ANALYSIS

Licensing Contracts: Wellsprings of Found Money

C-level executives and IT departments may be pleasantly surprised to find that there’s a source of hidden gold that may potentially net your organization much needed licenses and other already-negotiated extras. While there are no guarantees, the chances are good that your organization’s existing licensing contracts could net you a windfall similar to falling heir to unclaimed funds or finding treasure in Grandma’s attic.

These overlooked items may include things like unused and available desktop, server and software application licenses; discounted or free training; and technical service and support. They could be worth thousands — or even millions — depending on the size and scope of the company.

ITIC primary research indicates that eight out of 10 businesses will undertake a major product or application upgrade during 2010. Eight out of 10 businesses will perform a major network migration in the next 12 to 15 months, and with budgets still tight, upper management is demanding tangible TCO and ROI.

Using What You Paid For

Natural skepticism may prompt many readers to question how organizations could fail to notice licenses and tools that they’ve already paid for, which are so crucial to the bottom line. Very easily — it happens all the time. When my colleague Julie Giera, an analyst at Giga Information Group, and I put together a series of licensing boot camps or user seminars throughout the U.S., Canada and Europe., we were stunned to realize that the majority of organizations don’t know what licenses they’ve bought, or what they’re using or not using. Frequently, they don’t take advantage of extras and freebies that are written into their contracts.

I’m not accusing users of being ignorant or lazy. The fact is, licensing agreements are most often negotiated by persons within the organization who are only tasked with getting the deal done. Once the contract is signed, the negotiator hands it off to the appropriate executive or accounting person, who promptly files the document and forgets about it.

Lax communication among departments means that IT departments may not see the actual contracts. Thus, they may be unaware that they are entitled to myriad “extras” like expanded technical service and support; access to days or weeks of free training on specific products; or access to free online inventory and asset management tools that could assist the organization in tracking license usage and remaining compliant.

Compounding the problem is the fact that the majority of licensing contracts are negotiated once every two, three or even four years. ITIC research indicates that 60 percent of the time, a different person will negotiate the licensing contract once it comes due for renewal. Since organizations oftentimes don’t keep good records, the new contract negotiator may be unaware of specific terms and conditions, or whether the organization or the vendor fulfilled its responsibilities.

The result: Organizations — from academic institutions and nonprofits to the largest commercial enterprises — can unwittingly cheat themselves out of licenses and benefits that are rightfully theirs, leaving tens of thousands — or even millions — on the table. Not everyone does this, of course. Approximately 10 percent of organizations aggressively negotiate their contracts and keep tabs on their T&Cs, with the passionate obsession of Les Miserables’ Inspector Javert pursuing Jean Valjean through Paris.

In this instance, the ongoing economic downturn can work your organization’s favor. Vendors and resellers are anxious to retain your business and get you to re-sign your contracts once the licenses expire. Even if you just signed a new contract six months or a year ago, you can still contact the vendor or reseller and initiate interim negotiations.

Negotiating to Save

First things, first: Assemble a team that includes the appropriate members of the organization, such as the CIO, CTO, VP of IT, and the appropriate network administrators (e.g. database, server, messaging, security, storage, etc.) to review the T&Cs of your various licensing contracts. It’s also a good idea to involve the corporate attorneys. If your firm doesn’t have in-house counsel, engage the services of an outside firm. Legal counsel will help unravel the confusing and nebulous terms.

Do a thorough cost/analysis of your current environment. Next, conduct a thorough assessment of your current environment, and tally up your licenses: Are you using everything you paid for, and are you paying for all the seats you’re using? Compliance is crucial. You won’t be able to negotiate a better deal if your organization has not paid for all its licenses — even if it was an honest mistake.

There are lots of free software inventory- and asset-management tools available to assist your organization in this task. You may discover that your current licensing agreement entitles your organization to an online asset-management tool. This tool will act as a discovery mechanism to uncover unused or available licenses for key products and applications. This is “found money,” because your business has already paid for these product licenses.

Organizations that have recently been involved in mergers, acquisitions or divestitures should pay especially close attention to the T&Cs of the licensing contracts for all of the acquired or discarded business units. Some licenses will carry over but some may not, and M&A activity will affect planned purchasing decisions.

Next, the team should collaborate and define the business needs and goals. Determine what’s most important. There are many ways to improve TCO and ROI.

Where the Money Is

The team also must determine whether or not the organization purchased a maintenance and upgrade plan. These plans can be a real treasure trove, including everything from free or discounted upgrades to access to online training, learning and assessment tools. Additionally, they may also entitle the organization to many free services, such as 24×7 phone support, free training vouchers for specific products, or access to on-site technical training and support.

Customers who purchased Microsoft’s Software Assurance maintenance and upgrade plan, for example, have the ability to swap or convert their Software Assurance tech-support incidents for Microsoft Premier Problem Resolution incidents. The latter provides a much more detailed and hands-on level of support service. Microsoft’s SA agreements also allow customers to purchase extended Hot Fix support to resolve code issues on products that are no longer sold or supported, and complimentary “cold backup” server licenses for the purpose of disaster recovery.

If you’re not in compliance, take steps to return to compliance in advance of any product negotiations. Next, do a cost/analysis of your projected environment for at least two years — preferably three years. This should include estimates on staff increases or decreases that will affect future purchasing levels and licensing agreements. Don’t overestimate. It’s better to buy at a lower level and upgrade than to commit to purchase at a higher level and be forced to downgrade, and give back a percentage discount to your vendor or reseller in the event your company’s fortunes wane.

Before approaching your vendor/reseller, investigate what types of deals your peers are getting on their licensing contracts. Compare notes to determine that the T&Cs of your contracts are competitively priced. User groups are a great source of information. When it comes to negotiating for better terms, knowledge really is power.

Approach your vendor or reseller with several “wish list” items. Be as specific as possible. “I’d like a 10 percent discount on 50 licenses for XYZ product,” will yield better results than an open-ended request like, “How much of a discount can you give me?” or “What can you do for us?”

Above all, be reasonable. The economic recession has had an adverse impact on vendors as well as end-users, so don’t ask for the sun, the moon and the stars.

If you have a good relationship, there’s a good chance your vendor or reseller sales representative will be receptive to negotiating things like fixed annual payments or extended payment plans — and even negotiate down the percentage of the True-Up payment if your organization has experienced a reversal of fortune over the past year or two. Here’s a list of things your organization may want to negotiate:

  • the ability to keep your unused licenses and have them carry over when you re-sign a new contract;
  • price caps on product and licensing increases;
  • price protection for the duration of your licensing contract;
  • contract buy-outs;
  • licensing transfer fees;
  • penalty waivers if you’re noncompliant;
  • flexibility in signing upgrade and maintenance agreements;
  • discounted or free training;
  • discounted or free technical service and support incidents; and
  • free training vouchers.

Again, this is all saved money that will shave your organization’s capital expenditure and operational expenditure budget. Don’t get discouraged if your vendor or reseller initially balks. That’s all part of the negotiating process. Be persistent; remember, your vendor wants to keep you as a customer. Be prepared with a counteroffer. Remember: You have nothing to lose and everything to gain.


Laura DiDio is the principal at ITIC, a research and consulting firm that covers the high-tech industry.

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