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SaaS and the Cloud Remove Complexities and Penalties Associated with Traditional Software Licensing

By Laura Stotler, TMCnet Contributing Editor

Software licensing is a tricky business and can create massive headaches for businesses of all sizes. Most license agreements feature a complex mix of technology and accounting jargon and even skilled IT and accounting departments working closely together can miss important fine print. And a small mistake can result in costly penalties that impact an entire organization.

According to an InformationWeek Software Licensing Survey last year, more than one third of organizations had been audited for software licensing infringements within the past two years. The research also showed that larger companies may expect to pay out hundreds of thousands to millions of dollars if they fail to comply with licensing agreements.

And the news gets even worse, since most audits find some sort of infringement. A report from IDC (News - Alert) in tandem with software license optimization company Flexera found that companies with around $50 in annual revenues could expect to pay $263,000 in penalties. For larger companies in the $4 billion revenue range, the penalty went up to $1.6 million on average. That’s a pretty significant pay out for what could be an honest mistake or oversight when it comes to software license compliance.

Fortunately, there is a better option than scrutinizing the fine print and hoping for the best when it comes to traditional software licensing agreements. The cloud computing and SaaS (News - Alert) delivery models make traditional software licensing obsolete, freeing companies from having to stress out about compliance with complicated and often archaic agreements.

The SaaS delivery model clarifies the number of seats and usage rights a company receives right up front, as part of the subscription package. If you want to scale up or down to accommodate fluctuating workflows, you simply change your subscription. Fees are paid out as a regular operating expense, which is easy to budget for throughout the year. And organizations don’t need to worry about software upgrades, management and maintenance and what it will all cost or if it is being handled under the current software licensing agreement. All of that is taken care of by a service provider with all parameters being very clear and upfront.

Organizations are steadily migrating toward cloud and SaaS solutions for a number of applications for their cost savings, functionality and flexibility. Removing complicated software licensing from the equation and replacing it with a straightforward subscription-based pricing and licensing model is yet another advantage for the cloud, and could save an organizations millions of dollars in penalties in the long run.