Archived News Article
Increasingly, software vendors are auditing their corporate customers.
Bob Violino, CFO IT
Quan Ha was driving through Los Angeles when he heard a disturbing announcement on the radio. The Business Software Alliance, an industry group that combats software piracy and similar abuses, was urging companies to audit the software they use internally to ensure they had adequate licensing in place — or risk being audited by the BSA and penalized if they did not.
As manager of desktop support at Sony Pictures Digital, a unit of Sony Corp. of America's Sony Pictures Entertainment, Ha worried that the company might not have enough licenses. Sony Pictures Digital had taken what Ha calls a "shotgun approach" to managing software assets, with no formal way to track the number of licenses it owned or who was using which software programs.
What's more, he had heard horror stories about companies being audited and fined heavily if they were underlicensed. In January alone, seven U.S. companies were fined between $29,000 and $120,000 each, and the BSA collected more than $12 million in fines for 2002. "When I heard that announcement," says Ha, "I knew we weren't compliant." Suitably motivated, he began researching asset-management software that would give Sony Pictures Digital an accurate, up-to-date accounting of all the commercial software it had installed and the licenses it had acquired.
Companies are increasingly turning to such products in order to avoid penalties from software vendors and to get a better handle on how much software they have and whether the applications they've paid for are actually being used.
The incentive for companies to know whether they are over- or underlicensed has never been stronger. With IT spending down, software vendors are increasingly auditing customers to ensure license compliance, and that same budget squeeze has prompted finance and technology executives to make sure they fully leverage current hardware and software assets.
IT research firm Gartner expects software vendors to double the number of audits they perform in the next two to three years. Jane Disbrow, a Gartner research director, says the firm is getting more queries from vendors about how to conduct audits. Clients, meanwhile, are calling to learn how they can avoid them. (Audits generally come in two flavors: voluntary, which may be done by a vendor, a consultant, or even the customers themselves; and involuntary, in which a vendor, the BSA, or some other party swoops in unannounced, usually because someone has attested that illegal copying or other infractions have taken place.)
Given the increased scrutiny, and the fact that software has become one of the largest assets companies own, "I can't imagine a CFO not being interested in what software assets the company has," says Disbrow. Getting hit with penalties not only hurts financially, she adds, but also generates negative publicity for the company.
David Friedlander, an analyst with Giga Information Group Inc., predicts a growing market for asset-management tools. It's difficult to measure the total size of the market because many vendors — Friedlander estimates at least 50 — offer the capability, but not always in a dedicated product: sometimes it's part of software that provides other IT-management help along with the auditing capability. He says the growing demand will be helped by the fact that "it's very easy for companies to see a return on this particular investment" (see "Rapid Return," at the end of this article).
Their Presence Lingered
After conducting its initial audit, Sony Pictures Digital discovered it was actually overlicensed for some products; for example, it had too many copies of Microsoft's Visio drawing and diagramming software. When employees who had been using that application left the company, the licenses remained in effect, a common occurrence that needlessly pushes many companies' software expenses up.
On the other hand, the company learned it was significantly underlicensed for such applications as Adobe Illustrator and Macromedia development software. That was more frightening, since it could have potentially resulted in fines, says Ha.
Following these discoveries, Sony Pictures Digital decided that tracking software and other IT assets was important enough to justify the hiring of an administrator who is responsible for asset management and for keeping all licenses up-to-date.
CNA Insurance Co. in Chicago also uses an asset-management software, not only to avoid audits and cut down on overlicensing but also to avoid costly downtime by identifying the most vital software it owns. By showing which applications are linked to particular business processes, "we will know going forward what effect taking out a particular software program, such as a policy-management system, would have on the overall business," says Dmitry Tyomkin, enterprise architect. CNA has done preliminary studies that show it could cost the company several million dollars if certain systems were unavailable for even a short period of time. The asset-management software cost CNA far less than the projected overlicensing savings.
Some companies are combining asset-management technology with programs to educate employees about software usage. Marriott International Inc. has been auditing its systems since 1998 to track all its software and hardware and to determine how the products are being used and when they should be replaced. The Bethesda, Maryland, lodging company is concerned enough about licensing issues that it launched an aggressive campaign — including the distribution of posters and flyers at all its properties in the United States and Canada — to make sure that employees understand the importance of compliance.
Sharon Dorsey, director of Marriott's technology-management center, says the company also insists that all its properties buy software via a centralized purchasing process to ensure better control of software assets and take advantage of volume discounts. Accounting for software assets becomes more vital as the use of technology at Marriott increases, adds Susan Zankman, the company's senior vice president of finance and management services, who says the multiple benefits of the software more than justify its cost.
The advantages may be clear, but asset-management deployment is not without challenges and management issues. Depending on the size of the organization and how much software and hardware it owns, implementation can take several months. Furthermore, managers must decide how asset data will most effectively be collected, and ensure that asset-management administrators work closely with the people responsible for purchasing software. And for the programs to be useful, they must be maintained and analyzed frequently — or the information will be collected for naught.
Investment bank Sanders Morris Harris in Houston felt it was losing control of a specific — and expensive — software investment: a real-time stock-quote system that provides information on companies and markets. The bank pays about $450 per user each month to subscribe to the highest service level of the application, and managers wanted to ensure that the program was being used properly.
The bank installed a software asset management product which analyzes software and hardware usage statistics for all employees. The application, which runs on Windows NT servers, showed that many employees who were subscribing to the stock-quote system didn't need it at all, while others were using it for as little as 10 minutes a day. As a result, the company moved the more-casual users to a less-costly service level and slashed the number of licenses for the quote system.
Managing director Chip Davis estimates that the bank is saving $15,000 a month on the reduced number of licenses for the quote system. Sanders Morris Harris plans to use the asset-management application to track other IT investments — hardware as well as software — to determine just how necessary they really are.
Whereas in the past the bank would almost automatically increase computing horsepower as part of periodic system replenishments and dole out software with few restrictions, it now takes a much more prudent approach to IT deployment. Given the do-more-with-less philosophy that currently pervades many organizations, asset-management software may provide the answers many managers are looking for.
Tips for Managing Software Assets
Prepare for a fairly complex implementation, particularly in larger organizations with many computing devices and software applications. Work out in advance such issues as whether to run asset-management tools on servers or workstations and how best to communicate (and act on) reports.
Dedicate a trained employee to implementing and maintaining an asset-management tool and process. Ideally someone should also maintain the program on a regular basis, and ensure that all software licenses are up-to-date.
Develop a process by which all people who buy licenses and negotiate with vendors have access to accurate, up-to-date information about what software is installed and what is being used.
These days every CFO wants to see a quick return on IT investments, but some of the experiences of companies deploying IT asset-management software nearly defy belief. Peter Theis, director of IT at architectural firm Roger Ferris & Partners in Westport, Connecticut, says that the software it purchased paid for itself in just a week. True, the software cost just a fraction of what Theis estimates it would have cost to conduct an audit manually, not to mention potential fines it helped prevent. But a week? Quan Ha, manager of desktop support at Sony Pictures Digital, also lends his voice to the chorus, saying that his $12,000 investment provided near-instant payback by revealing that an anticipated $10,000 software purchase was unnecessary because the company already owned more licenses than it needed.
Not all IT asset-management software comes so cheap; larger organizations can easily spend in the six figures. But even with the higher price tags, the software should provide faster ROI than most applications. "Asset management is the type of thing where if you don't have it, you don't know you need it," says Theis, who first used the software in his previous position. "Once you have it, you don't want to give it up." Some vendors' software addresses only IT assets, while others offer products that assess everything from IT to factory equipment to intellectual property. — B.V.
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