Fewer than one-third of user organisations polled in a recent licensing survey said that they are satisfied with their vendor's pricing and licensing strategy. This is despite more than two-thirds of independent software respondents saying that they had changed their pricing and/or licensing policies in the past two years, with the majority changing to improve customer relationships.
In August and September, licensing management tools company Macrovision, the Software and Information Industry Association and the Centralized Electronic Licensing User Group surveyed 232 senior IT executives from user organisations and 252 software vendors.
The report, which was released on Monday at SoftSummit 2005 in Santa Clara, found that 53 percent of enterprises strongly favor the concurrent-user licensing model – in which products are licensed based on how many users access the software simultaneously – and that preference has grown 11 percent over last year.
In terms of pricing, the report notes that vendors are "moving aggressively towards subscription-based licensing models" in which users pay for licensing with a recurring fee, as the number of vendors offering this method increased 7 percent to 40 percent over the past year and is expected to increase to 60 percent in 2007. The report suggests that while the majority of enterprises prefer to purchase software through perpetual licensing, they seem to be softening their resistance to subscription pricing, with 43 percent now preferring that method, an increase of 7 percent on 2004.
The four CIOs (chief information officers) who participated in a user panel at SoftSummit, which was attended by ISVs and software makers, echoed the survey's findings, saying that they too liked the concurrent-user licensing method. Sateesh Lele, a former CIO for General Motors Europe, FritoLay, PepsiCo and Avon Products, and now chairman of Global Data Systems, said that he found concurrent-user licensing easier to administer. "I'm open to other [licensing models] if only I pay for what I use," he said.
Brian Sommer, CEO at tech-consulting company TechVentive and a former director at Accenture who helped CXOs negotiate licensing deals, urged ISVs to recognize that one licensing-size does not fit all. "You have to ask what has changed for the customer. Do you have justification for jacking up the price – that's the kind of stuff that pushes people to come to us. Why do [vendors] have to go and [anger] customers and encourage customer churn?"
In her keynote address at the show, Nora Denzel, senior vice president of HP Adaptive Enterprise, said government regulations are prompting organisations to ensure they are compliant with vendors' software licenses. "It used to be a cat-and-mouse game; now customers want to be in compliance rather than [vendors using] strong-arm tactics," she says.
Being in compliance with vendors' software licensing agreements is a requirement of Sarbanes-Oxley, said Dan Griffith, a manager at Freescale Semiconductor, a former Motorola subsidiary. Griffith is a manager of Freescale's Comprehensive Software Asset Management team, which is responsible for distributing EDA (electronic design automation) software licences to all Freescale design centers worldwide from central licence servers in the US. He said among the requirements is the ability to confirm that organisations have licences for the software, that the software is installed, is being used, and is being used effectively. He says centralising software licences has enabled the company to better ensure regulatory compliance. "If software is managed by dispersed groups they'd all need to be aware of the terms," he said.
Griffith said single-site sharing of EDA software has enabled Freescale to reduce software costs by 20 percent in the US, and by 35 percent worldwide.
Despite regulatory requirements to track license compliance, the survey found that 72 percent of organisations either manually track licence compliance or don't track it at all. "Since manual methods tend to be error-ridden and non-scalable in large enterprises, a large number of enterprises are likely to be out of compliance with their vendors," the report says.
And being out of compliance with vendors could lead to a knock on the door by vendors' auditors. Although none of the CIOs on the user panel said they have been directly audited, two said they had anticipated audits and were able to address the situation rather than be met with a surprise visit.
At one organisation where he was CIO, Lele said he discovered that the difference between the number of Microsoft software licences the company had and the number that was actually being used was off by 75 percent. "We negotiated with Microsoft and they charged us 25 percent of the delta," Lele said.
Robert Urwiler, CIO and senior vice president of customer care at Macromedia, said: "I've been threatened by audits. What I don't like is when vendors say, 'I'm positive you're out of compliance. They can send us the nasty-grams, but we're never going to go out of our way to do business with them, ever."
Urwiler added that the biggest risk of being out of compliance is having to report it to the board of directors.