not this is the appropriate route to take?

Ray Wang: Enterprise software license agreements make sense if you understand your business models.  The key thing is for customers to understand the cost of a true up and the future price of additional licenses and maintenance.
Flexera: With the increased focus on saving money throughout the organization, do you think that there will be more focus put into the understanding of actual software usage rather than just the counting of software installations and licenses?

Ray Wang: Yes. The cost of shelf-ware is the biggest issue today.  Many organizations find out they only have utilized less than half of the software licenses they have purchased.  Paying 20 to 25% a year on maintenance for software not deployed snowballs into significant hidden costs.  Many times this wipes out the software license discount costs in just the first year alone.  Shelf-ware should be eliminated by asking to pay for maintenance on deployment, parking licenses, or returning licenses.
Flexera: What would you recommend for those that are nearing the end of their Unlimited License Agreement and struggling with the decision of what to do next?

Ray Wang: First thing, figure out actual usage.  Second thing, determine if there are any alternatives.  Third thing, identify leverage points.  Fourth, determine if the vendor can evolve into a strategic partner.
Flexera: Today, many companies and ISVs would like to move to a pay-per-use model.  What would you say are the advantages or disadvantages of this type of model?

Ray Wang: Pay per use models make sense when there is a direct correlation with the utilization of the software and the impact on revenue and costs.  Ultimately all comparisons come down to total cost per user per month.  You have to optimize for your business model.
Flexera: Cloud computing and SaaS open the debate on how software should be licensed.  How are you finding organizations handling this?

Ray Wang: We tell organizations who are negotiating large contracts to treat this as important as a on-premises contract.  We also recommend they look at the Customer Bill of Rights - SaaS report we put together.