Software Over-licensing and Overspending Grows Amid Ongoing Digital Shift

By Kristian Tuinzing

Client Services Manager, NPI

November 02, 2020

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Enterprise software vendors have always been adept at convincing customers to buy more than they need.  The growing threat of being audited by a software vendor has also encouraged incremental overbuying when enterprises aren’t sure about their asset management accuracy.

As we work with clients to optimize licensing and cost for renewals, oversized on-premise and subscription licensing in major software agreements is becoming more and more of a pertinent cost issue. Some limited overallocation is normal in enterprise software agreements as it allows customers to maintain compliance and have necessary headroom to grow during a given term. But it’s not uncommon for counts to be radically different than actual usage, sometimes in excess of 50 percent of what’s actually needed. And pandemic-fueled acceleration of digital transformation is exacerbating the problem.

NPI recommends enterprise IT buyers pay attention to the following few areas in particular:

Endpoint IT Security

Of any category NPI helps clients to optimize from a licensing and cost perspective, endpoint-specific IT security solutions from vendors such as Veritas, CrowdStrike and McAfee often exhibit the greatest degree of over-licensing. Anti-virus, DLP solutions, the emerging CASB market and other similar solutions metered by endpoint devices all represent trouble areas when it comes to keeping track of actual utilization versus entitlements.

While over-licensing typically equates to overspend that should be remediated, it’s worth pointing out there is a time and place for purposeful overallocation. For example, if there’s hidden demand coming down the road for an enterprise, overbuying may be required to build in additional headroom and lock in lower unit rates for overall lower TCO.

Capacity-Based Licensing

Big data usage continues to increase as the size of actual data throughputs also expands. This means the cost for real-time data analysis tools licensed by measured capacities threatens to push higher.  NPI recommends enterprises pay particular attention to any potential for explosive growth in solutions like Splunk, Humio, DataDog, Elastic, and others. Left unchecked, these solutions can balloon to be major cost hurdles for an organization from a volume perspective. And it’s also an area where NPI price benchmark analysis reveals that a client’s pricing may be higher than current market and needs to be recalibrated.

Business Critical User-Based Licensing on CRM, ERP and Service Management

Another to check for usage optimization is around core business apps like CRM, ERP and service management. NPI finds that even with slight gaps between actual use and entitlements, the high cost of various classes of user licensing in expensive enterprise providers like Salesforce, Oracle, ServiceNow and others can drive up costs quickly. Be sure to match licensing with user profiles – it’s a powerful way to optimize costs.

Now Is The Time to Right-Size Software Licensing and Subscription Choices

Economic volatility is prompting many enterprises to reevaluate, reinspect and reprioritize software investments. One way to eliminate the toxic spend associated with over-licensing is to periodically perform a formal license optimization assessment of your large software implementations (particularly SaaS) – it almost always reveals material, easy cost reduction opportunities.