As enterprises make the transition to Software as a Service (SaaS) and Infrastructure as a Service (IaaS), IT professionals face increasing difficulty to manage IT spend. The complexity of licensing models and the shift in purchasing from IT to business units, clouds visibility over IT costs and overspend is inevitable. Despite selling SaaS as “out-of-the-box compliant” and making statements about reducing audit activity, compliance issues remain, even in an all-SaaS environment. To address these issues, best-in-class Software Asset Management (SAM) solutions have built on their strong compliance offerings, gearing them toward SaaS application cost containment.
Software publishers have looked to pay-as-you-use and subscription licensing models to generate recurring revenue streams. The expectation is that SaaS promotes customer loyalty and enables long-term profitability.
Cloud services such as Amazon Web Services (AWS) and Microsoft Azure tend to be offered on similar pay-as-you-use models. Virtualized hardware with varying CPU capacity are often bundled with additional services, such as storage and networking. Azure and AWS customers can build global infrastructures to support their business needs without needing to own a single server, or piece of software.
The threshold to deploy IaaS solutions tends to be low, but without clear insight of the associated costs, overspend is a significant concern. Overspend is further aggravated as license complexity rises with the number of service levels in SaaS agreements, the number of users accessing the systems, the quantity of software titles employed, and other factors like multiple platforms. SAM solutions are evolving to manage this complex new cloud environment, as well as legacy on-premise assets, to provide enterprises with actionable business intelligence to avoid overspend.
Figure 1: Optimize SaaS and avoid overspend
With the move to SaaS deployment, publishers are changing the goal of their audit activities. Focus has shifted away from ensuring customers pay for missing licenses. Instead, publishers are using audits and fine risk to encourage customers to make the move to SaaS offerings.
Adobe is most illustrative of this transformation. According to Gartner, until recently, they stood “as one of the top five most-active auditing software publishers.”[i] Since their shift to the Creative Cloud model, customer audits have dropped by 62%.
Figure 2: Two-year interaction volume analysis — top-eight software providers conducting audits
IMPACT OF SAAS
What impact does the subscription-based cloud model pose for enterprises in terms of managing software licenses? Enterprises are overspending due to lack of visibility into the software employees are using and the complexity of licensing models. To illustrate the point, let’s use Microsoft Office 365 as an example.
The most significant change in the transformation from Microsoft’s perpetual model to subscription is the shift from device to named-user licensing. Microsoft’s user-based licensing model allows employees to install software on up to five devices.
This contrasts with the more-traditional Office 2016 licensing, which supports a Home Use Program (assuming the licenses are covered by Software Assurance) to enable use of the software outside of the enterprise – with some additional use cases supported by Roaming Use Rights (RUR). Microsoft’s subscription model enables mobility for users and facilitates productivity for enterprises, but it complicates how usage information is extracted and clouds spend insight.
The enterprise payment plans, provided by Microsoft (as of 14 February, 2017), illustrate the significant potential for reducing software spend by ensuring that users are on the right plan.
For example, shifting 1,000 users from E5 to E3 represents a US $180K reduction in annual license fees (given Microsoft’s published prices shown). And for those users who do not require the installed version, shifting a similar number of users from E3 to E1 represents an additional US $144K reduction in software spend per year.
According to Gartner: ” “Assigning 20% of users to E1 (instead of E3) can save 10% or more”. [i]
Enterprise environments are dynamic: users change roles and needs evolve continually. Avoiding overspend for Office 365 is not a one-time event. It is a lifecycle that involves choosing the best-fit plans for users, and continually rightsizing those plans. Comprehensive and consolidated usage data enables the SAM manager to select the license plan that fits the user best. For example, people who only use Outlook, can be shifted to a cheaper E1 plan, whereas, users accessing the full suite of Office applications will need either Enterprise E3 or E5.
By continually monitoring application usage it is possible to shift users onto different payment plans, ensuring that license entitlements are applied in an optimized and compliant manner.
But, Office 365 is just one of the many solutions available in the rapidly expanding SaaS market. If you want to dig deeper into SaaS cost management, please download our guide ‘The Indispensable CIO: A guide to putting yourself at the center of Digital Transformation projects’
[i] Expect Price Increases in Office 365, Unless Caps Are Negotiated, Published 29 June 2016, Analysts: Michael A. Silver, Marie Sienkowski
[i] Software Asset Management Reaches a Tipping Point: SaaS Cost Management Eclipses License Compliance, Published January 6 2017, Analysts Stephen White, Victoria Barber