To IT leaders in other states, Malensky recommends developing a strong internal software asset management team and working with consulting firms that specialize in the area. “You have to do your homework on usage of hardware and software,” she added. “Some people may overtrust the vendor and think the vendor is working on their behalf, but that is not always the case.”

Making changes, however, can be an uphill battle politically, Swanson said. “If you have 700 software products in state government, there are staffers and a vendor behind each one telling you why you need all of them.”

Enterprise licensing agreements are still popular because CIOs are focused on the discounts, and there’s a sense that there is less management complexity overhead, IDC’s Konary said. Enterprise licensing agreements do have their place, she said, “but many customers end up frustrated with the largest software vendors because they are charged more and more in maintenance costs and feel that they are really hung out to dry. There is a real backlash and that will probably continue.”

Defense Department Makes Licensing Changes

The U.S. Department of Defense (DoD) has gradually grown more sophisticated about software licensing and using its size to negotiate better deals with software vendors.

A decade ago, the DoD’s IT operations were highly decentralized. The scale was appealing because IT groups could be responsive to users, but there was a lack of interoperability and an inability to leverage buying power, explained David Wennergren, deputy CIO and deputy assistant secretary of defense for information management, integration and technology for the DoD. “So we started some fundamental shifts to gain efficiencies. Part of that involved software licensing,” he said.

Launched in 1998, the DoD Enterprise Software Initiative (ESI) was created to negotiate licensing agreements across the department’s agencies. Since then, it has negotiated more than 75 enterprise software agreements with more than 50 software publishers and has been credited with more than $3 billion in cost avoidance for the DoD.

“The first step was to recognize that if we are Oracle customers buying 50,000 seats, we should aggregate that demand and know how many we are buying,” Wennergren said. “The next step is to move to enterprise licensing agreements to cover all 800,000 people who might use the product.” The ESI also works to identify the best vendors in a market, such as data encryption, and to negotiate licensing terms and conditions agreements with them for all DoD users.

Wennergren said software-licensing schemes must change with the way government agencies are using the technology. “In the old days, you used to buy AOL by the hour. Now you pay a cable provider a flat rate per month,” he explained. “The business model shifted.” The same thing is happening with software, he said. The data isn’t being used in isolation in a stand-alone computer. There could be data in a DoD enterprise resource planning system that people in the U.S. Department of Homeland Security need access to, but they aren’t covered under current licensing schemes.

“The licensing has to evolve to meet the government’s needs,” Wennergren said. “And as we migrate services to the cloud, we will have to work closely with software partners to rethink how licensing is done.”

David Raths  |  contributing writer