Why clouds may not save you money

While one of the early advantages of moving to the cloud was a reduction in both Capex and Opex, this has not necessarily proved to be the case. Indeed, when it comes to software costs the opposite is proving to be the case for many users as established software vendors look to plug declining revenues by auditing more users to locate any defaults on licence payments that may be due.

Indeed, the costs associated with software and its utilisation in the cloud are likely to stay the same as for on-premise installations. This is particularly so if businesses continue to be as lax in their management of software and its use as history, and a recent survey of current behaviour, suggests has been normal.

According to the survey - undertaken by Vanson Bourne on behalf of 1E, a UK company specialising in IT efficiency and identifying unused applications in companies’ applications portfolios -  many companies do not even know what software they have, or whether it is being used.

Some 61 percent of the organisations surveyed do not monitor for unused software on servers, PCs and laptops, yet 76 percent of them had a vendor-organised software audit during 2012. In fact, 52 percent had more than one audit, and 17 percent reported having five or more separate audits in that one year period.

The research shows that the majority of firms only have limited visibility into what software is actually being used across their IT estates. The risk, of course, is that if businesses are unable to pinpoint the exact applications being used systems, they are prone to over-spend on software licences in order to avoid the fines levied as a result of failed vendor audits.

Less than half of respondents, 49 percent, said their organisation used a tool that could identify unused software on PCs and laptops, while only 39 percent stated that their tool could also pinpoint unused software installed on servers, where some of the most expensive applications are likely to be found.

This situation is likely to continue as more businesses look to the cloud as a source of more flexible and agile IT resources, as Martin Prendergast of Concorde Solutions and chair of the Cloud Industry Forum Special Interest Group on software value licencing, observed.

“Vendors are still auditing. As customers look to reduce spend and migrate to the Cloud, the vendors are affected by the associated drop in revenue. As a result, audit activity is on the increase as the vendors look to plug holes in their revenue and ensure that customers are paying every penny that they owe.”

As the number of audits increases so does the cost of not knowing what applications are being used, for there is more chance of shelfware being accumulated. And the fact that an application is not used does not mean it needs no licence. That still has to be paid for, and that can turn into a significant cumulative cost.

And as Prendergast pointed out, it is not a problem that the cloud will irradicate. Poor management of applications use will still be a source of financial leakage, even in a fully cloud-based environment.

“Shelfware is still a business risk with Cloud,” he said. “For example, if a business purchases 10,000 user access licences for a SaaS platform at a cost of £10 per annum per user, then the business will account for an Opex cost of £100,000 for the year. However, if there is a staged deployment in the business and there is a lag caused by training, communication, set up and data migration, and in the first year only 5,000 users are brought onto the system, then the business has effectively overspent by £50,000 in the first year. The cost of unused software can’t be carried over to year two. Cloud costs need to be controlled through careful planning to avoid over-purchase.”

According to Sumir Karayi, CEO of 1E, software licensing represents a major cost, is an administrative burden and a hidden liability for many organisations. “This research clearly shows it is consuming far too much of the IT budget than is necessary.  Software vendors are wise to the fact that organisations are struggling to get a handle on their software licensing, so today, it is no longer a question of if they will be audited, but when, and vendors are actively using the threat of these audits as sales opportunities. Software license management is getting harder too.  Getting application licensing right is hard enough in the physical world, but in a world of desktop and server virtualisation, organisations are faced with a whole new level of complexity.  It’s clear that organisations need to get a grip on what exactly they are using and have the ability to compare it to what they need from both an operational and compliance standpoint in order to remain efficient and competitive.”

With Cloud subscription models going away, Prendergast suggested that compliance may not be the main issue any more. Instead, very similar issues of governance and spend management are.

“The key concerns become one of knowing what you’re using versus what you’re paying, i.e. are you on the right tariff or are you paying for capacity/ features/ access that you’re not utilising. Also it becomes an issue of monitoring the performance of the vendor. The traditional licence has now become a service agreement between the customer and the vendor. This should be governed by SLAs, with the SLA negotiated so that they’re meaningful.”

That, he suggested came down to questions such as whether users wanted more service credits, for example, or a failing service? This is a known gambit of some service providers, and neither is likely to be what the user really needs, which is the ability to claim a financial penalty.

He also pointed to automatic contract renewals as another area of overspend in the cloud, the terms of which are added by the vendors to their contract.  An organisation can be caught out by a renewal and find it’s too late to act, or may not be armed with accurate information around usage. Having actual numbers that reflect how the business operates is an essential prerequisite for any contract renegotiation.

“Also,” he added, “don’t forget that if a customer decides to create a Private Cloud then they’re using their own infrastructure and licenced software as the platform for that Cloud. This will invariably be underpinned by virtualisation technology. In this case, the licencing compliance issue will still be present. it just becomes more complex as it moves away from the internal physical environment, to a small internal physical environment and a larger internal virtualised environment. The licensing rules are now more difficult to apply.”