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Licence to bill

/ 8 June, 2015

Purchasing a licence for software, particularly if the software needs to be rolled-out to a large group of employees, is no small investment. In the age of Software-as-a-Service, licensing and support agreements are key for keeping software up-to-date and well-managed.licence

These days IT spenders are spoiled for choice in terms of licensing and service models, with wide variety in vendor, price range and package. When determining which licence and service is the proper fit, CIOs need to consider a few criteria.

There are four major types of licence schemes currently used by most companies, each with their own individual characteristics. Understanding what these types are and what purposes they serve is the first step in making the right decision.

Perpetual licensing was the industry standard for a long time. It is the licensure often traditionally associated with software offerings, and for a while the choice was limited to perpetual or subscription licensing. As the name suggests, a perpetual licence gives users indefinite access to software. It is customary that the company allows users access to updates and technical support during the first year, or longer. The biggest drawback to perpetual licensing is the high up-front cost it presents customers, particularly when compared to subscription licensing.

The long-time rival of perpetual licensing – subscription licensing – requires customers to re-purchase a new licence after an agreed period of time. The most obvious benefit to this is the lower upfront cost, particularly when compared to a perpetual licence. However, while they may enjoy the lower cost, companies should consider the long-term costs associated with a subscription license. Often the break-even point is a few years.

Capacity-based licensing is based on the volume of data a company intends to utilise and back up. One of its main benefits is that it allows the user or company to buy licensing based on their specific needs. Another benefit of capacity-based licensing is the flexibility of data usage it allows on all agents. With a capacity licence, data usage is not tied to a specific number of servers or agents.

The fourth and increasingly more popular type of licence is known as a user-based license. The increase in the number and type of devices people now use both personally and professionally has created a new demand on software licensing. User-based licensing has risen to answer many of the new issues created by this multi-device trend.

Mahmoud Jessa, CIO, Connect.tv, lends some customer insight into licensing trends. “With so many software houses offering a lower cost entry point through monthly subscriptions, gone are the days of outright purchasing of a licence for local installation,” he explains. “Whether it be Dropbox for your storage, Google for your email or Evernote for notes, managed services are the norm because they allow for the integration with mobile devices which are now part and parcel of our everyday lives.”

Angela Halawi, Licensing Manager, Microsoft Gulf, points out, “Customers nowadays operate in a multi-screen, multi-device world and they expect to be able to use their chosen applications in a way that suits them, regardless of where they are or what device they are using. A user-based licence makes this possible by allowing access to the server software from any device by one user. The licence is assigned to a named user who must be identified to ensure the licence agreement is validated and the licence terms are adhered to.”

Knowing the type of software licensing to utilise also requires a look at the organisation’s needs. Companies should assess the number of users, the kinds of devices which they’ll use, the main applications to be run and the servers that will run them. The goal in choosing a software licence should be to optimise productivity, support mobility, and achieve short and long term goals.

George Yacoub, CIO, SEHA, says he and his peers must take into account a number of issues when deciding on a plan. “For one, they need to know their organisation’s strategy for the expected future use of the product,” he says. “In addition, we need to consider the growth in the number of users of devices to be licensed, the cost over discount percentage, the frequency of service upgrades as well as the support SLAs,” says Yacoub. These pre-purchase considerations will play an important role in protecting the company from unforeseen complications.

Farid Farouq, Head of IT, Dubai World Trade Centre agrees, “It is important to first understand your business process before deciding on a licensing agreement,” he says. “The way the transactions are executed within your organisation will certainly not be the same as compared to others. Also, the volume of the transactions could be different,” he explains.

As a potential licensee draws nearer to purchase, they should exercise the right to perform reasonable testing of all software to their satisfaction. Also the licensee should consider requiring the vendor to warrant that the software will perform as described in the vendor’s documentation as well as in any other specifications agreed to by the parties such as the vendor’s proposal response.

The IT department also needs to take into consideration how the software will be delivered, stored, and utilised by the organisation. This will play into what kind of software licensing will be most effective. The vendor’s policies relating to physical and electronic security, system availability, data backups and disaster recovery need to be carefully reviewed and the licensee should consider including corresponding information in the agreement. The licensee must also consider the risks if there is a data breach involving licensee data and how that is to be addressed.
Once the software license is in place, and the customer has purchased it from the vendor, there remains the issue of post-licensing support. This will vary from vendor to vendor, of course, but a company’s ability to effectively support its end-users post-licensure may be the difference between one-time and repeat customers.

Halawi shares how her company has chosen to handle this important aspect of software licensing. “Microsoft offers a minimum of 10 years of support for Business, Developer, and Desktop Operating System Software Products. Mainstream Support for Business, Developer, and Desktop Operating Systems is provided for five years or for two years after the successor product is released, whichever is longer.”

Companies should also consider utilising software support websites that allow users and customers access to self-help guides and information. This can include troubleshooting information, frequently asked questions, how-to articles, user forums, and even live support options.

The growing trend in IT is managed services as well as an emphasis on post-purchase support. Managed services are coming about as a result of the increased complexity that virtualisation has brought to the IT landscape. As more and more software and functions move to the cloud, the strain of managing security, maintenance, continuity and support in-house is taking its toll on IT departments.

“Clients may go for managed services or prefer to manage themselves through their technical support team. Post-purchase support is a must for critical software to bail out users from technical problems,” says MN Chaturvedi, Director IT, Oasis Investment Company. A company that offers effective post-service support isn’t just doing the ethical thing for its customers, it’s also doing the fiscally sensible thing for themselves. It is far more costly for a company to acquire a new customer than to retain an existing one. The probability of selling a product or service to an existing client is in the region of 60 to 70 percent, while the probability of selling to a new client is only five to 20 percent.

Another benefit to offering effective post-purchase support is as a deterrent to the use of unlicensed software. It’s no secret that pirated versions of software make their way into the hands of potential paying customers. “Ownership of the licence and accountability of the issues could be one of the major pitfalls of using unlicensed software,” says Farouq. “Then of course there’s the issue of compliance, in which if an unlicensed customer is audited, they will face consequences, often financial, that can be avoided by acquiring the proper licensing.”

Naji Atallah, Head of AEC & Manufacturing, Autodesk Middle East, agrees. “For architects starting up a small practice or who work as sole practitioners, it may be tempting to minimise expenditures by using pirated software, in particular pirated versions of CAD software. Though pirating may seem like a cheap and easy alternative to purchasing licensed software, there are more risks from pirating than many realise.”