How to Avoid Paying a $7 million True-up Invoice

Facing a substantial True-up invoice?

Historically, software vendors built their financial success on the following iterative principle:

1)      Create a Killer App

2)      Reduce incremental costs, including cost of sales and distribution

3)      Sell in large quantities and possibly on a global scale.

Market saturation for enterprise applications, combined with the economic downturn has forced vendors to look at other ways to monetize software applications. Increased maintenance annual charges have certainly been a favourite tactic of the likes of SAP and Oracle.  More frequent audits and true-ups are also representing a growing avenue for IT vendors to generate revenue, while subscriptions models are also on the rise as a way to reduce churn.

The upshot: software has become a strange beast, which can cost more in the future than at the time of purchase.

That problem gets even more acute once the costs of underutilized software assets are factored in. Would anyone is his right mind acquire a family car, install it in the garage, never use it for a ride and still happily pay subsequently astronomical charges just because it is there? Even the most exclusive car collector gets to drive his cars at least to a car collector show once in a while.

Yet, stories from the 1E field are rife with organizations facing true up invoices running into millions of dollars, for software which is not necessarily being used. Recently, one of these organizations – and luckily an AppClarity customer – was challenged by a very aggressive software vendor with a $7 million true-up invoice. This organization then simply ran an AppClarity report to count the number of software instances. It estimates it took less than one man-hour to assemble the data required and the audit in the end resulted in a $46,000 bill to the vendor to correct the exposure. Management understandably was extremely happy with the outcome and the IT team’s response in handling this true-up request.

This story illustrates two elementary principles for software licence optimization:

1)      Software is by nature an intangible asset. It is not visible and can be difficult for business managers to apprehend (E.g. Why is a virtual desktop more expensive than a physical one?) Software has also a tendency to live for ever. And, as any Software Asset Manager would attest, software licensing can be tricky. For all these reasons, it is therefore important to have tools which make software instances and software usage visible on demand, so those assets can be properly managed in lines with the organization’s actual use and limit any unnecessary liability exposure.

2)      Organizations should know how much exactly they owe, in software liability terms before the auditors walk in. Otherwise, it will be too late. Self-audit capabilities combined with an enterprise App store like 1E Shopping are essential. Procurement alone is not in a position to control software liability as additional software costs can be incurred for each deployment or use.  Nor is traditional IT cost management sufficient as it is often by-passed by business users, whose demands for IT often exceed allocated IT budget.

To learn about software licence cost optimization, please listen to the following recordings:

Alternatively, you can come and visit the 1E booth at the two upcoming Gartner events where we would be happy to discuss your software license optimization requirements, and help you avoid those true-up shocks.

Nathaniel Martinez | Senior Analyst

Interested in discussions regarding True-ups, and other Efficient IT issues? Join the conversation at 1E INSIDEV1EW, our open LinkedIn group. Click here to join.

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Nathaniel Martinez

About Nathaniel Martinez

Nathaniel Martinez is a Senior Analyst with the 1E Centre of Excellence. In his role, he analyses customers' and prospects’ IT environments, to identify areas where sustainable transformational IT gains can be achieved through the use of 1E's ActiveEfficiency solutions and expertise. Nathaniel holds an MBA from the University of Montana, and is a Senior Business Analyst and Awarded Market Research & Intelligence Director with over 10 years’ experience of managing agency research and in-house projects to support clients’ strategic planning, marketing, product development, and business development investments Prior to joining 1E, Nathaniel was a program research director with IDC, the ICT Market Intelligence Specialist, where he delivered strategic studies, presentations, and insights to expertly advise industry clients on IT infrastructure trends in the EMEA market. Nathaniel is also a keen cyclist.

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