By Andy McGowan
In reviewing the IT Key Metric Data published by Gartner in December 2014, some interesting findings emerge that may point to growing problems for companies that are not proactively managing their software license portfolio. The Gartner report showed an average increase in IT spend of 3.3% in 2014 with an expected increase of 3.1% in 2015. Even though the report shows modest increases in IT spending, downward pressure on IT budgets continues when compared as a percentage of revenue or operating expense. Yet as you dig deeper into the Gartner numbers it becomes evident that for the period 2013 to 2014 hardware and outsourcing costs remained relatively flat, personnel costs fell slightly, while software showed signs of robust growth (8.5%). In fact, in the datacenter, where spend continues to grow as a percentage of the overall IT budget the effective increase in software spend was 13.2%, almost 10% higher than the overall increase in IT spend.
Figure 1: Software cost growth is outpacing hardware and other costs in the enterprise
So why is software spend growing at such a disproportionate rate?
Each year, software publishers release new products and/or versions of enterprise software that are intended to drive business growth and may even transform the way business is conducted. Is the increase in software spend attributable to businesses investing in these transformational or growth activities? Unfortunately, the Gartner data shows that the percentages of IT spend dedicated to run (67%), grow (20%) and transform (13%) the business remains static, so the majority of software spend is still going toward running the business. The idea that companies are spending disproportionately on software to grow their business does not seem to be supported by the data, although Gartner does indicate that the run business category includes IT transformation projects.
Many IT organizations have been retooling to support emerging trends such as Software Defined Anything, Public/Private Clouds, Mobility, Bring Your Own Device (BYOD) and the Internet of Things. These cutting edge initiatives often spawn multiple competing activities with different software solutions vying for dominance in an evolving environment. However, additional data published by analysts indicates that 23% of all software purchased is unused. Often this software is simply abandoned in favor of the latest emerging solution while maintenance continues to be paid on the unused licenses.
Large IT transformation initiatives, such as virtualization, that drive hardware and facility consolidations, actually increase the amount of software that must be licensed. As servers and desktops are virtualized, all of the software on those boxes and virtual machines (VM) must be licensed and the host servers must also be licensed for operating systems, hypervisors and monitoring software. In essence, if you virtualize a server to run 8 VMs on a single box, you actually have 9 servers that must have licensed software running on them. So, by working to reduce hardware and facility costs, IT is most likely increasing the cost of software to support these new environments. This is a prime area where software license management processes and technologies can really help organizations control costs.
Companies without good software asset management (SAM) practices often enter into volume deals that promise high unit cost discounts, flexibility to accommodate future expansion and insurance against potential compliance issues. Frequently these companies agree to maintenance payments on a projected deployment schedule rather than face the hassle of “baselining” their actual deployments. Any discrepancy in the projected vs the actual deployment is carried forward in the existing maintenance stream and as the basis for utilization projections in future volume deals. Over time these differences can add significant cost to the ongoing support of software covered by these volume purchase agreements, especially as older versions of the software age out of the environment.
Whatever the underlying reasons, the Gartner data points to the fact that significant progress has been made in flattening the cost curve for information technology in all areas except software. Left unchecked, software will continue to consume an ever-increasing portion of the IT budget. Software License Optimization Solutions allow organizations to ensure optimal licensing in rapidly changing virtual environments, identify and reclaim unused software assets, identify opportunities to stop maintenance on decommissioned software, and to stop buying software you already have on the shelf.
In future posts we will look at how companies are flattening and in some cases reversing the continuing increases in software spend by proactively optimizing their software portfolio.
To learn more, please view our on-demand webinars:
Core Best Practices to Drive Software Asset Management Success – With Gartner Analyst Victoria Barber.