October 18, 2010 By David Raths
Stern pulled information from the Oracle Fusion Middleware licensing manual to create Visio flowcharts to help herself and her colleagues better understand their options. She also dug into maintenance and de-support policies and found some interesting things. “They entice you with deep discounts — deeper than those on the GSA schedule — but I have come to believe you should ignore those discounts,” she said. “Let’s say I buy 100 database partitioning options, but in three years I can change the configuration and want to de-support 50. Oracle will reset the cost basis for maintenance to the E-Business list price, so de-supporting the licenses may actually increase maintenance costs.”
Stern noted that the licensing price reset information isn’t in the contract’s terms and conditions, but rather in the technical support policies.
Oracle declined to comment for this story.
Oracle has two types of software licensing: Named user and processor-based. Stern plans to deploy a mix for development, test and production, to keep costs down. Processor-based licensing fees are higher for systems with multicore central processing units (CPU), like the data warehouse’s Sun Enterprise 25000 servers. Stern’s team started looking at hardware changes that might save them money. “Ultimately we realized that we could move our production middle tier to a small Sun server,” she said. “We are downsizing from eight dual-core CPUs to a server with two single cores. When we complete all three migrations, including OBIEE, we think that replatforming the middle tier will generate maintenance cost avoidance of $350,000 per year.”
With the processor-based licensing that some database and business intelligence software companies use, agencies must realize that hardware upgrades can increase software costs dramatically, IDC’s Konary said. “Customers areseeing vendors change policies and cost structures on maintenance and how they charge for licensing over the life of the software,” she said. “There is no silver bullet on how to address this, but you have to realize as an organization that if you adopt virtualization or do a major server consolidation, you have to look closely at software costs as part of the total cost of ownership package.”
So what’s a CIO to do? Consultants and analysts have several suggestions. One is to get a better handle on your current licensing usage. Products from companies like Flexera Software and Sassafras Software can help agencies gather information about what software is installed in their computing environment and what usage rights they have for those products. “That is the lowest-hanging fruit, looking at usage,” said Scott Lemm, who oversees the asset management team for TechTeam Global Inc.
He has used Sassafras’ K2 software to help public-sector customers track software assets for almost 10 years. “One organization I worked with licensed 1,800 copies of a piece of software, but no more than five were being used at any one time,” he said. “That is information to go back to the vendor with when negotiating.”
There are literally hundreds of ways to license software and some vendors change licensing terms regularly, Lemm added. “We try to help customers find that sweet spot, but it is constantly moving.”
Steve Schmidt, vice president of product management at Flexera Software, said his company’s FlexNet Manager Suite can provide business intelligence about an agency’s operations. He said at a basic level, asset management can help agencies identify software installed, purchase orders and contracts. But at a more advanced level, license optimization involves monitoring contracts and compliance so that you are prepared for maintenance renewals, license audits and reviews. “That allows you to minimize license consumption and software spending, and gain insights for vendor and application consolidation,” Schmidt said.
CIOs also can seek to build stronger internal software asset management teams to track licensing usage and options to negotiate with vendors. “Most government organizations will claim to have software asset management teams, but from my experience I can count on a few fingers the ones that do it well,” said Michael Swanson, president of Minneapolis-based consulting firm ISAM Inc. “What they call an asset management team is really just the procurement people who understand contracts and vendors, but not the functional features of the software or the functionally equivalent software that could save them money.”
Swanson said it’s a mistake to be too focused on discounts. “CIOs need to ask what is the lowest cost they can pay for the functionality they need,” he said. Two state governments he credits with improving their software asset management are California and Louisiana. “They do not sign any licensing agreements until they have done a thorough financial review,” he said. For instance, in its data center consolidation, California has studied the optimal way to configure its mainframe and distributed computing environments to lower the cost structure.
California has learned to gather data about its software usage and find functional product redundancies, said Patti Malensky, IT acquisitions supervisor in the California Department of General Services (DGS). “We collect data on the percentage of usage of each product,” she said. “Some products were loaded onto a system and then forgotten about. We have actually eliminated 30 percent of products due to lack of use.”
If software is infrequently used, that can be taken up in negotiations with vendors, she added, but more often the DGS can negotiate with the users. “Sixty percent of the time they are not willing to pay the full cost of the software when that is the option presented to them,” Malensky said. “We are sort of forcing them into the 21st century, but we don’t leave them hanging. There is always a functionally equivalent option.”
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