Attendees at a recent roundtable discussed the uncertainty surrounding software licensing during mergers and acquisitions
At the roundtable
The roundtable event, part of the CEO Series, was hosted by FAST Ltd and included: Symantec, LANDesk, Webroot, Rocela, The UK Oracle User Group, Bytes Technology Group, ConnectSphere, Flexera Software, Regent Partners International, Beachcroft LLP, FAST customers LeaseDrive Velo and Lloyds Register, and a representative from industry analyst Quocirca.
There is no doubt that over the past year CIOs and IT managers have been under pressure. Demonstrating good cost control continues to be critical and in an attempt to achieve this, many organisations have outsourced the problem or are looking at new pricing models and ways of procuring technology.
Participants in a recent roundtable, entitled “Where Does The Ownership Lie?”, reported that with the need to react to the economic downturn and growing complexity in licensing and technology, with new types of technology, such as cloud computing, virtualisation and SaaS, and new revenue models being tabled, keeping track of IT estates and who owns what in regards to software ownership and liability, is very difficult. Even more so when it comes to a major outsourcing programme and/or merger and acquisition (M&A) activity.
A key driver for the discussion was the current confusion around the software ownership landscape and how it is multiplied when you add M&A to the mix. Clive Longbottom, founder of Quocirca, says the situation is confusing for businesses.
“Originally, organisations went for the very old style of ‘thou shalt pay’ and ‘thou shalt pay on a yearly basis’ when it came to licensing software. But now a lot of organisations are moving towards subscription-based software as they do not want the responsibility or liability when it comes to licences. But they are still not reading the contracts and do not realise they are responsible for counting licences, so ultimately they are back to square one.
“When you add M&A into the mix, these problems are multiplied three-fold. The amount of stress being put on organisations to conclude the deal quickly is immense and businesses are waking up to the fact that their IT is in a real mess and are therefore looking for ways out of it.”
Tim Pollard, director for enterprise sales at Symantec, agrees. He says more tier 1 vendors are introducing and offering more flexible licensing packages. “There are a growing number of ‘all you can eat’ licences, and we tier 1 vendors need to work with the customer to figure out what is right for them, but also what makes commercial sense for us. More organisations are looking to outsourcing and functional computing, and more clauses are being drawn into our contracts.”
Head of customer services at FAST, Paul Clements, has seen an increase in the number of organisations affected by ownership concerns and software licensing, and who are looking to cut costs. “A lot of our customers are being told to outsource as a result of the economy. We have to explain that although you can outsource projects, you cannot outsource the liability,” he says.
Peter Rowell, founder of Regent Partners International, agrees that it is a whole new story when M&A is added to the mix. “In the past year, Regent has tracked over 300 acquisitions of European software companies, and three times as many software companies have been acquired than nine years ago. Generally, when a company makes an acquisition it is not because of the IT, it is a strategic business decision. Therefore, IT is overlooked at the beginning of the process, which really should not be the case, and this is where due diligence comes in.”
Asked why this happens, Beachcroft LLP partner Robin Fry says, “Secrecy during an M&A is one of the biggest challenges. Businesses simply will not go to their software vendor to discuss their future licensing before they tell investors, staff and the Stock Exchange. It is a huge risk, with the relevant enterprise likely to be unlicensed the day after the deal closes, and companies are continuously taking this risk.”
Martin Mutch, chief executive at Rocela, says, “Most clients we deal with want to know the complexities and the implications of their licensing, but they struggle to understand the impact an acquisition will have on this. We encourage clients to ‘embrace it, control it and manage it’ to ensure they are controlling their costs more effectively.”
All participants agree that managing IT assets through effective software asset management and utilising ITIL best practice is important to ensuring that if and when a merger or acquisition happens organisations won’t get stung with large penalties.
“It is surprising that there are still a lot of companies that do not have a clue when it comes to physical IT assets and software,” says Andy King, territory manager at roundtable sponsor LANDesk.
“A merger or acquisition will merely highlight existing inefficiencies within an organisation’s software and licensing,” says Michelle Hales, training director at ConnectSphere. “Organisations need to have good service portfolio management – they need a good understanding of the end-to-end process and an overall plan for the future.”
Asked whether SaaS will solve licensing and ownership problems, Ian Moyse, channel director at Webroot, says, “There are benefits to SaaS. It does solve deployment issues of companies coming together in M&A, but it is not a one size fits all. It does not solve all of the problems of M&A and licensing.”
Lloyd’s Register’s Mark Duffy welcomes SaaS, but is not yet convinced of its widespread suitability. “Where we utilise SaaS solutions at the moment, life is certainly easier in regard to licensing – who can use what, where, when and how. Part of me would like to see more of this style of licensing across the board. However, pricing models in this space need to be more flexible to gain the true benefit of using such a service.”
Ronan Miles, chairman of the UK Oracle User Group, says it is a case of buyer beware. “You need to understand what your company may be doing now, what it may plan to do in the future, and what will happen if that happens. This will make all of the conversations that you have afterwards easier.”
Take care of compliance
Clements at FAST says software licensing will not go away, and in the current auditing climate, companies are more at risk of being pursued for non-compliance.
“Where licensing has been put on the back burner because companies have said, ‘Let’s just get the business going for the next 12 months’, there should be an effort now to start catching up and trying to put things right, because vendor audits are not going to go away in 2010,” he adds.
This was first published in January 2010