New York, California, Defense Department Look at Renegotiating Software Licensing Agreements

New York City’s HHS-Connect is a project designed to improve information sharing among disparate city health and human services agencies. When the initiative signed a three-year unlimited licensing agreement with Oracle in 2009 for the company’s WebLogic Enterprise Edition and WebCenter Enterprise Edition software, the move caused IT leaders in other mayoral health and human services agencies to rethink their middle-tier software plans.

Availability of the new agreement led Anna Stern, assistant  deputy commissioner for new initiatives at the NYC Human Resources Administration (HRA), on a nine-month odyssey to better understand how the software products her team needed are bundled, how maintenance costs would be allocated at the end of the licensing agreement, and how Oracle’s software de-support policies worked. What she learned led her to investigate alternative hardware/software combinations to avoid a dramatic — and unfunded — increase in maintenance costs.

“All of these agencies could now obtain WebLogic Enterprise Edition and WebCenter Enterprise Edition for free. I thought, nobody gives anything away for free,” she recalled. “My antenna went up.”

Stern isn’t alone in struggling to understand the implications of a new software licensing agreement. Amy Konary, a research director of software pricing and licensing for IDC, said two overwhelming problems persist: First, licensing agreements are long and difficult to understand. “They are written in legalese and are often 100 pages long,” Konary said. The second complaint she often hears from IT leaders is about the way software is sold, with a perpetual right to software and then an ongoing fee per user, or sometimes based on the number and speed of hardware processors. “Buyers say that doesn’t always match up with the way the software is used,” she said, “and that they are buying more than they need.”

In a 2009 IDC survey, 76 percent of enterprises said there’s a level of software underuse or “shelfware” in their organization. And although 61 percent of IT managers believe tracking software usage is important, most said they don’t have the appropriate tools to do so.

Besides ensuring that they aren’t paying for more licenses than they need, IT leaders also must look beyond the upfront costs of new software. As Stern investigated, she found that despite the substantial discounts that HHS-Connect had negotiated, migration costs would be significant. “It may be a free product, but because we have a PL/SQL Oracle Portal deployment, it could cost us $600,000 in incremental consulting fees to implement, and I have to reconfigure my team to devote two full-time resources to the middle tier and retrain key staff in Java,” she said.

One of Stern’s chief responsibilities involves a large enterprise data warehouse for the HRA, a multibillion-dollar social services agency that provides assistance to New Yorkers who require a mix of Medicaid, food stamps, public assistance and related services.

“We are satisfied with Oracle Application Server and Oracle Portal, but Oracle classifies its products as either supported or strategic,” she said. When Oracle acquired BEA Systems, its WebLogic products became strategic, while the software used by the HRA data warehouse became supported, which means it would be phased out over eight to 10 years. The same thing happened when Oracle acquired Siebel Analytics; Oracle Discoverer became a supported product.

“Even if you are happy with your current solution, having a product moved into the supported group means that you need to start thinking about migrating,” she added.