The pressure on IT departments is unrelenting. Reduce spending! Increase efficiency! Enhance value! ASAP!!! Meanwhile, the rapid growth of cloud computing, multicore processing and mobile devices is creating a breakneck pace of change in the IT industry that includes quickly evolving software licensing models and cost scenarios. This can make cost containment especially challenging, but all this change actually represents multiple opportunities for optimizing your IT software costs. Here are five tips for keeping your software costs from rising while enhancing value and efficiency.
Tip 1: Analyze and understand all your software licensing agreement (SLA) options. Look beyond those sexy “enterprise agreements,” seductive discounts, all-you-can-eat SLAs and/or long-term agreements that invariably fail to anticipate your three-year and five-year needs. Make sure someone on your negotiating team understands how to structure SLAs tailored to your needs, not the software vendor’s.
Example: Non-discount concessions are often a treasure trove of hidden value. Take retail companies, which typically experience predictable seasonal ebbs and flows. Why contract and pay for 300 perpetual licenses based on peak demand when 100 would do for most of the year? Much better to negotiate a flexible SLA that grants temporary license uplifts for specified busy periods.
Tip 2: Leverage SLA rebalancing and compliance to your advantage. In our experience, most enterprises are in a position to secure the same or better Terms & Conditions (T&C) from their current SLAs while lowering the cost of annual support substantially.
Example: A media and marketing company negotiated a license swap directly with its software vendor to upgrade existing SLAs and add new licensing due to expansion. The swap would cost about $100,000 for licensing, an additional $50,000 for support, and $250,000 in fees for a total of $400,000 – $100,000 less than the $500,000 option of all-new licensing. But there was still a great deal of value left on the table. The company could negotiate a partial swap that traded out less valuable and/or unused software, which saved an additional $200,000. While this is a non-traditional license negotiation tactic, it served as a method to rebalance the company’s existing licenses, add new licensing and create greater long-term value.
Tip 3: Leverage the multicore processor technology in your server base to reduce your SLA costs. It’s true that the changes in multicore licensing counts can have a serious ripple effect on your company’s budget, increasing licensing costs by 25 to 100 percent, or even more. However, savvy SLA negotiators know that multicore can also become a source of major savings in licensing costs and bring a bigger “bang for the buck” as well as added value to any purchased licenses. How?
Example: Any Oracle products licensed by actuals in processor or universal power unit metrics or licensed by minimums in concurrent device, named user, named user single server, named user multi server and named user plus would be impacted by a move from single core to multicore processors. Oracle utilizes an additional multiplying factor, i.e. - 0.75 for RISC based processors, 0.50 for Intel processors, and 0.25 for Sun UltraSPARC T1 processors, when calculating license requirements for servers with multicore processors. The result is typically servers that require up to half as much Oracle licensing with the same or better performance, delivering bigger “bang for the buck” as well as added value to any purchased licenses.
Tip 4: Pay attention to support and renewals. Like magazine subscriptions and gym memberships, most software contracts include an automatic renewal in the annual maintenance and support T&C section. If you are not fully aware of renewal timing and conditions, budgeting becomes difficult, to say the least! It may make sense to try to co-terminate your support agreements. Don’t change the identification that is initially attached to them, because that has other impacts on what you may do with that license eventually; for example, terminate it. On the other hand, you can co-term the license without changing the support identification.
Example: Within Oracle agreements, support renewals may contain their own T&Cs that could undermine or actually devalue some of the hard-won T&Cs that were negotiated originally. It’s important that these support renewals and the support costs are factored into the T&Cs going forward, especially during the procurement process. These T&Cs should also be intensely scrutinized during support renewals. The issue most companies face is the attitude that this is the same-old purchasing exercise for support renewal year-to-year when, in fact, keeping the same old terms may actually be devaluing that big investment you made.
Tip 5: Third-party software support might not save as much as you think. If you’re enjoying the 50 percent savings offered by many third-party software support companies, congratulations! Whether you actually pay more in the long run depends on various circumstances. For instance, if your company is growing, merging or upgrading hardware, the need to remain in licensing and regulatory compliance may lead you right back to the original vendor’s software update and license support (SULS) contract, along with hefty reinstatement fees of up to 150%. The same applies if you must have access to software updates. The cost of vendor SULS may be aggravating, but you simply cannot replace their value with a third-party option because they don’t have legal access to source codes or support information.
Exceptions: If upgrades are not important and software deployment is basically set for several years at the organization, then third-party support may be a good option for servicing minor bugs in the system. Third-party support can also add value as an augmentation to vendor support. For instance, some vendor-designated partners can provide long-term engagements for hosting, outsourced database administration, and performance tuning as well as one-time or short-term events, such as migrations, upgrades and/or temporary or emergency staff augmentation.
These five tips are a good start, but they’re just the “tips” of the iceberg when it comes to optimizing your software costs, efficiency and value.
About Scott Rosenberg: Scott is CEO and Founder of Miro Consulting Inc., known for helping customers analyze and negotiate enterprise agreements with the major publishers such as Oracle and Microsoft.