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Software license optimization could save billions, help balance budget

Feb. 3, 2013 - 11:27AM   |  
By JIM RYAN   |   Comments

It goes without saying that sound procurement policy requires agencies to purchase only what they need and use only what they have. Anything more equals waste and cannot be tolerated in this time of austerity and budget cuts. But how can the government procure effectively if it doesn’t know how much of a particular mission-critical asset it needs, how much it has and how much it uses?

Therein lies the problem with procurement of the government’s software licenses. And the difficulty managing the software “estate” is the primary driver behind a major trend in the private sector — and increasingly in the public sector — software license optimization. The very software that keeps the wheels of government turning daily also happens to be among the most difficult types of assets to track, manage and optimize. Several causes contribute to the problem.

First, each of the license agreements governing the thousands of government-purchased applications contains dense and complex terms pertaining to usage that must be tracked, managed and understood to ensure compliance. If usage exceeds those terms, the agency would be considered out of compliance, and therefore subject to “true-up” penalties that can and often do run into tens of millions of dollars per application. The contrary is also true: If those licenses aren’t being fully used, then the government has purchased shelfware that is sitting idle — the other side of government procurement waste.

Additional factors further complicate the scenario, such as new technologies, like the cloud; virtualization; and institutional challenges, such as staff turnover.

Quantifying the waste associated with the federal government’s poorly managed software assets is difficult. This is primarily due to most agencies’ lack of visibility into their own software license positions.

Flexera Software’s “2012 Key Trends in Software Pricing and Licensing Survey,” prepared with assistance from IDC, a market research firm and consultant, shines a light on some of the true costs of software spend waste. According to the survey, 38 percent of organizations indicated that 11 percent or more of their application spend was associated with out-of-compliance use, up from 26 percent one year ago. Likewise, 56 percent of organizations said that 11 percent or more of their application spend was for underused software (shelfware), up from 49 percent last year.

Applying those numbers to the feds — if 11 percent of the government’s software spend was based on noncompliant use ($1.03 billion), and if 11 percent was spent on shelfware ($1.03 billion) — that amounts to more than $2 billion in waste that could be easily and painlessly saved, without political controversy.

Software license optimization to achieve budget-cutting goals without sacrificing essential services is yielding results. For instance, one military agency, which cannot be named because of contractual obligations, facing significant budget cuts this year now believes it can achieve its savings solely through centralized software license optimization.

Congress is also recognizing the power of software license optimization. In Section 937 of the recently enacted National Defense Authorization Act, software license optimization is now enshrined in law as a prudent framework for managing the Defense Department’s software estate.

The growing momentum in government behind better software license optimization strategies has also had an unintended benefit — helping to build stronger relationships between the government and software vendors.

Historically, a sense of mistrust has permeated this relationship. Software vendors have had the upper hand because of the mission-critical nature of their applications and strong negotiating power. However, as more agencies adopt software license optimization strategies and are able to maintain compliance, the tensions in the vendor-customer relationship dissipate. Both parties can discuss business needs and procurement with clear visibility into the actual situation — allowing for fair and balanced negotiations.

As agencies face the specter of deep and painful budget cuts, it’s incumbent upon political leaders and agency heads to ferret out and eliminate all waste before sacrificing essential services. And waste is rampant in the procurement and management of the software applications running the government. Implementing a governmentwide software license optimization strategy would save billions without the pain and political acrimony caused by cuts in essential services.

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Jim Ryan is the chief operating officer at Flexera Software.

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