Content Type: Article

Why You’re Overspending on Software Licenses

Overspending on software licenses is a common problem many companies are confronted with. In fact, it is suspected that 93% of companies possess software environments that consist of up to 20-40% of unused or unnecessary products.

This is not a tiny sum considering many companies put millions of dollars into their software budget every year. But what is the root cause of this problem? And how can you proactively strive to avoid such a costly predicament?

At MetrixData 360, we’ve helped our clients save millions of dollars on their software licensing just by simply cutting away the excess they didn’t need. After reviewing so many of our client’s profiles, we’ve noticed a few commonalities. So, let’s take a look at what causes this bloom of unused licenses and how you stop its spread.

What Is Shelfware and Why Should You Be Worried?

Shelfware is a rather informal term in the tech industry that describes software or hardware that you have purchased but are not using. There are many reasons why this shelfware might manifest in your company:

When your company houses significant amounts of shelfware, you run the following risks:

Common Causes for Shelfware

Upfront Payments

This is a common tactic that the software vendors use — they often offer a greater discount with larger upfront purchases in order to obtain those enterprise-level deals.

This makes sense when you consider their motivations. Their goal is to ensure you are perpetually increasing your spending with them and to make their year-end quotas, so it will not make much of a difference to them if you end up making effective use of the software.

On your side of the table, you are optimistic that you’ll be able to use the extra licenses for something, if not now, later. Besides, it will be worth it regardless because you will have a better discount, right?

However, the result is a massive and growing stockpile of shelfware. It’s important that your discount is not your only goal during a contract negotiation. Instead, focus more on your company’s future growth and the exact amount of licenses you will need.

Compliance Satisfaction

Software audits are known to get messy. What usually happens is that the software vendors will send in their auditors. The auditors, who may very well have been paid based on the size of compliance gaps they can find, review your software environment and produce an inaccurately large compliance gap based on making conservative assumptions.

Since they assume the worst-case scenario and if you didn’t have a strong defense to counter them, then you likely had to settle the negotiation phase. This will be done by buying the number of software licenses you were told you owed, which turned out to be far from reality.

Since your compliance gap is overinflated, you have to overbuy on licenses just to satisfy the vendor and to bring the tedious audit to an end. This leaves you with far more licenses than you actually have a use for.

Having a strong software audit defense will give you the tools you need to prevent this fate. Imagine only paying for what you owe during an audit.  It’s possible, and if you’d like to figure out how you can get started on building out your rock-solid audit defense, you can check out our software audit defense page.

Licensing Metric

Every company is slightly different in the way their software environment is run and how it can most effectively be licensed. Certain licensing metrics, therefore, can prove more expensive for certain companies than others.

For instance, let’s say you are licensing a product using a per-user metric.The system that will be hosting the product is accessed by nearly everyone in your organization, despite the fact that only 20% of your employees will need to use the product.

In order to be completely compliant, you will need to find a solid way to prove that only certain employees are using the product without having to buy a license for everyone. It all depends on how your unique software environment is configured and it is important to take into consideration the multiple licensing metrics that your vendor offers.

Losing Track of Assets

One of the root causes of shelfware is not having a clear picture of what you have and what you need.

Many companies purchase based on what they have purchased in the past or based on an educated guess (we have 1,000 employees, therefore let’s get 1,000 licenses, done!). This type of oversimplified estimation puts you at risk of guessing too high or too low, both of which can prove costly and unnecessary.
Having a clear picture of your software environment will help to prevent shelfware through reharvesting old licenses and avoiding the purchase of unneeded new licenses. This is an area where Software Asset Management (SAM) can prove highly advantageous since SAM will give you a clear picture of everything you have in your software environment and based off of that, everything you need to purchase.

You can also use SAM to create a value gap.  An organization is made up of all kinds of employees, and each employee needs a different type of technology in order to get their work done. Some employees sit behind a desk all day, working on five monitors with the best technology at their fingertips while other employees spend their days on their feet sharing a desktop with five other employees.

Licensing all of an organization’s employees the same way will mean that the employees on their feet will get the same technology as the high consuming employee with five monitors, despite the fact that they will use it significantly less.

Hand-tailoring your licenses to match the specific needs of each employee type will greatly reduce your end cost, but the type of data you need to create this type of solution is only provided by software asset management tools.

Underused Software

One simple remedy of shelfware is making sure that the communication chains are kept open between the people who buy the licenses and the people who will be using the technology.

Ask users their opinions on the technology and assess how useful it will be to their job. This will give yourself a clear framework on how the investment will better improve the productivity of employees.

Make sure that you provide effective training that teaches employees how to work with new software so that you can ensure the proper integration of the software into your organization.

Get the Software You Need and Skip Paying for the Extras

Shelfware is a common occurrence that organizations suffer from. It is an unnecessary and unseen leech on their budget. There is, however, another way of doing things, which will allow companies to effectively control their software spend without running the risk of software compliance. This involves creating an effective software asset management strategy.

At MetrixData 360, we have helped many of our clients create a rock-solid SAM strategy using our combined tools and team of experts, giving them peace of mind while they move forward in developing their organization’s technology.

Mergers and Acquisitions often prove a messy juggling act of trading assets, people, and a boat load of documents, leaving you dizzy and uncertain about where anything is anymore.  While it may not seem that important with so much going on, many companies often neglect to examine how their software contracts will transfer between the acquiring company and the target company after the M&A is completed.  At MetrixData 360, we have dealt with many companies who have found themselves in this situation and confronted with a tidal wave of complications and licensing issues at the very last leg of their merger and acquisition as a result. So, to help you through this transition and avoid this fate, in this blog post, we’ll go through your to-do list for making sure your software environment is in good shape for the transition.  

• Understand Your Software Licenses  

Even before the move has begun, you’ll need to know if you and the other company are ready and capable of the move. This requires you to have a complete understanding of your software licenses and those of your target. Here are just a few of the questions you should have the answers to before you complete your merger and acquisition. You can consult both of your active quantities and products in use to find solutions to these questions: 

Determine Software Compliance for Both Companies

According to MetrixData 360’s own CEO, Mike Austin, one of the most shocking things we see many CIOs confronted with during or after their merger and acquisition is:

“The shattering of their previously held belief that the acquired company is compliant. They are not expecting to be weighted down with millions of dollars’ worth of compliance issues. While it may not always be that extreme, quite often the perfectly compliant company they were signing up for is far from what they’re actually getting. Since not all licenses are transferable, not doing an assessment of the acquired company’s licenses across all vendors is just inviting future massive and unbudgeted compliance issues later on.”

Since many software publishers have an “affiliate clause” or its equivalent in their contracts, this means that whatever compliance issues that the other company has going into this arrangement will suddenly be your problem as well.  Considering what a massive and unbudgeted expense compliance issues can be to companies, you should never complete a merger and acquisition without knowing where the other company stands with their various software vendors. If you don’t know what compliance issues the other company has, you’re bound to eventually find out. M&As are one of the leading factors that will initiate a software audit. 

2. Contact the Software Publishers 

Each of your publishers and the publishers of the other organization needs to be contacted and you’ll need to get copies of the purchase history reports for both you and the other company.    These purchase history reports should include past purchases and current products with active support and maintenance. Most importantly, you should note any upcoming expiration dates your target has. You’ll need to work with each publisher one-by-one, starting with the ones who are closest to a renewal, and you’ll need to check what sort of new licenses you may need to purchase.  This can be a whole other issue since purchasing the wrong number of needed licenses could mean compliance issues or wasted licenses, both of which could prove costly to you.   A word of caution though: mergers and acquisitions can often trigger a software audit since software vendors will expect things to be disorganized and non-compliant immediately after the merger and acquisition is completed.  While this step needs to be done, you should be careful when approaching your publishers and letting them know you are going through a merger and acquisition. It may spark their attention.  

• Trim Back Unneeded Products and Services 

Once the merger and acquisition is completed, you may find that your combined software environments will have a lot of duplication in both licenses and services. There’s no need to have these competing elements in your combined software licensing environment as they will only serve as a waste of money and may cause budget issues later.   Figure out which products and services can be removed and discontinued between the two of you and which ones are going to be maintained in the shared environment. This can also be an excellent time to do some spring cleaning and find unused and unnecessary licenses in your own environment.  

• Check Your Licenses for Transferring Legalities 

It’s important to determine the exact process each publisher has when it comes to how licenses will be correctly transferred over to the ownership of the new organization that comes out of your merger and acquisition. If the licenses that you were intending to move actually do not have transferable rights, then they will be essentially useless after the merger and acquisition.  You should also figure out how long the transfer process takes and when it can be started. And you’ll need to determine how easy new users can be added to the contracts or how critical software can be expanded into new environments.   You might want to make note of any clauses in your target’s contracts that state that you, as an affiliate, will be roped into any compliance issues that the target is experiencing. This has, at times, proven a deal-breaker for companies going through a Merger and Acquisition. One company finds out that the other company has millions of dollars in compliance issues, a burden they’ll now have to share, and they then decide to back out of the merger and acquisition.  It’s important to make sure you avoid this situation before you find yourself in the thick of it. 

• Consider Future Growth 

With so many employees getting traded, let go, and moved around during a M&A, it will be important to map out any long term goals your IT team has for its software infrastructure, including any Cloud or Hybrid Cloud solutions. This will ensure clarity as new people are brought onto the staff and will help to ensure compliance through proper planning.

Measuring Software Compatibility Before a Merger and Acquisition

Mergers and Acquisitions can be a whirlwind of events and as much as it might add another insurmountable task to your plate, it’s important that you make sure your software environments are compatible and capable of blending properly.  We suggest that, if you are acquiring the company, you audit the assets you receive as soon as possible, either immediately before the merger is complete or immediately afterward. This way you can identify any data gaps in what you acquired regarding deployment or licensing. If you are selling your assets, you may want to audit the equipment which is being traded as a part of the divestiture to ensure you are transferring only the licenses that you need to transfer and nothing more. This includes desktops, laptops, and servers, etc.  Regardless of whether you are selling, buying, or a little bit of both, you need to make sure that you are prepared for when that time arrives, and MetrixData 360 is here to defend your interests. We’ve helped many companies get through their mergers and acquisitions while making sure they remain compliant and cost-effective. Make sure you check out our self-assessment service page for more details! 

Merger and acquisitions can be quite polarizing experiences with some people liking or hating them. But in the wake of 2020’s rocky year (“rocky” would be a bit of an understatement), many big companies are coming out of their COVID-induced slumber to pick up the pieces of old deals before the expected recession hits home.  

A merger or acquisition could be successful in seemingly every aspect, from transferring employees to picking and melding the buildings and inventory.

Yet, when looking at the newly reorganized company’s software assets, there is nothing but chaos. To make matters worse, software vendors will often expect this level of chaos and will target companies who have just recently gone through a merger and acquisition. 

Shortly after the paperwork is signed to finish the Merger and Acquisition, a software audit will appear. So why is this mess so easily expected? And what can you do to ensure that your company is ready for this move?  

At MetrixData 360, we’ve helped many companies work through their mergers and acquisitions successfully and have ensured that the melding of their two software infrastructures went as smoothly as possible (it helps that we have many years of software licensing, negotiation, and audit defense on our side). 

In this article, we’ll break down three common software asset-related problems that arise during a merger and acquisition. Then we’ll look at solutions to help you prepare (and even avoid) them.   

Common SAM Issues that Arise During a Merger and Acquisition  

Problem 1: The IT Teams Are Not Involved in the Transition

Often the IT assets are ignored or managed with minimal assistance from either company’s IT staff (they might be brought on after the deal is signed and it is simply time to move the assets). 

Then, when they are brought on, it is revealed in their attempts to merge that there are records that aren’t properly maintained, proof of licenses that are missing, or elements of the data which are incomplete. 

This is mostly a result of the sheer size and complexity of both software environments. Software licenses, past contracts, and maintenance and support agreements all need to be sorted through so that you know what is installed, who has what, what kinds of licenses can be combined, which can be kept separate etc.  

Problem 2: Assumed Compatibility of Software Licensing Infrastructure  

There’s no one way to build out your software licensing infrastructure, and just because two infrastructures worked well separately does not mean they’ll be compatible when put together. 

Software licenses are not easily transferred back and forth between organizations. Since companies do not technically own the software they have a license for, they therefore do not have the inherent right to transfer those licenses from one location to another. It will not be safe to assume that all your licenses are fit to go through a merger and acquisition. The process of transferring licenses will also need to be carefully documented to prove you have the right to use your new licenses. 

In many clients we have worked with, despite having seemingly successfully transferred their software licenses, they did not have the proper documentation to back up this action. You will need to carefully consider and read through your contracts to ensure that they can be moved to this new organization and that the move is done properly or else you may find yourself in breach of your contracts. 

Problem 3: The Other Company’s Software Compliance is not Considered 

The contracts of many software vendors can include a “future affiliates” clause, which means that any new company brought on in a merger and acquisition will be roped into the current contract. 

This could have cost implications that your company wasn’t expecting to get saddled with. It’s important that you be wary of targeting a company that doesn’t have any sort of a software asset management strategy in place, since it may mean that you can be burdened with compliance issues later on.

Using Software Asset Management to Ease the Merger and Acquisition Transition 

Software Asset management is an excellent way of getting control of your software environment, not just for the occasion of the merger and acquisition but for the long term as your new combined identities get to grow together. 

If you’d like to learn more about SAM and how to get started, you can check out article: Getting Started: Implementing Software Asset Management. 

However, if you already have the basics down, then you can use them during your transition.  

Step One: Get Your Own Assets in Order 

Make sure what you’re bringing to the table is organized and efficient. If you don’t have any software asset management strategies in place, now is a great time to get started. 

Involve ITAM and SAM in the merger early on and have the teams from each company perform a self-assessment. This is an excellent way to not only assess what each company has internally but will also prepare you for an audit that might be caused as a result of completing your merger and acquisition.  

Your self-assessment should be aimed at answering the following questions: 

This self-assessment will create an effective license position. Your ELP will establish what licenses you have and cross reference that with the number of licenses that you are entitled to use. This is a great way of determining gaps in visibility and any compliance issues that you might have otherwise accidentally passed on to your new partner.  

Step Two: Take a Look at Your New Partner 

Since you are going to be working together, it is important that you are aware of your new partner’s software history and the current state of their software licenses. Follow each of the steps below to ensure that you will be able to mesh well with your software environment.  

Step Three: Determine How Your Two Licensing Environments Will Fit Together 

The last step you need to do is to figure out how your environments will work together. To do that, you’ll need to start considering the following questions:  

This is very important to determine as mergers and acquisitions often result in employees being moved around, let go, or offered a retirement package. You don’t want to realize certain important people with critical information have already left the building.  

Have a Stress-Free Merger and Acquisition 

Mergers and Acquisitions can be grueling experiences that could take months, even before the pandemic hit. However, the last thing that you want is for your merger and acquisition to grind to a halt because your software environments are incompatible, which we have seen happen many times. 

It’s important to be aware of this potential incompatibility before the last of the paperwork is signed, which is why many companies benefit from hiring MetrixData 360 to help them through this transition. 

We know how to deal with the most tangled of software environments, find missing data, and create reasonable solutions to sticky software contract situations. If you’d like to learn more about how MetrixData 360 can help your company through your merger or acquisition, you can contact us for more information.