Software Audit Summer

By Alex Geuken. June 24, 2020.

COVID-19 issues have inevitably hit revenues for almost everyone and it is widely accepted that software vendors will use audits to recover losses.

The Audit Perspective, Prepare for Audit Season

The industry has already reported seeing an increase in audit letters and that trend is expected to continue for the rest of 2020.

Targeting for software audits:

Have you not been audited in the last 24+ months? Now it’s the perfect time to audit you.
COVID implications; people working from home and not having the same IT support leads to creative end-users downloading or subscribing to new software.
Mergers & Acquisitions. You may have negotiated a no-audit clause but that doesn’t include merger/acquisition entities. Mergers/acquisition is a classic audit trigger.
You use legacy license types and not a “cloud” type license. The vendor has changed license metrics or wants to convert you to a cloud solution (E.g. Autodesk, SAP, Microsoft, IBM and Oracle). Account Managers are incentivized to transition customers to new metrics (Cloud).
Your contract is up for renewal, this is a timely opportunity to increase that renewal or push you in to their preferred Cloud solution.
You haven’t increased spend in the latest renewal. Typically, software vendors are looking for a true-up between 5%-15% increase on annual spend. If this hasn’t increased over several years, you become a target.
Your company is growing, you’re hiring, your company is mentioned in the press, this means they want a piece of that success.

The SAM Manager’s Dilemma

Getting access to all relevant data when everyone is working from home can be a challenge. Some SAM solutions only work on company networks or require VPN. Xensam’s SAM solution reports directly over “https” so COVID-19 operations, such as working from home, would not be a problem. Due to the reasons provided above, it is time to start preparing for the upcoming software audits. It is recommended that you gather entitlements and do an internal audit as soon as feasible and you need trustworthy data – which Xensam provides inherently.

Where are potential risks? In terms of the next renewal, what is the strategies for different vendors? Decrease/Increase/Termination of agreement? The software vendors will be looking for revenue, so if the renewal/true-up doesn’t involve significant spend, expect an audit.

Implications of COVID-19?

Most your employees have been able to work from home, this has driven digitalization and usage spikes of solutions such as Zoom, Microsoft Teams, Microsoft 365, Google Meets, G-Suite, Monday.com and many other web applications. Cost reductions exercises could target server infrastructure, on-premise software and legacy applications/systems.

The Explosion of Shadow IT due to COVID-19?

How much has your Shadow-IT grown since the start of COVID-19? Users have been working from home without the same support from IT and some business systems may not be accessible from home – users have increasingly found their own solutions. We all know about “bring your own disaster” to work, which is a play on words on the “Bring Your Own Device (BYOD)” business program, but now we have created the same scenario for solutions at home. This means that you now have more Web Apps and subscriptions that are harder to manage since they are probably purchased via the end users credit card and summarily expensed.

What can you do as a SAM manager right now?

Cost Reduction – What is unused or not used enough, that can be re-harvested or removed?
Shadow IT – What unsupported software have users now started using from home?

Transition to the Cloud – Which applications had to move from on-premise to Cloud? What does that mean for your entitlement and budget strategy? How does this affect rest of your IT environment?
Centralize Vendors and Applications – Clean up both editions and versions of applications. Standardize and prepare strategy.
Server infrastructure, are you moving from your own hardware to the Cloud? Usually the vendors want you to over-commit Cloud spend. Plan to negotiate and pay for what you really need!
Prepare for audits -It is highly likely that you will receive multiple audit requests in 2020.

Vendors License Changes or Updates

Autodesk – changing to Named User Licenses from concurrent – will push audits to regain revenue and push to new license model. Challenged by Nuance, Bluebeam and other CAD vendors. Expected revenue increase by 20% this year and has grown approximately 25% since 2018.

Oracle – Oracle just had its Q4 (broken Fiscal year) and will push its autonomous DB and cloud solutions going forward. Could this be the start of Java audits?  Revenue declined to $10.44 billion from $11.14 billion on the year. Revenue has declined YoY for several years and Oracle is buying back stock to keep shareholders happy.

IBM – Changed CEO to Arvind Krishna, still need to change the trend of declining revenue and reputation as “legacy” solution. Also, it is unknown how the Red Hat acquisition will come in play at IBM? Revenue declining YoY.

SAP – Turbulent period and change of split CEO to single CEO. Also, there’s a looming deadline of 2025 for all legacy products as ECC and R/3 will no longer be supported and needs to move to SAP Cloud solutions. Audits are one way of pushing the customer faster to SAP Cloud. SAP revenue since 2017 has only grown between 3-5% YoY so almost stagnant.

Quest – New CEO in May this year. Former CEO only was only in the position from November to May. We know that many senior positions, including compliance, are filled by the ex-Attachmate compliance team, which was aggressive with audits and will probably continue this trend. Revenue decline 3.65% in March this year, YOY.

VMware – was increasing audits before the COVID-19 issues, and since many companies have moved to the Cloud, vendors such as Nutanix are taking revenue from VMware, we expect to see more VMware audits during the next 12 months. Revenue increase 11.59% YoY and has a trend of around 13% yearly increase since 2018.

Microsoft – (Broken Fiscal year) – Microsoft is one of the companies who has had great success as a result of COVID-19 and seen an increase of Teams & Microsoft 365 usage. They continue battling against AWS and Google in the IaaS war and Google is growing fastest at the moment. Windows sees new challenges from Linux and growth of Google OS. And the for their infrastructure more and more companies are moving away from windows and SQL to Linux and PostgreSQL, so Microsoft will probably look to address this in their first and second quarter. 3 reasons for Microsoft to do audit, CLOUD, CLOUD and CLOUD. There will be a push for Azure revenue and attempts to force you from Amazon, Google or any other competitors to Azure, via changes to SQL and Windows licensing. M365 licensing will encourage E3 on more users and centralize users on E3 or higher/more expensive suites. 14.56% YoY revenue increase in March 2020. Trend of 14% revenue increase YoY since 2017.

Conclusion:

Most software organizations have experienced changes due to furlough and redundancies. Additionally, many senior management teams have also changed, and all these companies have responsibilities to their shareholders to increase revenue. The fastest and easiest route for them to regain revenue is to do audits. There has been an increase in trends that software companies are hiring “Audit Engagement Managers”, which means that they are looking to start doing more audits. Customers are already reporting a significant increase in audit activity..

Many of these huge software companies have revised revenue forecasts after losing up to 30% of revenues due to the Coronavirus. Many have new CEOs that want to make their impact on the business and quickly catch up lost revenue.

All these signs point to a summer and autumn of relentless audits.