Wednesday, 01 October 2014 15:13

Spending on unused software out of control Featured

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Image courtesy of Stuart Miles at FreeDigitalPhotos.net Image courtesy of Stuart Miles at FreeDigitalPhotos.net

Many organisations are throwing away their money on software that does not even get used, forcing a rethink of their purchasing decisions and a significant shift away from traditional purchasing models for enterprise software.

According to joint research by Flexera Software and IDC, the amount of unused software – or shelfware – is rampant within organisations at a time when budgets are being squeezed.

Funds are scarer and for almost two thirds (63%) of organisations software budgets will either stay the same or shrink over the next two years.

And, with the squeeze on enterprise software spending, Flexera says organisations are now looking for better ways to align software costs to value.

This survey into software spending reveals that 96% of organisations say that at least some of the software they’ve purchased is shelfware, while a significant number - 39% - report that 21% or more of their enterprise software spend is wasted on shelfware.

And, decision-makers are under pressure to change their approach to purchasing.

According to Flexera, the traditional purchasing model for enterprise software – the perpetual software license – has drastically decreased in popularity.  Previously nearly ubiquitous, only 45% of organisations today say that the majority of their software is deployed using perpetual licenses, and Flexera expects this percentage will decline to 36% over the next one to two years.

The flight away from perpetual licensing has seen alternate licensing models increasing in popularity, and almost a quarter of respondents (24%) say the majority of their software estate today utilises subscription licenses.  The move to subscription licenses is expected to rise further to 26% over two years.

And, 17% of respondents say the majority of their software estate utilises usage-based licensing models – with that figure expected to rise by another 1% in 12 to 24 months.

“It doesn’t always make sense to pay up front for the full cost for software before the application has proven its value to the organisation,” said Steve Schmidt, Vice President of Corporate Development at Flexera Software.

“In their drive to increase efficiency and cost effectiveness, some organisations prefer to pay for software in ways that allow them to better align their costs to value.  That might mean paying over time via a subscription model, or by the features, functionality or capacity that they’re actually using, via a usage-based model.”

According to IDC’s Amy Konary, Research Vice President - Software Licensing and Provisioning, it’s very easy for shelfware to accumulate when organisations don’t “proactively implement best practices and technology to track, manage and optimise their software estates.”

“Enterprises must have the ability to continually identify where software licenses are deployed, how those licenses are being used, and reconcile that data with the complex set of rules contained in the licensing agreements.  By having this level of insight, CIOs can begin to identify shelfware, eliminate waste and reallocate their budgets more effectively.”

Flexera’s Schmidt says the revenue breakdowns revealed in the report show that application producers see the writing on the wall and are offering a greater variety of licensing models.

According to Schmidt, only slightly more than a third of producers (35%) say that the majority of their annual software license revenue now comes from perpetual licenses, while nearly a quarter – 22% – say a majority of that revenue comes from subscription/term licensing.  Nine per cent say a majority comes from usage-based licensing.

“Having the ability to identify customer needs and licensing model trends, and then quickly respond with new licensing options can give producers a significant competitive advantage,” Schmidt says.  

“However, licensing standards are evolving and license management systems are growing more complex, making them less cost effective to develop in house.  We see an increasing number of producers adding automation that will make it easy to offer a wide range of flexible licensing models for their applications, allowing them to cash in on the trend and gain market share.”

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Peter Dinham

Peter Dinham is a co-founder of iTWire and a 35-year veteran journalist and corporate communications consultant. He has worked as a journalist in all forms of media – newspapers/magazines, radio, television, press agency and now, online – including with the Canberra Times, The Examiner (Tasmania), the ABC and AAP-Reuters. As a freelance journalist he also had articles published in Australian and overseas magazines. He worked in the corporate communications/public relations sector, in-house with an airline, and as a senior executive in Australia of the world’s largest communications consultancy, Burson-Marsteller. He also ran his own communications consultancy and was a co-founder in Australia of the global photographic agency, the Image Bank (now Getty Images).

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