Maximizing Value in Software and Cloud Services Procurement

Executive Summary

Software license costs account for a significant portion of the typical IT budget—as much as 30 percent—and they represent a substantial cost for today’s enterprise. And, spending on cloud services is growing at a rate that is five times faster than the rest of IT. It’s up to the IT procurement teams to keep these costs in check while meeting the current and future software and infrastructure needs of the enterprise without overbuying or under buying licenses

But optimizing spend is no easy task. The procurement team has to negotiate and manage a large number of software purchase agreements - possibly in the hundreds - and with multiple publishers. The agreements include complex terms and conditions which vary widely from one publisher to another.

Virtualization and cloud complicate matters because virtual machines (VMs) can be spun up and down quickly, VMs can move from one physical host to another, and yet, the software running on each VM must be properly licensed. Along with the adoption of cloud services there is also a trend where software is moving from perpetual to subscription-based licensing, which means the procurement team must address licensing and contracts for these services far more frequently, sometimes on a monthly basis.

While achieving volume discounts remains an important goal in contract negotiation, that alone is insufficient in optimizing software and cloud services spend. Effective procurement teams must look at the big picture.

Unfortunately, in many enterprises, the procurement team lacks visibility into the deployment and usage of software. As a result, the team is forced to make decisions based on guestimates and often errs on the side of caution overbuying licenses to minimize the risk of unbudgeted software audit true-up costs and penalties related to noncompliance. For example, if IT has little visibility into the existing software inventory or entitlements, the procurement team may buy new licenses every time new requests are made for software access or new hires are brought on board. Overbuying can quickly erode the value of even the greatest discounts.

What’s more, the practice of “shadow IT” brings software and cloud services into the organization completely outside the purview and visibility of the procurement team. Shadow IT results in less than optimum purchasing as business units and individuals purchase software and cloud services directly, without regard for global enterprise agreements, volume discounts, usage data, and other enterprise-wide considerations.

With the right software license optimization solution, however, procurement can tackle these challenges in ways that minimize software and services spend while ensuring compliance with contract terms. A well-architected solution gathers a wealth of data, normalizes and analyzes that data, and presents it to the procurement team in actionable form. Armed with this information, the team can make informed decisions that help reduce software license costs and, consequently, have a positive impact on the bottom line.

The right solution also provides a means for stronger software governance and enables the organization to proactively ensure license compliance while also streamlining software and service delivery to the business.