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Software Licensing: Can Better Measurement Deliver Better Management?

Frustrated at trying to fit your internal chargeback requirements into the one-size-fits-all invoicing approach from your enterprise software vendor? Many buyers say yes. The point of course is that your software vendor is in business to sell licenses not licensing flexibility. You do have other options however.

Think unit of measure. The simple one is based on number of seats or users. Virtually all enterprise software is sold based on the number of seats. Funny thing though, we’ve discovered after writing almost $1B in business that there are many units of measure that customers use for internal chargebacks. We know... they’ve asked us.

What are they looking for? The two constants are (1) more transparent budget management and (2) more precise cost allocations. The result?  Accounting treatment that accurately reflects internal expense allocations and the delivery of benefits matched with the timing of their vendor payables. Central’s customized licensing for enterprise software is a unique, effective answer to this problem. We’ve compiled a list of other unique innovative units of measure that our customers have asked for. 

DEPLOYMENT

Few organizations install all licenses immediately. They deploy over time and regularly take longer than planned. Several years ago a major consulting firm reported that 33% of all software projects with budgets over $15 million missed their target completion dates. The result according to the same study? “…half of all large IT projects—defined as those with initial price tags exceeding $15 million—massively blow their budgets.” In projects with extended deployment,  bulk software buys to secure the lowest unit price trigger immediate accounting treatment and can cost significantly more than negotiating staged license deployment.

 

BRIDGE BETWEEN BUDGET YEARS

We’re coming up on year-end and our software vendor is offering deep discount pricing if we buy now in bulk. So far so good. The trouble is that we have no budget left this year. What about a payment holiday or deferred payments at zero % interest? Uh oh, the dreaded accounting dragon rears its ugly head again. Your software vendor has no finance or leasing options which help. The answer? One of Central’s software licensing utility solutions which locks in the lowest price your vendor can offer, delays the purchase and most importantly, delays accounting treatment until you’re ready to take delivery.

 

BRIDGE DURING PLATFORM OR VENDOR CHANGE

A common theme from many of our customer and vendor partners. In the transition from perpetual license to subscription or cloud, virtually all customers are changing platforms and many are also changing software vendors. But while the customer may have budget, they often don’t have budget to run the current application and install new software. And we know that virtually all software has a ramp period. Options? Higher license costs in the early stages of implementation or better… negotiate the lowest license rate based on total volumes, then deploy, pay and trigger accounting treatment only as required.

 

SHARED SERVICES

Many large organizations run shared services departments which aggregate demand across multiple internal users or departments. Shared services acts as a Systems Integrator controlling platform type, managing pricing, procurement and vendor negotiations. Despite knowing total enterprise demand, shared service procurement is often handcuffed because they can’t forecast the exact timing of the demand. Bulk buys trigger immediate OpEx or CapEx treatment for the entire purchase, a no-no in many companies. Smart software vendors know they can push for bulk buys or sell at higher prices when quantities are smaller. Central’s software utilities fix the volume – price equation for both the customer and vendor.

 

SPEND

Many companies are installing applications from SAP, Oracle, IBM and Coupa to manage procure-to-pay enterprise spend. It’s a big business, over $5B in license, maintenance and subscription revenues in 2016. And of course, it doesn’t install overnight but often in modules across many buying centers. In 2017, one customer asked Central to build a licensing module where our pricing ramped to match the growth in spend running through SAP Ariba. The customer was changing platforms and needed both time and budget relief during the cutover.

 

CAPACITY

Some software vendors like data management provider Commvault base their pricing based on capacity versus licenses used.  As a customer your options are the same, pay higher prices early or contract for your max capacity, negotiate the lowest price using Central’s software utility and pay only as you add capacity.

 

ENTERPRISE LICENSES

Some vendors, particularly those still focused on perpetual, on-premise sell enterprise-class  licenses leaving their customers to manage the breakdown for internal chargebacks.  Some customers prefer invoicing per user, even when it is not available from their vendor . 

 

When industry studies show that over 60% of enterprise buyers want more options around s/w licensing and deployment maybe this is what they mean. We listened. Take advantage of Central Technology Services’ innovative licensing models that customize accounting for software licenses to reflect the customer’s business drivers.  Our software license solutions help you manage your business, balance sheet and EBITDA drivers to leverage the industry’s evolving range of subscription, cloud and perpetual license options. Central Technology Services is the software industry’s leading financial services partner, specializing in assisting Fortune 1000 companies and their vendors to manage the financial, operational and budgetary issues associated with acquiring enterprise software and related technology assets.

 

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