Stretching the Software Budget

Organizations can get much greater business value from their software budgets by eliminating waste, more intelligently allocating entitlements, and negotiating more effectively with vendors. These Software License Optimization (SLO) strategies pay particularly big dividends when applied to high-value applications. This white paper explains how SLO works—and offers practical advice about how to implement SLO in the real world.

Executive Summary

Software is of tremendous importance to today’s IT-intensive organizations. In fact, the appetite of organizations for software is growing at a faster pace than software budgets—especially in light of current economic conditions. It is therefore more critical than ever for software buyers to get maximum value out of every dollar they spend on software.

To successfully stretch their budgets, software buyers have to:

  • Eliminate spending on unnecessary “shelfware” licenses and maintenance fees
  • Mitigate the risk of under-licensing and negative audit outcomes
  • Allocate software entitlements where they provide the most value
  • Unify purchases and contracts across the enterprise
  • Accurately forecast and plan future spending
  • Conduct smarter, fact-based negotiations with software vendors

These budget-stretching best practices are known collectively as Software License Optimization (SLO). SLO advances the maturity of existing Software Asset Management operations by bringing more insight and rigorous financial discipline to software acquisition and ownership. By implementing SLO best practices, organizations of all kinds can achieve substantial cost savings while greatly improving their ability to use software to achieve their strategic objectives.

Unfortunately, most organizations lack three things necessary to do SLO:

  1. SLO tools that provide visibility into how high-value applications are being used across the enterprise—and how that usage compares to complex software entitlements
  2. SLO subject-matter expertise necessary to make the best possible decisions about spending, contract negotiation, and the allocation of entitlements based on the information provided by SLO tools
  3. SLO staff that can perform required tasks in an efficient and timely manner

IT departments therefore need a partner capable of providing the tools, expertise, and human resources necessary to fill the “SLO gap.”

Flexera Software is such a partner. By providing a complete turnkey solution—including advanced SLO tools, proven SLO expertise, and rapidly deployable SLO teams—Flexera Software enables organizations to quickly and painlessly pinpoint over-spending, mitigate compliance risks, optimally allocate existing entitlements, improve budget planning, and negotiate much more effectively. As a result, Flexera Software customers consistently achieve substantial cost savings and reap significantly greater value from their software spending.

Stretching the Enterprise Software Budget

Software is a major business expense, typically representing more than 30% of total IT budgets in North American businesses. 1Software also continues to become more and more critical to the business. High-value applications in particular— such as those offered by Microsoft, Oracle, IBM, and SAP—are a primary means by which IT departments enable the business to execute core processes more quickly, easily, and accurately.

Current economic conditions, however, put severe constraints on software budgets. Gartner, for example, recently revised its projections for annual worldwide enterprise software spending downward by $8.8 billion.2

So, to ensure that an organization can successfully compete in today’s technology-dependent marketplace, software buyers must squeeze the greatest possible business value out of every dollar they spend. A good place to start is among vendors where the majority of spending occurs.

  2008 2009** 2008-2009
% change
Microsoft* $44.55 $42.19 -5%
Oracle $23.53 $22.90 -3%
IBM $22.07 $21.69 -2%
SAP $16.91 $15.36 -9%
EMC $6.21 $6.11 -2%
* Forrester forecast
** Excludes revenues from sales to consumers
Largest Software Vendors by Sales to Business and Government (US$ billions)3

Several market factors make it particularly important for organizations to apply more rigorous financial discipline to their software spending:

Greater disparity between demand growth and budget growth. As noted above, economic conditions are severely limiting software budgets at the same time as organizations are becoming increasingly technology-dependent. Buyers must therefore meet escalating demand for software without increasing their budgets proportionally.

Rising licensing costs and maintenance fees. In the face of tightening markets, software vendors are raising prices to extract more revenue from existing customers. SAP, for example made its customers move to a premium support service that costs 22% of their base licensing fee—compared with the previous standard service, which cost 17%. Oracle, for its part, increased the cost of certain options for its database by as much as 40 percent. And processor licenses for its diagnostic and tuning packs went from $3,500 in 2008 to $5,000 in 2009.

More vendor audits. Tight markets have led vendors to become more aggressive about auditing customers. Gartner indicates that more than 50% of their clients have been audited by at least one software vendor in the past 12 months, up from 30% to 35% from previous years.4 These audits raise the risk of fines and can disrupt operations as software deployments are thoroughly inventoried and compared to purchasing records.

More complex licensing models. In their pursuit of more revenue, vendors are implementing more complex usage and subscription-based pricing models—and defining more complex contract terms and conditions. They are also bundling functional modules in different ways to incent IT departments to buy more software licenses. This complexity presents software buyers with new challenges when it comes to negotiating contracts, allocating budget resources, and projecting future requirements.

The growth of virtualization and cloud computing. By creating more instances of servers, virtualization also creates more instances of applications and databases. This “virtual sprawl” creates the potential for non-compliance and much higher licensing costs.

A persistent shelfware problem. When budgets were less constrained, many companies got into the habit of buying more licenses and support contracts than necessary because they lacked the tools to accurately determine user demand. These habits have led to millions of dollars in unnecessary spending on shelfware licenses and maintenance that are no longer tolerable. As a recent research report from Gartner explains:

No enterprise has escaped the scourge of shelfware, but few are aware of the scale of the problem and the significant amount of budget waste attributable to it. IT budget is too precious to fritter it away on solutions that do not deliver appropriate value.5

Responsiveness to organizational change. As businesses respond to changing market conditions through mergers, acquisitions, and divestitures, they have to restructure their software entitlements accordingly. If they don’t, they can easily wind up over-spending on redundant licenses or lapsing into noncompliance with existing contracts.

The bottom line is that software buyers have to be savvier than they have ever been before. The practices and policies of the past simply won’t suffice in a market environment where cost, complexity, and risk continue to escalate.

1 IDC, 2008,
2 Forecast: Enterprise Software Markets Poised for Recovery in 2010, Gartner, 2009
3 Global and US Software Market 2009-2010, Forrester Research, Inc., July 2009
4 Polls and Surveys Show an Increase in Software License Audits, Gartner, 2009
5 Shelfware Is Stealing Your Budget: Spot It and Stop It, Gartner, May 15, 2009

This is an excerpt. Download the entire pdf: Stretching the Software Budget