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The Business Impact of Virtualization on Software Licensing

The Business Impact of Virtualization on Software Licensing

Contributed Article by Jeff Greenwald, Sr. Director of Product Management at Flexera Software

Thanks to the benefits of machine virtualization, we've seen broad adoption by enterprises of every size. But at the same time, an important gap has formed between the ways IT organizations install, provision, administer and use application software in virtualized environments and the way application vendors build, license and support their software. The bad news is that this gap can lead to significant over-spending! To ensure access to vital software tools while avoiding unnecessary costs, IT must understand this gap, close it as much as possible through strategic software license management, and track how vendor licensing practices will change over the coming years.

The broad adoption of machine virtualization has been driven by several familiar benefits:

  • Cost savings - Stories of 10:1 server consolidation and server utilization moving from 20 percent to 60 percent or higher are common.
  • Flexibility - Machine virtualization allows IT organizations to flexibly configure resources to respond to variations in computing requirements and across time periods, departments and geographies.
  • Governance and Compliance - Used in combination with emerging standards like the Unified Compliance Framework (UCF), IT organizations are leveraging machine virtualization to provide an effective framework for compliance and governance.
  • Green Initiatives - Server consolidation offers a multi-year green annuity that includes reduced power consumption, reduced data center cooling demands, and because less equipment is purchased, lower impact fees to offset the municipal burden for disposing of equipment. Organizations can also sell carbon offset credits and improve their "green" brand image.
  • Reliability - Rooted in the design tenant of inexpensive hardware that is easily replaced with no service impact, machine virtualization delivers a robust and flexible foundation for a highly reliable data center architecture.
  • Scalability - Machine virtualization gives IT the ability to manage scalability swings, such as high accounting loads at month and year end and significant order management activity following a new product introduction.

The Customer-Vendor Gap

Along with all this great news, however, the customer-vendor gap can lead to additional costs, increased application complexity, a reduction in the perceived value of the software, and an increase in governance risks.

The role of software licensing is to align the value an organization receives from an application with the fee paid to the vendor. But virtualization has turned this "equation" on its head by making it easy to create multiple virtual machines (VMs) on any single physical machine, anytime, anywhere-without enterprises having software asset management tools that can provide visibility into how, when and by whom software is being used.

This lack of visibility into actual software usage can lower a company's profits through over and under-licensing (according to IDC, enterprise software usage exceeds its contractual agreements by 15-20%). Over-licensing ("shelfware") is caused by a desire to ensure users always have access to the software they need, but it unnecessarily increases costs. Under-licensing is usually the result of trying to save money, but it leads to denial of service and reduced productivity. Some companies even do both, over-licensing in some departments and under-licensing in others, because they don't have a centralized view of their licensing strategy.

Steps IT Can Take

Look and Ask for Consumptive Licensing

Enterprise IT departments should begin looking for traditional software sold using a consumptive license model. Most SaaS solutions are already based on consumptive licensing, and some software vendors are beginning to apply it to traditional software.

Consumptive licensing makes it easier to clearly identify and report the value an enterprise receives from a software application. For example, an expense reporting application licensed by the number of expense reports processed clearly articulates the software's value. Consumptive licensing allows the enterprise to purchase in a way that better addresses the level of price risk they are willing to take. For example, an enterprise that makes a volume commitment may pay less than an enterprise that won't make such a commitment.

The beauty of consumptive licensing is that it can account for applications that are dynamically deployed, run for a period of time, and then disappear. And it doesn't matter if an application is run on one or fifty machines, if multiple copies of an application are run on a single machine, or if a machine has a single core and a single processor or eight cores and sixteen processors.

Strategic Software License Management

While consumptive licensing may well be the model of the future, it's important for IT to obtain the maximum benefit from virtualization today while remaining in compliance with existing license agreements. IT can do this by adopting a strategic software license management approach and taking the following steps:

Step 1: Centralize All Licensing Operations

A decentralized approach to software licensing offers little visibility into the complete software license picture. Are some applications being over-licensed while others are under-licensed? Are there opportunities for license sharing? Centralizing software licensing not only enables the development of a single, complete picture, but also eliminates the need for multiple licensing experts in different departments.

Step 2: Leverage Accurate Usage Statistics

Relying on data that has even a five percent error margin can result in costly mistakes. Consider an organization with 4,000 licenses, each costing $5,000. A five percent error in peak usage data translates to more than $1 million of unnecessary costs over the life of the software license contract. Some software asset management tools present only a crude and often highly inaccurate approximation of basic license usage. With a modern solution, IT managers can base their purchase and renewal decisions on complete, accurate data derived from usage over time.

Step 3: Analyze Usage Reports

By segmenting and analyzing usage data by project or user group, an IT manager gains granular insight into the organization's actual software usage. This enables IT to address key issues such as eliminating spending on unnecessary software purchases, managing peak demand and optimizing software renewals and remixes. This way, overall software cost can go down even as access to needed tools increases.

Step 4: Automate Licensing Operations

By automating the collection and generation of key data, IT can always base business decisions on the latest information. In addition, automation can support the implementation of departmental chargebacks. Sharing software licenses among departments saves money, but managing chargebacks manually with monthly spreadsheets is time consuming and inefficient. Automating them makes it easy and cost-effective to share licenses while improving internal accountability.

Selecting the Right Software Asset Management Tool

A successful strategic software license management strategy requires effective tools that reduce the burden on administrators. An effective software asset management tool should:

  • Generate accurate and complete usage data, down to the feature and module level, that both software vendors and customers can trust
  • Be able to give license priority to critical users and exclude unauthorized users from access to software licenses
  • Use alerts to notify administrators of potential problems and job schedules to automate routine maintenance and generation of usage reports
  • Generate advanced warnings when licenses are about to expire
  • Allow administrators to stop unlicensed applications from running if such use violates licensing terms

As consumptive licensing becomes the norm, the customer-vendor gap in software licensing for virtualized environments will narrow. This is driving new requirements from the tools to support these business processes.  Today, next generation software asset management tools, commonly known as Enterprise License Optimization solutions, combined with a strategic software license management approach will help enterprises take full advantage of virtualization technology while avoiding unnecessary costs.

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About the Author

Jeff Greenwald is a Sr. Director of Product Management at Flexera Software. With 11 years experience in the licensing and software lifecycle management space, Jeff is responsible for aligning customer needs and market direction with Flexera Software's FlexNet Manager Suite for Enterprises.

Published Friday, July 23, 2010 4:00 AM by David Marshall
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