By Alex Geuken. July 15, 2020.
As you can see from the Gartner report above, enterprise software spend is growing fastest, especially now with impact of the Coronavirus. This includes the rapid increase in SaaS and Shadow IT growth with everyone working from home. Most companies overspend by a minimum of 30% in both on premise and Cloud software environments, in many cases, much more.
I use certain terminology with my wife when she’s looking to buy yet another pair of shoes “if you want to buy another pair of shoes, you have to get rid of an existing pair.” This may not be the same with software, but is should be. Most organizations are over-consuming software and are bad at cleaning up on legacy installations. However, we are great at paying maintenance/software assurance when we don’t need to. Are you paying for the latest version but running older versions?
After time software becomes obsolete, many vendors use End of Life (EOL) and Extended EOL, one good example is that Windows 7 is obsolete as of 14th of January 2020. Legacy software comes with several challenges. Firstly, it is a security risk now that the vendor stops providing patches with security updates/fixes. Besides security, there may be issues with compatibility with application integrations, as you might not be able to update other applications connected to that software creating a further manual task. Then you may also have the challenge with skill shortage and competence on older applications – how are you affected if you lose your technical skills on specific applications? You might not be able to access the data from that application anymore. In essence, the data gets taken hostage by legacy applications.
Software vendors usually offer both an Operational Expenditure (Opex) and a Capital Expenditure (Capex) license alternative. But how do you know when to purchase perpetually and when to subscribe to software? Sometimes you don’t have an option you have to purchase and then pay maintenance; other vendors only offer different versions of subscriptions. If you are going to use the software on premise and use the same application for 4+/5+ years, I recommend you purchase the software perpetually instead of subscribing to it. With Cloud software you don’t have an option, however, if you have both an on premise and a Cloud purchase option, it is necessary to evaluate the function, lifecycle and maintenance costs. For example, majority of us have Microsoft Office Pro Plus installed and only need Office standard functionality.
One of the most common scenarios in IT is that a user requests a new application, the software gets acquired, installed and used and then you also get the invoice. IT stops following up whether the software continues to be consumed, or has been updated to the latest version, but the business continues to pay the yearly or monthly invoice. The task of optimizing software spend is an on-going process. Companies are increasing the amount of hardware/software all the time, new vendors, new applications are added and increasing spend on enterprise software. The biggest key to actively deceasing software spend is USAGE! Why pay for something you don’t use? Why are you paying for enterprise software when you are only using standard version functionality?
From a cost perspective you always want to stay as close as possible to the edge of incompliance. From an audit perspective you want to have some security. What is the best way to think when it comes to purchasing licenses, unused licenses and possible audit? This depends on you. What control do you have? How easy and fast can you change (uninstall or purchase licenses)? Who is the vendor, what is the chance/risk of getting hit by an audit?
Let’s take a scenario; you are spending $10 million USD on software/licenses per year in total on all vendors and applications. How much of that is unused/used so little you wouldn’t want to pay for it or how much are over committed by? Here are 4 different examples of over commitment:
By extrapolating the above to your software spend of $10 million, we can assume you can save 30%, which is also the percentage Gartner predicts you can save with good SAM software and a mature SAM program. That means that over 3 years you could have saved almost your entire software budget of 9 million.
|Yearly reoccurring software/licensing Cost||Year 1||Year 2||Year 3||Total cost over 3 years|
|No SAM-tool||USD 10,000,000||USD 10,000,000||USD 10,000,000||USD 30,000,000|
|SAM-tool saving (%)||30%||Additional 5%||Additional 5%||Average 33% yearly|
|SAM-tool saving (USD)||USD 3,000,000||Additional USD 350,000||Additional USD 332,500||USD 10 032 500|
|New cost||USD 7,000,000||USD 6,650,000||USD 6,317,500||USD 19,967,500|
|Total savings over 3 years:||USD 10,032,500|
The key to this level of saving is Software Normalization. This allows you to optimize, calculate compliance or reduce cost as long as you can recognize the application. You can’t fight what you can’t see! https://www.xensam.com/2020/04/14/the-importance-of-software-normalization/
The other thing you need is ACTIVE USAGE. Now you know what you have and that’s a great start, but you also need to know how much the users are actively working in the application – people often open the application but do not actively use it. Take for example, Outlook; you open Outlook the first thing you do in the morning and then you don’t close it until you leave at 5PM – you haven’t spent all day just in Outlook, right? Active Usage presents compounded usefulness for more expensive applications like Visio, Project and CAD applications that are consuming tokens just by opening.
What about when the application is not being used enough? Have you put a minimum usage limit for applications or vendors to be deemed an efficient deployment? If the application is used less than a certain amount of time, maybe you should not continue paying for it? Or to get an Enterprise or Professional edition of an applications, perhaps the user must use the application for a minimum of a predefined number of minutes per day?
Xensam provides prebuilt reports for you to achieve the highest cost savings possible. You can gather Active Usage data on on-premise software, web applications and remote applications. This feature can be used to see ROI from investment in Xensam, within 60 days of deployment.
Contact us now for a demo on how you can reduce your software spend firstname.lastname@example.org