The rise of cloud computing and software-as-a-service (SaaS) has moved the goalposts when it comes to software license management, especially for organizations that have a large base of users accessing costly specialized software, like CAD, BIM and mathematical modelling tools. Traditionally, the most cost-effective way of managing such software was to acquire a perpetual license based on concurrent users, where there is a finite pool of licenses available, rather than a license per user. This licensing model treats each license as an asset and the associated costs are treated as capex and a balance sheet item. A cloud solution is based on some form of pay-per-use, and when the user accesses the software this is now an operating expense, which is an income statement item. This means that the complexity of license management causes pain in the CFO’s office as well as in the CIO’s domain. While this article focuses on hybrid license management as a license management issue, it is important to remember that there is an impact on the accounting principles and policy for software too.
Hybrid Licensing is not New
There has always been some mix in license management and administration, especially when it comes to specialized software used for scientific and engineering purposes, even for a single software product, such as AutoCAD. Although the majority of users would depend on concurrent user licenses accessed from a pool, there would always be some users who needed guaranteed access or worked with the software for most of their day. For such users, a named or dedicated license would be purchased. The license administrator would need to monitor these licenses separately from the license pool, checking on whether the named user actually needed a dedicated license or could revert back to the pool. The ability to reserve or borrow licenses from the pool could create a temporary dedicated license which again needed monitoring for when reserving the license was no longer justified.
There are also variations in concurrent licensing, such as token licensing, where actual usage is measured, usually on a time or product basis, and a “price” of a certain number of tokens is charged for such use. The annual number of tokens are purchased up front as part of the contract, and may require topping up during the year, or may have been overestimated.
Some vendors manage their licenses via hardware such as dongles or USB keys. This now means that additional oversight is needed to ensure that the physical licenses are not lost, as they can only be replaced by repurchasing the license.
Multinationals also experience different licensing rules, where licensing agreements are not global and differ from region to region, calling for extra vigilance that compliance is not breached in such situations. So license management has never been a simple job. Cloud licensing has just made it more complex. While some vendors offer both perpetual and cloud licensing options, others, such as Autodesk, are making it their mission to eradicate the perpetual license from their portfolio. This is forcing customers to consider their options, which range from straightforward acquiescence to the change and converting all their licenses, through remaining on the current version for the time being and not upgrading to moving to another competitor’s product. None of these decisions are easy, and there is no uniform in-house policy that can be adopted, as the forms of licenses available are under the control of the vendor, so different decisions need to be made for different software.
The New Flavors of Licensing
There are quite a few license models emerging, that recognise the flexibility that the customer requires while trying to maximize the profitability and sustainability for the vendor. Here are a few variants.
We have already mentioned token licenses, where the user “pays” a number of tokens for a particular product, such as Autodesk Revit. The number of minutes used can also affect the price, as well as when the timeslot starts. This can result in unnecessary costs, as some customers of Autodesk have discovered.
Another token variant is based on the way the software is being used, for instance, the number of tokens needed is linked to the number of CPUs being used for processing by Abaqus, a Dassault product.
Bundled and WorkBench Licenses
This seems to be a growing trend; instead of licensing a single product, the contract covers a range of software from the vendor. It can be based on user skillset and needs, e.g. architect or civil engineer. This can work for some environments, but generally there are a few products that are not needed by the company, for which they have paid. This model can also be token-based, with a different token value for each product.
A variant on workbench licenses, where the customer can specify their software needs for the year, but have the option to change up to 25% of the agreement to cater for changing requirements. This pay-per-use model is usually for a multi-year agreement and acknowledges that the customer’s needs change based on business acquired and changing market conditions. It does make the swapping of shelfware for something more useful easier.
There will definitely be new models emerging in the next few years, as vendors try to maintain their revenues, which are predominantly derived from licensing.
Regaining Control of the Situation
As if the license administrator’s job were not complex enough, many organizations do not understand the implications of using the vendor’s license management tool and the overheads it imposes on the license management professionals. Vendors either use one of the commercial models available from license management specialists such as Flexera and Gemalto, or have their own proprietary license tool, as is provided by Dassault and Bentley. There are even some companies that do not provide any aid whatsoever, especially where software has been custom-written.
The license managers have to understand the license management product that each vendor provides and use each tool for managing allocations and access, as well as extracting business intelligence from each tool. This is a full-time job. Adding a new layer of complexity with cloud licenses just adds to the overload. This is why an independent license management application is so necessary; it gives the license manager a single lens to view and manage all or most of the licenses under his control. It also offers a second opinion on actual license utilization, which many companies have found vital in negotiating with vendors and debating the vendor’s metrics as opposed to what the independent software reveals. Finally, the independent product is written from the customer’s viewpoint, not the vendor’s viewpoint, and offers reporting and functionality that assists license management in license optimization and forecasting future license needs.
Customers of OpenLM have discovered the benefits of a license management application that reports objectively and extensively on their license usage via a single product instead of a tool per vendor. The benefits of an application that has a common look and feel for all reports on license usage are often overlooked, especially when it comes to reporting to executives outside the IT environment. Some of our users have mentioned the power of OpenLM heat maps for getting the message across to their executive.
Outsourcing the License Conundrum – License Management as a Service
The decision to outsource license management is a growing trend, and is embraced by CIOs who are finding it increasingly difficult to get the right people on board to manage the licenses, because demand exceeds supply. It also makes license optimization easier, as the outsource companies have extensive experience in monitoring licenses from the different vendors and know from experience what size license pool should work for a specified number of users. Companies that have outsourced their license management find that the costs of the service are balanced by the savings obtained by the fine-tuning of the license portfolio by the service provider. OpenLM offers managed services that are gaining in popularity because of the cost benefits derived by the customer.