Trouble in Paradise the Shifting Sands of Software Licensing: IT’s Guide to Overcoming New Challenges

“Your software vendors’ account executive is not your friend, and the software company is not your partner.? They have all learned how to play the game of Microsoft.? Move to subscription licenses, increase prices, build out bundles, and force customers to pay more each year”? Mike Austin – CEO MetrixData 360 Inc.

In an era where budget reductions are a reality, the landscape of software licensing is undergoing a seismic shift. ?With mega-vendors pivoting towards subscription models and altering pricing structures, the ripples are felt acutely in IT budgets across the globe.

Having worked in license and cost optimization for 20+ years, it seems that 2024 has started on the wrong foot.? VMWare acquisition by Broadcom is a prime example.? Any customer with a VMWare renewal ahead of them is facing substantial increases in pricing.? From a move to subscription-only, processor to core-based licenses, and a bundle-only strategy (no more just buying VSphere), I see clients being forced into renewal at 30% or more of their previous run rate.

Microsoft isn’t treating its customers any better.? Most organizations are on Microsoft 365, and a good percentage are on the E5 version.? Price increases from last year are starting to impact renewals (~11%), and Microsoft is showing they plan to decrease discounting.? New technology is no longer being put into current licenses (e.g., E5) but instead is being introduced as new add-ons (Teams Premium), increasing costs even more.? Without a proper strategy to analyze actual usage data and a complete understanding of your road map, you can quickly expect Microsoft licenses to increase by 30 to 40% in your next renewal, and this doesn’t even include the expansion of Azure spend.?

Let’s turn our attention to Oracle for a minute.? Have you been audited for Java yet?? If not, it’s coming.? Oracle claims that it simplified Java licensing.? This may be true as you only have one option, using Java.? Purchase licenses for all your users regardless of how many are using it.? Oracle will kindly (?) waive back licenses if you sign up for a multiple-year deal.? I recently received a call to help one client in just this situation.? Oracle offered them a small discount on Java, which was the problem.? They need to purchase Java for all 1500 of their employees even though the application using Java only supports 200 of their employees.? Do you think Oracle provided them an 87% discount to account for the fact that only 13% of the employees use Java?? Nope, not even close!

Let’s dissect these challenges and look at things from perspectives that resonate with CIOs, IT decision-makers, and the broader Software Asset Management (SAM) community.

Scroll through LinkedIn or do a Google search, and you will find anecdotal evidence from industry insiders that paints a grim picture. ?Stories from CIOs who have shared how their organizations’ software costs skyrocketed unexpectedly, primarily due to these aggressive pricing strategies, are everywhere. ?My data corroborates these stories. ?Our clients receive proposals (software vendors, please stop with the best and final proposal garbage) showing an average increase of 20-30% in software renewal costs.? The software vendors’ policy changes are severely impacting IT budgets and forcing tough decisions.

Tactics to Counteract These Challenges:

1. Strategic License Optimization:? Rigorous tracking and optimization of software licenses can uncover significant savings. ?This involves regularly auditing software usage to align licenses with actual needs.
2. Negotiation and Relationship Building: Effective negotiation is more crucial than ever. ?Understanding contract nuances and leveraging long-term vendor relationships can yield more favorable terms.? Have you tried to define a partnership with your vendor at the outset of the negotiation?? You will be surprised that many consider partnership you doing what they want, not what you need.
3. Exploring Alternative Solutions: This is easier said than done, depending on the vendor.? But you may need a viable alternative.? Open-source software or lesser-known vendors often offer competitive features at a fraction of the cost, providing possible alternatives to mainstream options.
4. Collective Bargaining and Consortiums: ?Ever notice how automotive unions negotiate with the manufacturers?? Banding together with other organizations can enhance bargaining power, leading to better deals and terms.? You can’t do this in your negotiations, but you can learn from others.? What data did they use, how did they optimize, and what strategies worked or didn’t?? Learning from others is going to be essential in 2024.
5. Legal and Compliance Awareness: Being well-versed in legal rights and compliance requirements is vital in avoiding overspending and navigating audits successfully.

Anyone who knows me will remember that when Microsoft launched Office 365, I told clients it was not what they thought.? Long-term, I knew Microsoft’s strategy would be to take subscription licenses and get you hooked on them so that they control their revenue destiny.? There is no going back now. ?If you’ve moved, you’re stuck.? Their share price for the last 5+ years has shown how good it has been for them.? The fact that software companies like Citrix want to become a cloud company (why?) to impress the street and get premium share prices should say it all.?

As the software licensing landscape evolves, it is paramount for CIOs and IT leaders to stay agile and informed. ?Organizations can better navigate these turbulent waters by adopting a mix of strategic optimization, savvy negotiation, and exploring alternatives. ?

Share your recent experiences and strategies in the comments below, and let’s collaboratively chart a course through these challenging times.

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