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Maximizing Value in Software and Cloud Services ProcurementHow Software License Optimization Empowers IT Procurement, Sourcing, and Vendor Management

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Maximizing Value in Software and Cloud Services ProcurementExecutive SummarySoftware license costs account for a significant port ion of the typical IT budget—as much as 30 percent—and they represent a substant ial cost for today’s enterprise. And, spending on cloud services is growing at a rate that is five t imes faster than the rest of IT. It’s up to the IT procurement teams to keep these costs in check while meeting the current and future software and infrastructure needs of the enterprise without overbuying or under buying licenses.

But opt imizing spend is no easy task. The procurement team has to negotiate and manage a large number of software purchase agreements - possibly in the hundreds - and with mult iple publishers. The agreements include complex terms and condit ions which vary widely from one publisher to another.

Virtualizat ion and cloud complicate matters because virtual machines (VMs) can be spun up and down quickly, VMs can move from one physical host to another, and yet, the software running on each VM must be properly licensed. Along with the adoption of cloud services there is also a trend where software is moving from perpetual to subscript ion-based licensing, which means the procurement team must address licensing and contracts for these services far more frequent ly, sometimes on a monthly basis.

While achieving volume discounts remains an important goal in contract negotiat ion, that alone is insufficient in optimizing software and cloud services spend. Effect ive procurement teams must look at the big picture.

Unfortunately, in many enterprises, the procurement team lacks visibility into the deployment and usage of software. As a result, the team is forced to make decisions based on guest imates and often errs on the side of caut ion,

overbuying licenses to minimize the risk of unbudgeted software audit true-up costs and penalt ies related to noncompliance. For example, if IT has litt le visibility into the exist ing software inventory or ent it lements, the procurement team may buy new licenses every t ime new requests are made for software access or new hires are brought on board. Overbuying can quickly erode the value of even the greatest discounts.

What’s more, the pract ice of “shadow IT” brings software and cloud services into the organization completely outside the purview and visibility of the procurement team. Shadow IT results in less than optimum purchasing as business units and individuals purchase software and cloud services direct ly, without regard for global enterprise agreements, volume discounts, usage data, and other enterprise-wide considerat ions.

With the right software license optimization solut ion, however, procurement can tackle these challenges in ways that minimize software and services spend while ensuring compliance with contract terms. A well-architected solut ion gathers a wealth of data, normalizes and analyzes that data, and presents it to the procurement team in act ionable form. Armed with this information, the team can make informed decisions that help reduce software license costs and, consequent ly, have a posit ive impact on the bottom line.

The right solut ion also provides a means for stronger software governance and enables the organization to proact ively ensure license compliance while also streamlining software and service delivery to the business.

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The Challenge GrowsSoftware procurement, sourcing, and vendor management have always presented a challenge for businesses. Complex software license agreements and license models make buying and managing software difficult. Software audits have been a growing trend that is highly disrupt ive to the business and often results in large, unbudgeted expenses. Virtualizat ion, cloud, and shadow IT amplify these challenges.

The Impact of Virtualizat ionMany IT organizations have been increasing the use of virtualizat ion in their datacenters. Public, private and hybrid clouds leverage virtualizat ion technology to enable the compute elast icity that is one of the major benefits of the cloud approach. However, virtualizat ion complicates software procurement and license management because of the highly dynamic nature of the virtual datacenter and the complexity of virtual use rights for software. VMs are rapidly spun up and down in response to fluctuat ions in demand and they are moved from one physical host to another for load balancing and maintenance operat ions. Each VM will typically have a unique set of software installed, including, for example, an operat ing operat ing system, database, middleware and applicat ion.

The procurement team has to ensure that the right software is available with the appropriate licenses for every software component running across a variety of server hardware types in the virtualized datacenter. That includes not only the software running on VMs but also the virtualizat ion software (e.g. VMware vSphere or Microsoft Hyper-V) running on the physical hosts. Determining the licensing requirements in this complex and highly dynamic environment can be quite challenging.

Consider the complexity of IBM Processor Value Unit (PVU) licensing in a virtual server cluster. IBM allows sub-capacity licensing which means that you only need to license the virtual capacity allocated to the IBM software, not all of the physical capacity of the server. But it also requires the calculat ion of the ‘high water mark’, which is the highest cost (from a PVU perspect ive) server configurat ion of all the servers in the cluster where the IBM software could run.

Clearly, understanding and tracking license consumption in virtual environments requires a software license optimization solut ion that can keep up with the complexity and changeability of these environments. The answer is not a spreadsheet.

The Impact of SaaS and other Cloud ServicesMany software publishers are pressuring customers to move to products that are delivered via Software as a Service (SaaS). These include Microsoft® Office 365™ and Oracle® ERP Cloud. In addit ion, a mix of independent software vendors (ISVs) and other vendors offer Plat form as a Service

(PaaS) and Infrastructure as a Service (IaaS) in the public cloud. For example, Amazon offers Amazon Web Services (AWS), Microsoft offers Azure, and Oracle offers the Oracle Compute Cloud Service.

The advantages of moving to subscript ion-based cloud services include a shift from capital expenditures (CapEx) to pay-as-you-go operat ing expenditures (OpEx), greater flexibility in that the enterprise is not as locked in to specific vendors, and easier maintenance in that the cloud vendors perform some or all of the hardware and software updates. In response, many enterprises are embracing hybrid environments that combine datacenter, private cloud, and public cloud. These hybrid environments result in a complicated mix of vendors, purchase agreements, and licensing rules that the procurement team has to navigate and help manage.

There is an addit ional wrinkle introduced by cloud services. Because it’s so easy to purchase cloud services, business units and employees in many enterprises are bypassing the IT department and the procurement team and obtaining the services they want direct ly from cloud providers. For example, a developer may obtain Elast ic Compute Cloud (EC2) instances direct ly from Amazon using his or her company or personal credit card. This shadow IT phenomenon creates an environment in which cloud accounts are scattered throughout an enterprise and may not be well managed from a corporate perspect ive.

Shadow IT is outside the governance and control of IT, and it deprives the procurement team of vital information needed for more favorable negotiat ions with cloud service providers. Moreover, shadow IT exposes the enterprise to budgetary risk, as the proliferat ion of cloud accounts and cloud instances is not well managed—costs can quickly spiral out of control.

Visibility: The Key to Effect ive Software Procurement and ManagementTo deal effect ively with new license agreements, enterprise agreement true-ups, and contract renewals, the procurement team needs clear visibility into the current posit ion of the enterprise with each of its key software vendors. It’s essent ial that the IT organization provide that visibility to the procurement team for all software, including on-premises software, SaaS applicat ions, and cloud services. The required information is described below:

Software Purchase Agreements• What software license agreements are current ly in

effect? Are there mult iple agreements for the same publisher or vendor across different business units or subsidiaries? If so, can they be consolidated to take advantage of volume discounts?

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• What products have been purchased under each agreement? By having access to purchase order (PO) data and reading the stock keeping unit (SKU) of each software product line item in each PO, software license optimization tools can determine exact ly what software products have been purchased and under what type of purchase agreement. For example, an IT organization may have bought Adobe® Creative Suite 5 under a Cumulat ive License Program (CLP) agreement. Another approach to collect ing license ent it lement data is direct connect ion to the vendor’s web portal; for example, the IBM Passport Advantage portal can be used to access IBM license ent it lement data. Data can also be imported from vendor licensing statements, such as the Microsoft License Statement (MLS).

• What are the terms and condit ions of each agreement? Terms and condit ions - sometimes called “product use rights” in the software domain - include such rights as upgrade, downgrade, mult iple versions, disaster recovery/failover, and virtual use. These use rights determine where the software can be installed, how it can be used and how license consumption is calculated. In many cases, product use rights allow more than one installat ion of the software to be covered by a single license. One example of this is the ability to use the product ion server license to cover installat ion of the software on a backup server. Vendor rules vary widely for backup servers depending on the backup server “temperature” such as hot, warm, and cold, and in many cases the warm or cold backup server is covered under the same license as the product ion server.

• What is the total cost of each agreement over a given period of t ime? The total encompasses not only license costs but also annual maintenance and support in the case of perpetual licensing. (Subscript ion based licenses typically include maintenance and support in the subscript ion fee.)

Licenses• How many licenses have been purchased under

each purchase agreement? Procurement needs to know not only quantit ies purchased but also when to purchase addit ional licenses and how many, under exist ing agreements. The Microsoft Enterprise Agreement (EA) has an annual true-up to allow organizations to add licenses to cover new software deployments implemented during the past year. This allows organizations to maintain license compliance but it requires detailed knowledge of new software deployments and license ent it lements.

• What types of licenses are held and what types should be purchased in the future? There is a wide variety of possible license types, including device based, named user, processor, core, server and client access licenses (CALs), and package licenses.

• What is the current license posit ion of each product? Data must include the number of licenses available, the associated license ent it lements - product use rights, and the number of installat ions for each product. In some cases, there may be no installat ion of the software. This is true for SaaS applicat ions, for example. In these cases, the quest ion is not ‘what is your license posit ion,’ but rather, ‘are you using the licenses you have and are they the right level.’

• To whom are named user licenses assigned? Which users “own” which desktop and laptop devices? This information can be used to reveal users who have more than one license allocated for the same product. It can also reveal those who have installat ions of the same software on mult iple machines, such as desktop and laptop that might be covered under a single license.

• Can users of expensive technical applicat ions gain access to licenses when they need them? These include electronic design automation, geographic information, explorat ion and product ion, and product lifecycle management applicat ions that are frequent ly licensed using the concurrent licensing model. Information on true denials of service to an applicat ion helps the procurement team understand if enough licenses are available for that applicat ion. A true denial of service means that the user was not able to access a license for the applicat ion when they wanted to use it, which means there can be an impact on product ivity.

• What are the business metrics related to certain software packages? Some package licenses, such as those offered by SAP®, are charged based on business metrics such as revenue or number of employees.

Software Inventory• What licensed software products are installed? This

includes operat ing systems, applicat ions, databases, middleware, and other licensed products installed on physical and virtual resources. Details should include the publisher, t it le, version, and edit ion of each product.

• What licensed software packages are installed? Enterprises need tools that can calculate license consumption for software packages in which costs are based on business metrics.

• What software bundles are installed? Many vendors bundle a set of products under a single license, making it challenging to determine whether to associate installed applicat ions with individual licenses or with bundle/suite licenses.

• What third-party systems are being used to indirect ly access data from software products such as SAP or Oracle? Some publishers require a license for users who indirect ly access data from their products through third-party software and they are clamping down hard on customers to ensure this indirect usage is fully licensed. Consequent ly, the procurement team needs visibility into the amount of indirect access and the organization needs to be able to optimize licenses across both direct and indirect usage scenarios.

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Physical and Virtual Infrastructure• Where is the software running? Part icularly for the

datacenter and cloud environments, organizations need to know the make and model of the physical servers where the software runs, and in some cases depending on the license model, the number and types of processors and cores in the server.

• What physical processing resources does the software consume? Many publishers are moving to capacity-based licensing models that calculate license fees based on physical host processor capacity. The total capacity model is based on the total processing capacity of the physical host. The sub-capacity model (sometimes called virtual capacity model) is based on the fract ion of total physical host processor capacity consumed by the software product in a virtual server. Sub-capacity is usually measured in terms of the number of virtual CPUs allocated to the VM or the number of physical CPUs used per hard part it ion. Examples include IBM® Processor Value Unit, Oracle Processor, and Microsoft Processor-core license models.

• What VMs are running on which physical server hosts? Virtual to physical mapping information provides visibility into the quantity and type of hardware resources allocated to each VM.

Software Usage• To what extent is each applicat ion being used?

This information enables IT to reclaim and reallocate unused licenses to other users, thereby helping the procurement team avoid or postpone the purchase of addit ional licenses. This is part icularly useful for desktop applicat ions.

• Is the organization paying for maintenance on products that are no longer used? This information enables procurement to work toward reducing maintenance costs.

• Which features of the applicat ion do the users access? Some licenses, such as SAP named-user licenses, have mult iple levels of access for each product (Developer, Professional User, Limited Professional User, Employee User, etc.). Licenses for higher access levels cost more than those for lower levels. Visibility into the features and roles people are using helps procurement contain costs by ensuring that users are assigned to the right levels.

• Is the user accessing the product or underlying data direct ly, indirect ly, or both? It’s essent ial to have visibility into the number of indirect users to ensure they are properly licensed. What’s more, indirect usage data also helps the enterprise ident ify users who access products and data both direct ly and indirect ly and have mult iple licenses when they need only one.

• What accounts does each user have? With this information, procurement can ident ify users who have mult iple accounts and determine if they have duplicate licenses for the same product in those accounts.

• What are the software and cloud services usage trends? This information is essent ial for future budget planning.

Moving to the Public CloudIn making the decision to move certain applicat ions and/or workloads to the public cloud, such as Amazon Web Services, the IT procurement team can leverage the information described in the previous sect ion to optimize spend. Here are some factors to consider:

• What are the cost implicat ions? Current infrastructure and management costs help the IT operat ions and procurement teams decide whether it makes sense to move certain software products and/or workloads to the public cloud.

• What are the license mobility rights? For enterprises moving to the cloud, procurement needs to know whether on-premises licenses can be moved to the cloud. Some vendors have Bring Your Own Software and Licenses (BYOSL) programs that allow organizations to leverage their exist ing enterprise software investment when moving to the cloud.

• Who will be using the cloud services and what is the optimum level of service required by each user? SaaS offerings such as Salesforce® and Microsoft Office 365 have different service levels with t iered costs based on level. Microsoft Office 365, for example, is licensed at levels E1 to E5.It’s important to track usage of these services to avoid over spending on higher level services that aren’t needed by some users.

• For cloud services, how many different accounts are there? How many cloud instances (e.g. Amazon Web Services (AWS) instances) are there and what instance types are they (e.g. Reserved or On-Demand instances)? In a lot of organizations, there are many different AWS accounts across different business units and it’s important to be able to aggregate and manage the costs associated with these accounts to keep costs from spiraling out of control. In addit ion, costs may be reduced by optimizing the purchase and usage of reserved versus on-demand instances.

• What are the service level agreements (SLAs)? Are vendors delivering the service quality they promised? Does IT have a means to track performance against SLAs? Is there recourse if the vendor violates the SLA?

Deep insight into the organization’s software usage and license posit ion gives the procurement team bargaining power in contract negotiat ions. Knowing that the publisher’s salesperson is incented to move as much software as possible to the cloud, the procurement team can leverage insight into the organization’s current environment to gain concessions. For example, the team may be able to obtain trade-in credits for unused on-premises software when negotiat ing the purchase of new technology.

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Software License Optimization: The Key to Visibility and ControlBecause of the complexity, diversity, and dynamic nature of today’s software environments, manually capturing and maintaining the data required for software license optimization is not practical, and software publishers provide litt le in the way of license management tools. Consequently, IT organizations need a solution that automatically captures and maintains comprehensive data. Moreover, they need a solution that also rationalizes, consolidates, and analyzes the data, and enables IT to provide the procurement team with comprehensive and meaningful information in an easy-to-understand and actionable form.

A well-architected software license optimization solut ion delivers the required capabilit ies and supports the procurement team with an enterprise-wide view of all software, both on premises and in the cloud. The view provides the procurement team with complete visibility of spend, including cloud services costs (see Figure 3 below). The team can slice and dice the information in various ways, view it in meaningful reports and dashboards, and track key indicators over t ime for trend analysis.

Figure 1: Software License Optimizat ion Management Dashboard—License Compliance, License Under-consumption, Contract Alerts, etc. Drill down for more detailed information.

Figure 2: Dashboard Showing Software License Compliance Posit ion for Publishers in Breach

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In addit ion, an effect ive solut ion automates many complex processes to streamline and simplify software procurement and management. A key requirement is the automatic applicat ion of license ent it lements/product use rights to ensure that the organization has an accurate license compliance posit ion and can minimize the number of licenses required. This includes software deployed in the product ion environment, and software deployed in nonproduct ion environments such as backup/failover, development, test, quality assurance, and training. This capability helps the procurement team maintain control of enterprise software costs.

Addit ional automation requirements that support the procurement team include:

• Reconciliat ion of installed software with purchase orders and license ent it lements. Integrat ion with the purchasing system permits the license optimization solut ion to import purchase order data and use SKU data to reconcile purchase orders with installed software.

• Notificat ion to the procurement team when a perpetual or subscript ion contract is approaching its renewal or expirat ion date.

• Detect ion and notificat ion of publisher-issued changes to software license agreements that may impact the organization’s license posit ion.

• Having the ability to track purchase transact ions and maintain an audit trail to provide information that can be used to respond effect ively to software license audits with a minimum of manual effort.

What’s more, the solut ion should optimize the ut ilizat ion of exist ing licenses through automated processes such as reclaiming licenses from users who are no longer using an applicat ion and returning them to the license pool for reallocation.

Figure 3: Cloud Services Financial Dashboard for Amazon Web Services (AWS)

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Finally, the solut ion should enable the IT staff to perform what-if analysis to determine the impact of hardware and software changes on license posit ion and cost. These include such changes as adding processor capacity to a server, moving a VM to different physical hosts, and installing a new software t it le. With this capability, IT can determine whether the change makes sense, and if so, communicate to the procurement team when more licenses are required and what the associated cost will be.

Eliminate Shadow ITThe primary driving factor for shadow IT is that going through the enterprise request/approval/delivery process can be lengthy and cumbersome. Today’s employees have become accustomed to gett ing what they need quickly and effort lessly in their personal lives. They want the same immediacy and convenience in their professional lives.

Many enterprises are discovering that enterprise app stores, in which employees serve themselves to the software and services they need, provide a solut ion. App Stores offer an effect ive way to eliminate the likelihood of shadow IT. They permit rapid access to software and services while allowing procurement and IT to retain control of the procurement and delivery process.

Of course IT must ensure that all resources delivered from the app store are properly licensed. That requires integrat ion between the software license optimization solut ion and the app store such that the app store automatically checks for availability of required licenses before delivering software, to proact ively maintain license compliance.

Figure 4: App Portal Enterprise App Store – Improves Software Governance, Automates License Availability Checking and Reclamation of Licenses for Unused Applicat ions. Provides Self-Service Access to Authorized Software and Hardware

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Putt ing It All TogetherTable 1 summarizes how the procurement team can leverage the information, analysis, and process automation provided by the software license optimization solut ion to optimize software spend.

Table 1. The value of visibility

ConclusionAs enterprises move into virtualizat ion and cloud services, the already difficult task of optimizing software and services procurement becomes even more challenging. To optimize software and cloud services spend in this increasingly complex environment, the procurement team needs broad and deep visibility into the enterprise software environment, its vendors, and its users. The right software license optimization solut ion can provide that visibility and maximize the value of enterprise software and cloud services to the business. The result is lower software and cloud services costs and that go right to the bottom line.

FlexNet Manager® Suite for EnterprisesFlexNet Manager Suite for Enterprises is a software license optimization solut ion that provides the information and guidance the IT procurement team needs to optimize software and cloud services spend. The Suite consists of FlexNet Manager Plat form, FlexNet Manager Server Software License Optimization solut ions, FlexNet Manager for Engineering Applicat ions, FlexNet Manager for Cloud Infrastructure, and Workflow Manager.

FlexNet Manager PlatformFlexNet Manager Plat form provides discovery, inventory, and hardware asset management funct ionality for desktops, laptops, servers, mobile devices, and other physical IT assets. The platform is the foundation for the add-on Server Software License optimization solut ions.

The platform provides applicat ion recognit ion and normalizat ion across more than 17,000 publishers and 177,000 applicat ions across mult iple plat forms including Microsoft Windows®, Linux®, UNIX®, and Apple® Mac OS®. The solut ion’s SKU Library contains more than 700,000 software product SKUs and is used to reconcile inventory and usage data with software purchase orders and contracts to generate a license compliance posit ion.

FlexNet Manager Plat form optimizes desktop applicat ion licenses by automatically applying product use rights acquired through software license agreements from vendors such as Adobe, Microsoft, and Symantec. It incorporates IBM Cognos® technology to provide business intelligence and report ing capabilit ies. This permits the IT staff to slice

Value Visibility providedAchieve more effect ive vendor and contract management

• Manage current software and cloud services agreements across the enterprise• Understand terms and condit ions of all software license agreements• Consolidate contracts for easier management and better volume discounts• Have access to purchase orders through integrat ion with the purchasing system• Perform ‘What If” analysis and report on usage trends to forecast future software needs

Optimize the number and level of licenses purchased for each product

Determine:• How many purchased licenses are allocated and to whom (users, devices, locat ions, and so forth)• How many licenses are allocated to idle users• How many users have duplicate licenses• What level of funct ionality each user requires

Optimize purchase of capacity-based licenses

Determine:• How much physical capacity each product consumes• How much physical capacity each VM consumes

Optimize purchase of indirect licenses

Determine:• Which third-party systems access a product indirect ly• How many users access software indirect ly • Which users access software both direct ly and indirect ly and how many have mult iple licenses

Reduce software audit risk and aid software contract management

• Automatically reconcile purchased licenses to installed software to understand license compliance posit ion

• Maintain audit trail to reduce the cost and risk of software audits• Notify of changes that could affect terms and condit ions of exist ing licenses• Notify of contracts approaching end of term

Ensure optimum use of purchased licenses

• Automatically apply software product use rights to reduce license consumption• Automatically reclaim licenses for unused software with integrated app store and license

management solut ions

Improve software governance and streamline service delivery

• Utilize and enterprise app store to provide self-service access to authorized applicat ions and eliminate shadow IT

Enable effect ive planning in move to cloud

• Understand and track license mobility rights• Understand current on-premises license posit ion and software usage to negotiate trade-in

credits for cloud services

Manage and optimize cloud services usage and spend

• Aggregate data from mult iple AWS accounts for enhanced visibility and control of costs• Optimize costs and ut ilizat ion based on Reserved versus On-Demand usage and other factors

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and dice complex data, track key indicators over t ime for trend analysis, and create custom reports, all useful to the procurement team.

The platform connects with third-party HR, financial, service desk, ERP, and procurement systems to allow collect ion of user, purchase order, contract, organizational, and other data.

Server Software License Optimization Solut ionsThese solut ions analyze inventory, applicat ion usage, purchase order data, license ent it lements, and contract terms for server products from crit ical vendors to generate an optimized license posit ion:

• FlexNet Manager® for IBM®. Accepted by IBM for sub-capacity report ing

• FlexNet Manager® for Microsoft®. Flexera Software is a Microsoft SAM Gold Partner

• FlexNet Manager® for Oracle®. Verified by Oracle LMS• FlexNet Manager for SAP® Applicat ions. Cert ified

by SAP• FlexNet Manager for Symantec™

• FlexNet Manager for VMware®

FlexNet Manager for Engineering Applicat ionsProvides concurrent license optimization and license server administrat ion to control costs for expensive engineering and technical applicat ions while

FlexNet Manager for Cloud InfrastructureProvides enterprises with comprehensive, accurate and act ionable insight into cloud infrastructure usage to optimize use and spend on these services.

Workflow ManagerHelps enterprises efficient ly administer their IT asset management processes and improve performance, control, and accountability through standardizat ion.

About Flexera Software Flexera Software helps applicat ion producers and enterprises manage applicat ion usage and increase the value they derive from their software. Our next-generat ion software licensing, compliance, security and installat ion solut ions are essent ial to ensure continuous licensing compliance, optimize software investments and future-proof businesses against the risks and costs of constant ly changing technology. Over 80,000 customers turn to Flexera Software as a trusted and neutral source for the knowledge and expert ise we have gained as the marketplace leader for over 25 years and for the automation and intelligence designed into our products. For more information, please go to: www.flexerasoftware.com

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