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Vendors clamp down on license compliance

Software makers hope to offset sagging sales by enforcing existing contracts

News Story by Thomas Hoffman

Los Angeles—IT managers at a Gartner Inc. conference here last week said software vendors are increasingly threatening—and then conducting—audits to determine whether users are complying with their licensing agreements. According to IT professionals and Gartner analysts, the use of software audits has swelled in recent months as vendors look for ways to generate additional revenue from existing users to make up for reduced spending on new licenses. Vendors such as Microsoft Corp. and Oracle Corp. have long done audits of some of their customers, but conference attendees said other software developers are pushing harder on audits.

Some users are trying to be proactive. For instance, the city of Chesapeake, Va., recently completed a nine-month internal audit of its Microsoft desktop software licenses and found itself  "to be in pretty good shape," said Janet Hadley, an account administrator for the municipality.

But other users are still getting their license-tracking in order so they will be prepared for potential audits.

"We're currently looking for an asset management tool to help us track software licenses and invoices more effectively," said Ken Walton, a Tampa, Fla.-based project manager at Verizon Communications. The telecommunications company can no longer monitor its licensing agreements manually, Walton said, "because we just don't have enough people."

At Harley-Davidson Motor Co. in Milwaukee, software contracts are currently administered by project managers. "But that's not what we want to be doing," said Shannon Kaul, an asset manager at the motorcycle maker. So the Harley-Davidson Inc. subsidiary plans to add a centralized contract manager "who can also assist with compliance issues," Kaul said.

Jane Disbrow, an analyst at Stamford, Conn.-based Gartner, said IT departments generally do a lousy job of monitoring their software agreements. "If your tech support people are like most tech support people, record-keeping is not their forte," she said.

Toyota Motor Corp. recently inked a global desktop and server enterprise licensing agreement with Microsoft that's supposedly "audit-proof," said Charlie Clark, a technician at the automaker's Toyota Technical Center USA Inc. unit in Ann Arbor, Mich.

Microsoft enterprise license holders "are less likely to be audited" than other users of its software, noted Gartner analyst Alvin Park. But Park added that he has been told by several Gartner clients that they were asked by Microsoft to conduct internal audits on server-based products that aren't covered by the enterprise agreements, including SQL Server and server versions of Windows.

Rebecca LaBrunerie, a Microsoft product manager for worldwide licensing and pricing, didn't dispute Park's comment. However, she did say that Microsoft has pulled back on the number of audits it conducts over the past year. "That doesn't mean that we won't talk with our customers about how many licenses they have," LaBrunerie added.

Jacqueline Woods, vice president of global pricing and licensing strategy at Oracle, said the company has kept the number of customer audits it conducts steady at about 400 annually for the past three years. That works out to less than one-tenth of 1% of Oracle's installed base of 200,000 customers, Woods said. In addition, at least 25% of the audits Oracle does are requested by the customers themselves, she said.

El Segundo, Calif.-based Candle Corp. confirmed that it has become much more aggressive about trying to curb piracy of its software. Since launching a formal program a year ago, Candle has audited more than 1,000 of its 5,000 or so customers, said Steve Gerrity, assistant vice president of contracts and administration.

"We view audits as a cost-effective way to defend our intellectual property," Gerrity said. But he added that Candle has seen an increase of 1% to 2% in revenue as a result of the audit program.

Peter Beruk, director of antipiracy at Network Associates Inc. in Santa Clara, Calif., said the security software vendor has also recently increased the number of compliance-related audits it's conducting. But it's "not sending out audit letters to 50 customers a week," he added. "We're doing this more on a case-by-case basis."

Even so, some attendees said the audit threat could hurt user-vendor relationships. "It's like the vendor is saying, 'We don't trust you,' " said Pat Kitchen, director of IT administration and coordination at Pactiv Corp., a Lake Forest, Ill.-based packaging manufacturer.

First published July 16, 2003

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