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Software Licensing Strategies
Butler Group, Pages: 232
It is no exaggeration to describe computer software as the lifeblood of todays business and commerce. It is also the largest category of capital spend in the US, ahead of other categories such as industrial equipment and transportation equipment. Software technology has become embedded in almost every aspect of business today. Whether business is being conducted purely electronically, for example an on-line store, or along more traditional lines, such as a transportation company or a local authority, somewhere in the current processes there will be crucial software components keeping the organisation operating effectively and in control of its operations. Although some may argue whether the business world has gained the required amount of productivity and benefit from application systems, few organisations would be able to operate effectively today without these systems.
Software is a unique product, in that it is not a commodity in the same way as, for example, books and CDs are. It is an intangible asset with multiple distribution mechanisms. The perceived value of a software product is wide ranging, initially based on its price but in the end based upon the use and benefits that customers get from it. After the sobering effects of the economic downturn on the IT industry, the outlook is now somewhat brighter, and both vendors and customers are looking for wins. Whereas because it is their business, vendors are smarter than their customers when it comes to software licensing, customers now have the opportunity to correct this imbalance and regain their influence. Vendors will be looking to beef up their prices, but buyers will be seeking value for money and Return On Investment (ROI) more than at any previous time in the IT industrys history. In our opinion, the strategy of buyers should be to retain flexibility, reduce costs and increase the value of their software by gaining greater functionality.
Increasingly, organisations should be looking for opportunities to match their licensing strategies more closely to their business models, further aligning IT with the organisations overall objectives and strategy. They need to be considering options such as pay-per-use licences, term licences, shared ‘risk and reward methods, and hosted software services. In order to connect licensing costs to business performance, they need to look for methods of sharing the pain, as well as sharing the gain. New technologies will also aid the emergence of new licensing models to closely align customer benefits to software costs. Subscription-type licensing models promise the vendor a continuing relationship with the customer, making it more likely that additional business will be forthcoming, and the customer should experience a level of commitment from the vendor.
Unless customers have the facts, they cannot negotiate from a position of strength. They also need to have the details of licensing agreements available for the checking of vendor charges, as they should not assume that vendor back-office systems can cope with all contract terms that may be agreed. There is also the matter of compliance with the increasing focus on stamping out software piracy and regulatory pressures for better IT governance. It is believed that to support these two areas of compliance and negotiation, organisations should utilise a Software Asset Management (SAM) solution. Organisations without a SAM solution should conduct an immediate audit of the licences that they hold and the software that they use.
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