Dice March 2019 Blog Header

Consumption-Based Licensing: Managing Risk in Enterprise Software Deployments

CapEx and OpEx management, project planning, ROIC, NPV, planning horizon, Gant charts, risk mitigation… all commonly-used terms in business cases for management of complex IT projects. 

In most cases new software platforms are a foundation for transformation and software vendors are happy to help build sophisticated models with detailed project, resourcing and roll-out plans, supported by large licensing discounts for immediate volume purchases. 

The problem? Project roll-outs rarely go as planned, delays are routine and cost overruns can take the return out of ROI.

  • McKinsey reports that for IT projects with budgets over $15 million, the average cost overrun for software alone was 66%.
  • According to IBM just 40% of internal projects meet the company's three key goals (schedule, budget, and quality)
  • Gartner Group has shown that the failure rate of projects with budgets over $1 million is 50% higher than the failure rate of projects with budgets below $350,000
  • A 2016 study by Flexera Software revealed that almost one third of companies estimated their cost for unused software is over 20% of total enterprise software spend. 

Problems like these make that great deal you got for buying all those licenses upfront look less attractive. Why pay for products months in advance of when you need them or plan to use them? In a 2018 survey of 75 Fortune 500 clients by Central Technology Services, over two thirds reported the majority of their software purchases took longer than twelve months to deploy. If this sounds like your organization and you make volume purchases to get the best price, you’ve bought and paid for over 50% of your total purchase at least a year before you need it, incurred carrying charges and budget hits before you get any benefits from the use of the software.

Consumption-based licensing from Central helps organizations manage the risk of delayed software implementations. How does it work? You choose your software vendor and negotiate as usual, we act only as your licensing partner. You negotiate the lowest volume purchase price but pay for the software only as it is installed. Central then works with you to build a deployment plan for the software that drives budget and cost allocations aligned to your planned use of the software and available OpEx, CapEx and cash budgets.

Central’s solution separates the financial commitment (payments) from the planned roll out and accounting impact (OpEx/CapEx) to the P&L. This allows customers to change the deployment plan and OpEx/CapEx impact to match the actual roll out and use of the software. If your planned roll out goes faster or slower than expected, a quick and simple one-way amendment to your contract instantly changes the cost allocations and their impact to your OpEx/CapEx budgets. Deployment and cost allocations can be changed as often as required during the contract with no additional cost or change to the Total Cost of Ownership (TCO) of the transaction.

In complex environments with lengthy roll-outs our customers regularly save 30% or more in year one with no increase in TCO compared to your best vendor offer. Consumption-based licensing combines lower unit costs offered through volume purchases with the deployment flexibility and the budgetary treatment of purchasing software over time as needed, all with no increase to your TCO.

As inflexible accounting rules continue to impact revenue recognition for leading enterprise software vendors, they increasingly look to Central for more flexible licensing options. Last month, security leader FireEye named Central its Global Services Provider of the year. In 2018 we provided innovative licensing solutions to major software vendors including ServiceNow, AppDynamics, VMware, RedHat and Splunk and have partnering agreements with most major technology vendors. Call us or email today to find out how we can help provide your organization smarter ways to procure your software requirements.

Recent Posts