Merely Being License Compliant is Almost as Bad as Failing a Software Vendor Audit

By Alex Geuken. March 8, 2021.

If your only goal is to become compliant, you are missing the entire point of Software Asset Management (SAM) and you are doing software vendors a favor. Let me clarify; if you just want to know how many software installations/users you have, and purchase the equivalent licenses to be compliant, then you are overpaying for software. In essence, this is almost as bad as being found incompliant and paying that settlement fee; over-licensing can be equally as costly. With SAM the goal is not to protect from an audit – that is a byproduct, the goal is to optimize and reduce software spend. Instead of purchasing the license, you should analyze whether the applications are being used. Ideally, actual “interacted with” usage of a product should be determined, not just usage data based on applications running in the background. This is known as Active Usage. This can then determine how much the product is being used, as well as the average usage, of the application. Then, you can set your process to remove and uninstall all applications with low Active Usage, as well totally unused software, and cost savings will increase. At the same time, you will be able to ensure license compliance. To repeat, you buy a SAM tool for the optimization and cost savings, being compliant is a byproduct. Overspending is equally bad as paying for incompliance in an audit, the difference is that with overspending you are paying year after year, audit fee is one high expense.

License Compliance

Now, I’m not saying being compliant is a bad target to aim for, if you get an audit, penalty fees can be extremely high – in some cases, settlement fees have driven businesses close to bankruptcy. So, compliance is of course important! However, if you go through a license optimization program, compliance becomes a welcome byproduct. The point is, if your only goal is to be license compliant, you may have multiple surpluses of licenses, which means you will be paying software vendors more than necessary. Therefore, when you perform the annual software vendor analysis, you should consider these 3 things:

  1. Do we still need this vendor/application/function? (Based on recognition/normalization)
  2. Can we reduce/optimize/negotiate the cost/spend? (Based on USAGE)
  3. Do we have the same functionality from other applications in our environment today? Is this product in our future roadmap?

If you only apply a compliance mindset, and this is more common than you think, you may feel that you need this vendor/application indefinitely or that you are locked in with this vendor so we only need to pass an audit. In this case, it’s common to do a “quick and dirty” installation count or reference the compliance report from your SAM tool. When you should imply optimization and cost savings with a compliance mindset you will Increase spend with Vendor X with X amount based on compliance mentality, instead of reduce the amount with X USD. No opportunity of digitalization, no optimization, no negotiation.  Commonly, it can feel like you’re just a small company against this enormous tech company and you don’t have a chance to negotiate a better price. This is not true, even the biggest Tech Companies have sales representatives that need to meet their quota. You can always get a discount and with some vendors if you don’t get more than 80% discount (Oracle/SAP?), it is a bad deal. The software industry is that it has never developed applications faster than today. You have never had as many options as you have today, there has never been more open-source solutions than it is today. You have never had better conditions to negotiate your spend than today. The challenge is to understand what you need today, what you will need tomorrow and who to trust? Software Asset Management all about making informed decisions based on trustworthy data.   


How should you do license optimization and obtain cost savings? First you need discovery and software normalization that is the heart of any SAM tool. You can’t optimize or reduce the spend of what you don’t know. Here is an article about software normalization and discovery.

We divide optimization into 3 parts:
  1. The installed reality – What do you have installed? (Software discovery/normalization)
  2. The purchased reality – What agreements and licensed have you purchased?
  3. Usage – What is being used. This is a KEY difference in usage/metering. Just to open the application is not ACTIVE USAGE! Specially for webapps, we need to understand how much the user “actively” uses the application.

When you have all 3 components, you can start doing optimization, reduce the number of unused licenses/installations. You can also decrease from enterprise to standard or even to a free version if you have low Active Usage of that product.

How much can you Save with SAM?

If you are not optimizing based on Active Usage, you are probably not saving as much as you could! Through an effective SAM program, Gartner says you can save 30% in the first year and that number is based on stopping paying for unused applications. The Gartner report doesn’t take into consideration low Active Usage or web application optimization. This makes the possible optimization, and cost reduction opportunity much higher. But there is a big misconception that you only save 30% the first year of doing SAM. Let’s take a very simple example;

You pay $1 million USD per year for your software and let’s say you save 35% = $350 000 USD in the first year.

Year 2 your annual expenditure starts on $650 000, at this point we haven’t made any optimization or cost reductions yet! BUT if you didn’t do the first year’s optimization and cost reduction exercise, you would still be paying $1 million USD! Essentially, this means that you have saved another 35% year 2 also! However, you can continue and to do even more cost savings and decrease that amount even more, but the first year’s cost reductions have laid the foundation to continue optimization of the yearly spend. In a 3-year period, even if you only do cost savings with the SAM tool in the first year, you would have saved $1 050 000 USD, which is an entire year’s software budget.

Stop Paying today means start saving today, tomorrow, and 3 years ahead.

Contact us if you want to get helped reducing your on-prem and SaaS spend