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Innovative Software Licensing Drives a Need for Management and Optimization

By Tara Seals, TMCnet Contributor

A move to subscription and usage-based software licensing is opening up greater flexibility and financial freedom compared to the old, pay-upfront model. But, businesses should also be aware that this new paradigm also creates fresh levels of complexity.

Put simply, innovation in licensing schemes has paved the way for IT departments to create a best-of-breed software "estate" for their organizations, which includes a wide array of applications using a variety of software licensing models. Those models include:

• Subscription Licensing: Buyers can rent their software over a contract period, rather than purchasing the license outright; the hosted, or software as a service (SaaS (News - Alert)) model falls under this heading.
• Usage Based Licensing: Buyers can "pay as you go" based on consumption, and ppay only for what they need and use.
• Client/User: Software is purchases by the number of seats.
• Capacity/Infrastructure: Software is purchased according to the size of the server on which the software resides, and the cost scales as needs grow—a boon for smaller shops.
• Concurrent/Floating User: Software is purchased based on the number of users allowed to access the system at the same time.
• Company Metrics: Software is purchased according to company size, number of employees, number of transactions processed, revenue or number of locations. Here, too, costs scales with growth.
• Freemium Licensing: Employees are given access to a free version of software with limited functionality, with the option to upgrade to a paid, premium version with more functionality if necessary.  It offers a try-before-you-buy benefit.

According to Vincent Smyth, general manager of EMEA for Flexera Software, the sheer number of options and types of purchasing models necessitates a good management strategy to avoid over-paying or under-utilizing what the company has contracted for.

“Software license optimization has emerged as the most reliable type of solution to help organizations manage their complex software estate,” he said in a recent column. “[It] provides organizations with the ability to maximize software use while minimizing spend. Those organizations remain in compliance with their software license agreements, while avoiding overbuying.”

Ideally, an optimization solution should be able to slice and dice relevant data about one’s software estate, so that up-to-date information about license usage and license compliance is available for any and all vendors at any given point in time. Also, it should be what Smyth calls “data-center inclusive,” rather than requiring specialized teams to manage it.

Also, he stressed that optimization efforts should be spend-management focused.

“Software license optimization addresses not only the need to understand and maintain software license compliance, efficiently addressing or eliminating software audits, but also enables organizations to understand and optimize the spending that takes place on software licenses and associated maintenance plans,” he explained. “An optimized license position is one that fully leverages license entitlements, such as vendor-specific product use rights to minimize license consumption. Detailed application usage data collection and analysis can also be used to optimize licenses to reduce spend, as in the case for SAP (News - Alert) named user licenses.”

This includes trend analysis and reporting for budgeting and estimating the financial impact of changes to the IT environment given a variety of future options.

“The democratization of software licensing models means organizations have great flexibility to pay for this critical asset in a way that makes business sense for them,” Smyth said. “But if they don't effectively manage and optimize those licenses, trouble will not be far away.”