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KPMG Survey on Unlicensed Software Losses Confirms Findings of a Series of Reports This Year

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A few weeks ago, KPMG announced the results of KPMGits 2013 study Is Unlicensed Software Hurting Your Bottom Line? which analyzed responses from 31 software companies representing more than 50% of the revenue in the software industry. Of the executives who responded, 52% – the same number as in the previous survey in 2007 – said their companies’ revenue losses due to unlicensed software amounted to 10% or more.KPMG’s findings are hardly new. After all, non-compliance is a huge concern for software companies’ customers as well. Compare the results of Gartner’s survey on the exploding costs of IT asset management and BSA’s survey on the impact of properly licensed software. These studies confirm what we’ve known for quite a while now – that the failure to adequately manage software assets continues to burden purchasers of enterprise software with increased risk and unnecessary costs.

The primary causes of license infringements, as detailed in these and other recent reports, are not at all surprising: Complex and difficult-to-understand metrics, followed closely by virtualized environments, that are difficult to track and report on.

Why is compliance so complex? Licensing models are difficult to understand, in part because they’re a constantly moving target: they keep evolving as vendors’ technology and business models evolve. Even IT departments that are making a concerted effort to remain compliant have a hard time keeping up. Which raises the question: Could vendors stem the losses from inadequate compliance and actually generate more revenue if they devoted more attention to simplifying licensing terms?

Today’s multi-vendor corporate environments typically involve a mixture of on-premise, cloud and/or virtualized environments that together make software asset management even more complex. As numerous surveys have consistently demonstrated, there’s a strong correlation between complex licensing practices and non-compliance. These practices are also likely to ensnare companies in a vicious cycle of over-purchasing, which creates yet another drain on businesses.

Vendors have not exactly been quick to align their licensing strategies with companies’ needs, but there are signs that they have begun to realize that simpler licensing models may be in their own interest. The growing trend of subscription-based models that shift some or part of the compliance burden to the vendor – as in Adobe’s Creative Cloud offering, for example – is certainly promising. Will the “simple is better” approach of Adobe and others prevail?

Whatever the answer to that question, it’s clear that today’s licensing practices are inadequate and need to change. Organizations are best served by pursuing a two concurrent strategies, one aimed at nudging vendors toward a more cooperative approach during the purchasing process, the other aimed at optimizing internal license management systems and procedures. With respect to vendors, Cynthia Farren, software licensing consultant at Cynthia Farren Consulting and author/editor of the Software Asset Management Blog, recommends that you:

  • Ask for compliance training and clarification of licensing rules, but make sure you’re getting it from someone in a licensing and compliance role – not a sales person. For example, with a Microsoft agreement your team will have a Licensing Specialist or Licensing Manager on the team…that is who you want educating you on the agreement and licensing rules. But, even in this case make sure they are backing up what they tell you with written information that you can point to later in case of question.
  • Negotiate the fine print within your software contract. For example, your vendor may be flexible about licensing with respect to use cases such as development/testing or training, the circumstances of contract termination, how compliance is “measured,” and the terms surrounding how/when audits are conducted. For more on this, see Cynthia’s blog post on negotiating the fine print of your vendor license agreements.

Within your own organization and IT environment:

  • Know your software license agreements inside and out. Without a firm understanding of your EULAs and the ability to interpret them in your unique environment, you have a high probability of drifting out of compliance.
  • Conduct periodic internal software audits so you can monitor your license position. To do this you need to a reputable SAM tool that shows you not only where you’re not compliant, but also identifies underused licenses so you can reallocate them to other users or re-negotiate license terms that reflect actual usage.
  • Establish (and enforce) consistent and bullet-proof software purchasing, installation, and usage policies. Not only will this help employees understand the what’s expected of them and why, but in the event of an unfavorable audit outcome, your software vendor will likely go easier on you if they see your organization has been making a good faith effort to prevent piracy.
  • Enlist executive-level support for ongoing investments in SAM to ensure it can deliver on the most comprehensive range of potential benefits. This includes working with executive teams to promote the financial and risk-mitigation benefits of software license optimization.

In the end, software compliance will continue to be a complicated dance between licensor and licensee until all software vendors take meaningful steps to simplify their licensing models. But by adopting a cooperative strategy with your vendor while at the same time maximizing the potential of SAM across your organization, you will see the risks associated with non-compliance diminish – and the positive impacts to your bottom line increase.