The Microsoft True-Down: Is it Possible to Reduce License Counts?

Jun 8, 2021Microsoft

Most enterprise Microsoft customers are familiar with true-ups, but what about the inverse? Is a Microsoft true-down even an option? As is usually the case with Microsoft, the truth is in the fine print and the confusion in the grey area. In this post, I’d like to bring some clarity to the topic and discuss if and when it’s possible to reduce license commitments during the term of your EA enrollment.

Let’s start with a quick refresh of the vendor’s true-up process for the purposes of comparison. Microsoft’s Enterprise Agreement program makes it easy for customers to add new products to their EA over the enrollment term. There are a number of ways to accomplish this, the easiest of which is to simply submit a true-up. Customers are required to submit a true-up at least once annually. One of the benefits of the Enterprise Agreement program is that you are able to begin using incremental copies of the on-premise products at any time, only reporting the true-up at the first, second and third agreement anniversary dates.

Pricing is typically locked in. When you sign your EA, Microsoft provides a “Future Pricing” table on your Customer Price Sheet that applies to true-up quantities. For on-premise products, Microsoft provides annual pricing – the amount due at the Year 1 true-up, Year 2 true-up, and the final Year 3 true-up due at the end of the enrollment. A submitted true-up order pays for the license use for the remainder of the agreement term. Microsoft also provides the monthly cost of any subscription products in the Future Pricing table. You are required to submit an order for any incremental subscription products in the month in which you first use the incremental copies. But what happens if you need to reduce the quantities of ordered products? Does a Microsoft true-down exist?

Microsoft True-Down Myths and Realities

Microsoft is all about growth, and absent any previously agreed concession that permits you to reduce the quantities of the ordered products, you generally do not have the ability to submit a true-down for enterprise-wide purchases. Microsoft does not offer a true-down for its on-premise products and, despite many claims to the contrary, you cannot reduce the subscription counts for Enterprise products.

Let’s take a look at the language in the Enterprise Enrollment. This language can be found in Section 2g(iv), Order Requirements/True-Up Requirements/Subscription License Reductions:

(iv) Subscription License reductions. Enrolled Affiliate may reduce the quantity of Subscription Licenses at the Enrollment anniversary date on a prospective basis if permitted in the Product Terms, as follows:

1) For Subscription Licenses that are part of an Enterprise-wide purchase, Licenses may be reduced if the total quantity of Licenses and Software Assurance for an applicable group meets or exceeds the quantity of Qualified Devices or Qualified Users (if ordering user-based Licenses) identified on the Product Selection Form, and includes any additional Qualified Devices and Qualified Users added in any prior true-up orders. Step-up Licenses and add-on Subscription Licenses do not count towards this total count.

2) For Enterprise Online Services in a given Product pool that are not a part of an Enterprise-wide purchase, Licenses can be reduced as long as the initial order minimum requirements are maintained.

3) For Additional Products available as Subscription Licenses, Enrolled Affiliate may reduce the Licenses. If the License count is reduced to zero, then Enrolled Affiliate’s use of the applicable Subscription License will be cancelled. Invoices will be adjusted to reflect any reductions in Subscription Licenses at the true-up order Enrollment anniversary date and effective as of such date.

The language in Section 1 would have us believe that it’s possible to reduce quantities, but the reality is that this scenario is extremely, extremely rare. Let’s say you start your agreement with 10,000 users and add 2,000 in Year 1. You can never now go below 12,000 users for the Enterprise-wide subscription products (e.g. M365 E3 or E5). I suppose if you ordered a similar number of on-premise License & Software Assurance products of Office, Windows and the Enterprise CAL, Microsoft might consider that you have met this requirement – yet no one will ever buy this way. So, note to self, if you hear somebody at Microsoft claim you can reduce the Enterprise-wide subscription products, challenge them (or get it in writing)!

Products in Section 2 & Section 3 can be reduced, yet look to the paragraph above Section 1, 2, & 3: “…if permitted in the Product Terms….” This brings us to an important point. Microsoft’s Product Terms are updated often and quietly. Up until 2021, Microsoft updated and published this document on a monthly basis. But as of February 2021, Microsoft moved the Product Terms online. You can find them here. Constant monitoring is required to stay abreast of changes to product use rights – including which products/services are “reduction-eligible.”

What is “Reduction Eligible” and Why Is It Important?

It is possible to achieve license reductions for some Microsoft offerings outside of an enterprise-wide purchase. We’re essentially talking about Additional Online Subscription products – things like Visio Online, Project Online, Dynamics 365, and more. In many cases (but not all), you are able to reduce your subscription commitment, even down to zero. In order to reduce the quantities though, you may only do this at the agreement anniversary and – importantly – the Product Terms for the product in question must be “Reduction Eligible.”

You can determine which subscription products qualify by searching here. One thing you’ll notice is that not all products are eligible, even products within the same family. Take a look at the Dynamics 365 Services:

Product Conditions – Program Specific

You can reduce quantities for all products in this family except the Relationship Sales product, which is approximately $130 per user per month.

In the Absence of a Microsoft True-Down, Plan Carefully

Without a standardized way to reduce license counts across your Microsoft estate, in-depth usage analysis and demand planning becomes increasingly important. So does understanding how certain products are connected to discounts and other concessions. A change in license counts can trigger a waterfall effect on costs that go beyond simple price per license calculations. It also underscores the importance of having an in-depth understanding of Microsoft’s licensing options and Product Terms – both of which are complex and subject to frequent changes.

Questions on how to right-size your Microsoft estate? We can help. NPI’s Microsoft licensing experts can answer your questions.

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4 Tips to Save on Your VMware ELA Renewal

May 20, 2021

Like a lot of IT purchasing events, the VMware ELA renewal has grown more complicated over the last few years. This is due in part to VMware’s ever-expanding list of offerings – a byproduct of numerous acquisitions like Pivotal and Carbon Black, and the introduction of more cloud-based solutions. As a result, today’s VMware ELAs comprise more “stuff.”

This presents a few challenges. First, there is an inverse correlation between more stuff and pricing visibility. VMware still likes to bundle offerings into a single price making it difficult for customers to benchmark pricing. Second, as VMware’s offering portfolio evolves and new acquisitions are absorbed, the vendor’s sales behavior has become less predictable. VMware’s account teams have more flexibility to offer incentives, and they aren’t applied to customers universally.

These dynamics create new opportunities and risk for customers. We’re seeing more flexibility which opens the door to savings – and that’s great. But we’re also seeing less transparency around pricing. A lot of reverse engineering is required to determine if a deal is priced within fair market value range. Our data indicates that more often than not there is material room for improvement.

Observations and Tips to Help You Save on Your VMware ELA Renewal

Consider your ELA a maintenance protection program. ELAs are a no-brainer for many enterprise customers. Those that purchase outside of an ELA are usually subjected to abysmal pricing and discounts. Yet still there are customers who consider dropping their ELA when they don’t think they’ll need more licenses. Our advice? There may be ELA options that are palatable, and those are worth considering. In most cases, VMware will reprice maintenance one year after you exited your last ELA. It’s the vendor’s approach to encouraging ELA renewals. That $400,000 you were spending under an ELA can easily go to $1M without the application of strong maintenance discounts typically reserved for ELA customers.

Perform a usage assessment in advance of your renewal. Customers often put their VMware ELA renewal on autopilot and don’t optimize according to usage/utilization (i.e., they don’t address their install base SnS/support). It’s difficult to keep track of an enterprise-scale VMware footprint and getting the vendor to agree to reductions in install-base support costs can be difficult without a fact-based business case. Without visibility into what you own and what’s actually being used (or underutilized), the chances of overpaying for your ELA are close to 100 percent. Customers should gain a clear picture of their VMware estate, what’s being used and what’s not, what’s outdated, etc. – and use this as a data-driven baseline to inform (and negotiate) their renewal.

Make sure you’re getting a best-in-class discount for ALL tokens. VMware’s ELAs increasingly have token-based line items, but token types vary depending on whether you’re purchasing perpetual licenses (these require HPP tokens) or cloud services (SPP tokens). NPI has observed that certain tokens receive less competitive discount than others. Be sure to perform price benchmark analysis on both token types to ensure you’re receiving strong discounts that are at or better than market.

If you think your current spend doesn’t qualify for an ELA, think again – but don’t let the pendulum swing towards overbuying. There is some confusion around what spend levels qualify for a VMware ELA. Some customers are told the magic number is $200,000. Others are told it’s $1M. NPI’s experience indicates $250,000 is an acceptable threshold, but any pushback from VMware should be validated and negotiated. Just remember – you’re paying for support and licenses in advance of need, which poses the risk of shelfware. Be thorough in your analysis of future-state requirements to avoid overbuying.

Take Your VMware ELA Renewal Off Autopilot

Complacency is one of the biggest drivers of overspending with VMware. The effort spent on price benchmark analysis and license optimization almost always yields material savings that are well worth the investment. NPI can provide guidance to help you determine pricing and discount targets that are at or better than best in market as well as help you right-size your ELA to match requirements.

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How to Get the Best Deal from an Adobe Contract Negotiation

May 12, 2021

When it comes to Adobe for enterprise customers, concessions can be hard to come by during negotiations. But is the tide turning? Perhaps.

Clients regularly submit Adobe purchases to NPI for price benchmark analysis. In fact, in the first quarter of 2021, Adobe snagged the number three spot in our top ten list of vendors submitted for analysis (ranked by first year customer spend). It’s no secret Adobe has the most comprehensive product in its category. There are a number of products that are competitive to portions of Adobe’s portfolio, but they are mostly one-offs and don’t offer all that Adobe does “under one roof.” And like most clear market leaders, Adobe’s prices and negotiation posturing reflect its dominant market position.

Recently, however, we’ve seen clients secure concessions that have previously been next to impossible to obtain. Perhaps it’s due to COVID, or maybe the vendor is trying to keep the momentum going on a record breaking 2020 fiscal year. The reasoning is unclear, but the outcome is not – we’re seeing more pricing flexibility. Historically, however, that flexibility isn’t what has driven savings across the Adobe estate.

Which Tactic Yields the Biggest Cost Reductions on Adobe for Enterprise Customers?

By far, license optimization is the single best way for enterprise customers to reduce Adobe costs (specifically, those products/licenses covered by Adobe ETLA). It’s not uncommon for customers to pay for licenses that are being consumed by inactive users, former employees or contractors; or for users to be assigned multiple valid licenses.

In other cases, too many users in the organization are using a license type that is more robust than what’s actually needed to perform their roles. It’s rare that an entire company needs access to Acrobat Pro. The same goes for Creative Cloud – do all of your users need an all-app SKU or would a single-app SKU be a better fit for certain user profiles?

Most enterprise IT buyers understand these concepts well, and many have deployed SAM tools and processes to help them stave off the scenarios above. But, in many cases, those tools and processes aren’t as effective as they should be (either because they’re immature or not designed to manage SaaS). This is why every customer should periodically perform due diligence to make sure all users are appropriately licensed and any toxic spend across the Adobe estate is eliminated.

Now is the Time to Right-Size Adobe Licensing and Pricing

Historically, it’s been difficult to sway Adobe at the negotiation table – and that’s still true. Material pricing concessions require deep analysis and validation of fair market value targets as well as inspection of annual true-up premiums. These activities should be performed on every Adobe purchase and renewal to ensure companies are receiving best-in-class pricing and terms.

Often, more significant and consistent Adobe ETLA cost reductions can be found by right-sizing license assignments to match actual usage requirements and liberating license currency through SaaS license optimization assessments.

If you’d like to learn more about how to reduce costs across your Adobe software estate, NPI can help.

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Microsoft Licensing on AWS – More Insights on Changes to Remote Hosting and Your Options

Mar 22, 2021

Back in the day I used to tell clients that Microsoft didn’t really care who owned the hardware – as long as the product was being used for the exclusive benefit of the licensed customer. With the advent of virtual desktops being hosted at Amazon, Microsoft has changed its tune somewhat. In October of 2019, Microsoft quietly changed some of its use rights that affect Microsoft licensing on AWS in an effort to further nudge its customers towards Azure.

It is important to understand the two most likely scenarios that have been impacted by Microsoft’s use rights changes: (1) Remote hosting of the Windows Operating System, and (2) Remote hosting of its application products. Both scenarios were impacted by the October 2019 changes. We recently published a bulletin on how remote hosting and access will cost more for some customers. In this blog post, we dig further into these changes and explain your options if you’re an AWS customer.

Remote Hosting of the Windows Operating System

Let’s begin with the Windows Operating System – we’re talking about the personal operating system – Windows 10. Microsoft first introduced a product called the Windows Virtual Desktop Access (VDA) a number of years ago to help organizations license devices that do not qualify for Windows Software Assurance while providing access to a virtual desktop hosted in their VDI environment. These devices would typically be thin clients or contractor-owned PCs – or, in other words, devices that an enterprise was not managing.

The VDA license was designed to recoup Microsoft’s loss of revenue for the underlying OEM license. A quick primer on the OEM license is that virtually all personal computers sold to enterprises come with a full version of the Windows operating system from the Original Equipment Manufacturer (OEM). The licenses that are purchased under the volume licensing programs are upgrade licenses, requiring an original OEM license. Microsoft felt, rightly or wrongly, that the virtual desktop was receiving the benefit of the graphic user interface and it couldn’t be sure that it had received the OEM revenue. Hence the VDA license. When clients were simply hosting their VDI environment on their own internal infrastructure, you simply needed to ensure that the client was covered with Software Assurance for the Windows OS. You could purchase SA for the Windows OS for your internal devices, you could purchase an M365 E5 or E5 subscription, or you could purchase a VDA license for those thin-clients or contractor owned PCs.

This worked fine for well over two decades until customers started looking at DaaS options that were hosted by third parties. Before October of 2019, you licensed a remote-hosted VDI infrastructure the same way that you licensed internally-hosted VDI infrastructure. Perhaps someone at Microsoft realized that many of its customers were taking advantage of Amazon Workspaces. It’s logical to fear that if a customer was moving to Amazon hosted desktops, they might also be moving their server infrastructure to Amazon as well. Creating friction to prevent that “lost revenue” from going to Amazon is likely one factor that precipitated changes to Microsoft licensing on AWS.

While Microsoft’s Product Terms documents have never really been suitable bedside reading, it almost seems intentionally confusing when Microsoft articulates these new licensing changes. If you read through the Product Terms document, you’ll find 28 instances of the following phrase: “Dedicated Servers that are under the management or control of an entity other than Customer or one of its Affiliates are subject to the Outsourcing Software Management clause.”

Let’s go down the rabbit hole a bit. So, what is the Outsourcing Software Management Clause? You’ll find the following definition under the Universal License Terms in the Product Terms document:

Customer may install and use licensed copies of the software on Servers and other devices that are under the day-to-day management and control of Authorized Outsourcers, provided all such Servers and other devices are and remain fully dedicated to Customer’s use. Customer is responsible for all of the obligations under its volume licensing agreement regardless of the physical location of the hardware upon which the software is used. Except as expressly permitted here or elsewhere in these Product Terms, Customer is not permitted to install or use licensed copies of the software on Servers and other devices that are under the management or control of a third party.

We learn two things from the Outsourcing Software Management Clause. First, the hardware must be dedicated to the licensed customer – in other words, no shared servers. Second, we see that we must use an Authorized Outsourcer to install and use licensed copies of the software. What’s an Authorized Outsourcer?

Authorized Outsourcer means any third party service provider that is not a Listed Providerand is not using Listed Provider as a Data Center Provider as part of the outsourcing service.

An “Authorized Outsourcer” means any third-party service product that is NOT a Listed Provider, which currently includes Alibaba, Amazon, Google, and – interestingly – Microsoft. It sure would have been a lot easier for Microsoft to say “You can’t remotely host at Alibaba, Amazon, or Google.” Of course, Microsoft offers remote hosting of the Windows operating system through Windows Virtual Desktop (WVD) in Azure.

Believe it or not, there’s an exception to this change governing Microsoft licensing on AWS. If you are a VDA E3 or E5 user, you may remotely access a Windows operating system VDI on any Listed Provider (Alibaba, Amazon, Google, etc.):

Any user of a Licensed Device, or any device used by a Licensed User, may remotely access up to four Virtual OSEs or one Physical OSE of Windows software acquired through a volume licensing agreement on (a) device(s) dedicated to Customer’s use. Dedicated Servers that are under the management or control of an entity other than Customer or one of its Affiliates are subject to the Outsourcing Software Management clause. Notwithstanding anything to the contrary in the Outsourcing Software Management clause, Customer’s VDA E3 and E5 Licensed Users may remotely access Windows software under these Remote Virtualization rights on any Listed Provider’s Servers dedicated to Customer’s use.

The exception is valid for the VDA license only. It’s not valid for the M365 E3 or E5 users, which includes the Windows operating system. Said another way, you could easily find yourself in a situation where you’ve licensed M365 E3 or E5 (Microsoft’s marquee desktop bundle) and still need to purchase a VDA per user license in order to take advantage of DaaS at Amazon. The cost of the VDA license? Approximately $10 per user per month. While most customers won’t like the additional expense, there is a way to use Microsoft’s competitors for DaaS.

Remote Hosting of Microsoft’s Application Products

Microsoft has largely moved its enterprise clients to the 365 Apps, which are included in O365 and M365. The Microsoft 365 Apps allow Licensed Users to access Office experiences on PCs, Macs and mobile devices. The Licensed User may activate the software for local or remote use on up to five concurrent operating system environments (OSEs).

Unlike the Windows operating system, customers may choose to deploy the Microsoft 365 Apps on remotely-hosted servers that are dedicated to the customer, or even in shared server environments:

Dedicated server scenarios include deploying on the customer’s own servers or using a third party to host a dedicated server. If the customer chooses to use a third party, this is often referred to as “Outsourcing Software Management” and requires the third party to be an Authorized Outsourcer. The hosted environment must be on servers dedicated to the customer. An Authorized Outsourcer is any outsourcer that is not a Listed Provider and not using a Listed Provider as a datacenter provider.

Shared server scenarios include using Microsoft Azure or a third-party service provider that is a Qualified Multitenant Hosting Partner (QMTH). A list of QMTH Partners and additional deployment requirements are available at https://www.office.com/sca. If the customer chooses to use a QMTH, the QMTH may not be a Listed Provider or be using a Listed Provider as a data center provider.

Sound familiar? Remote hosting with a Listed Provider is not permitted under any scenario. While true that O365 can be used as SaaS with a shared server, it can only be used by a Qualified Multitenant Hosting Partner and not a Listed Provider. Microsoft does offer a 50+ page document of Qualified Multitenant Hosting Partners, yet you won’t find Amazon or Google on that list.

Changes to Microsoft Licensing on AWS Could Have Material Impact on Customer Spend

Microsoft seems determined to move its large enterprise customers to Azure. What happens if you were previously using the Windows OS at Amazon Workspace? Microsoft will tell you that you have the right to continue to do so if you signed your Enterprise Agreement before October 19, 2019. You’ll need to purchase a VDA Per User license for those users when you renew your agreement, however. If you have 10,000 users, it will cost you an additional $1,092,000 per year for an EA Level C customer. There is no alternative for O365 E3 or M365 E3 users today – other than using a Qualified Multitenant Hosting Partner.

It’s important to be aware of these issues when negotiating your renewal agreements as these changes could have a material impact on spend. Understanding your options (when available) as well as ways you can offset financial impacts across your Microsoft estate through licensing and cost optimization will be instrumental in keeping costs in check and avoiding multi-million-dollar surprises at audit time. If you want a licensing expert on your side of the table as you analyze your organization’s Microsoft spend, reach out.

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Oracle Licensing: 5 Common Types of Database Licenses

Mar 9, 2021

Oracle offers enterprises many licensing options for its database products. Choosing the right license type for your technical, user and budgetary requirements can be challenging to say the least. This has led many customers to overbuy and overspend on Oracle licensing as well as unintentionally expose their Oracle software estates to compliance risk.

Here are some of the most common types of Oracle database licenses consumed by enterprise customers.

Oracle Database Licensing Types: Understanding 5 Common Licensing Types

#1 – Cloud BYOL (Bring Your Own License)

As more companies migrate to the cloud, the BYOL Oracle licensing model has gained significant steam among enterprise customers. This licensing model allows customers to utilize their existing on-premise Oracle license to support their Oracle migration and deployment to the cloud. For some customers, the BYOL option delivers material cost savings.

BYOL can be used whether you’re looking to run Oracle in Oracle’s own cloud infrastructure (OCI for short) or in a competitive cloud hosting environment like AWS or Azure. For customers looking to migrate their legacy Oracle system to OCI, existing perpetual software licenses can be used to purchase a cloud subscription at a lower cost.

Likewise, customers can use their existing Oracle licenses to run on AWS or Azure – although it’s important to understand usage rights, core multiplier calculations and specific licensing metrics in order to avoid risk of noncompliance. For example, many Oracle ULAs do not allow usage in AWS.

Often delivers material savings
Aligns with most enterprises long-term cloud migration strategy

Potential for noncompliance if not careful
TCO can be complicated to determine and customers need to consider full cost of cloud commitment versus cost of buying a license outright

Oracle offers processor licensing in the event users can neither be counted nor verified. In this case, pricing is calculated per processor. However, Oracle has a specific definition of what a processor is, which may or may not remain congruent with the definition used by your hardware vendor.

For example, with a Standard Edition 2 (SE2) license, a processor is defined as equivalent to a socket (as are all products with Standard Edition in the name). Alternatively, if you have multi-chip modules, each chip is defined as equivalent to a socket. Note – if you’re still using an SE1 or SE license and haven’t migrated to SE2, things get a little more hairy on the compliance front.

Popular demand for processor-based licenses stems from web applications in which counting your users across hosting environments is challenging. Therefore, to calculate your licenses, this metric allows you to multiply the total number of cores of the processors used by a single licensing factor. For easy reference, the core processor licensing factor is specified on your Oracle Processor Core Factor Table, located in your contract’s terms and conditions.

You don’t have to count users
Optimal for web applications
Simplicity

There are several nuances per product
Requires accurate processor calculation
Complex contract language might result in misinterpreting license metrics

This license type is most commonly used in development and testing environments. Instead of pricing on a per processor basis, Named User Plus licensing is charged per user. In this case, Oracle defines a user as any human, system (e.g., scanning robot, information board, and application servers), or other “end-node” that either receives or creates data from an Oracle database.

One caveat with the Named User Plus licensing metric is that you must adhere to the Oracle User Minimums rule as part of this license. Named User Plus licenses, like all license types referenced here, are available for all Oracle database editions.

Multiple editions are available to better suit your licensing needs
Adequate room for license negotiation and optimization

If the application server is connected to the outside world via a web application, you must buy processor-based licenses unless otherwise negotiated with proof that only a few users have access
Must have a minimum number of named users to the Oracle software

#4 – Application-Specific Licensing

Another option in the Oracle licensing portfolio is application-specific licenses. These are sold in tandem with third-party application packages – and there a ton of third-parties that sell them. For example, enterprises can purchase an Oracle application-specific license from SAP that allows them to use Oracle with SAP’s systems. As a result, this particular license pertains to application-specific metrics and cannot be used for anything else.

Because these licenses are provided as part of a third-party application, the third party is responsible for technical support. In effect, customers must rely on the third party to stay on top of all patches and updates issued by Oracle.

More necessity than advantage – application-specific licenses allow Oracle’s products to connect with other enterprise application in the IT ecosystem
Less expensive than Oracle’s full-use licenses

Restricted use only for application specified
Compliance risk for customers that don’t fully understand application-specific use rights

#5 – Unlimited License Agreement (ULA)

Oracle’s Unlimited License Agreement (ULA) permits unlimited use rights covering certain subsets of Oracle products within a specified timeline agreement – all for a single fee. At the close of their ULA period, customers go through a true-up exercise where they declare their usage of products to Oracle. This includes the number of user licenses needed during the specified period. Customers are then granted the licenses by Oracle.

ULAs are best for companies expecting growth through normal business operations rather than through mergers and acquisitions. They also allow you to bundle a collection of Oracle products together within a single agreement and get a single invoice instead of managing several complex licensing agreements for each product and multiple invoices.

However, ULAs can lock customers into subpar terms and pricing thereby creating a subpar baseline for future renewals. It’s advisable to perform IT price benchmark analysis on all pricing and discounts, and negotiate best-in-class terms that provide flexibility to meet your current and future-state requirements.

Cost savings by bundling products
Convenience as a “one-stop-shop”
Simplicity by having all licenses in one agreement

Putting all your eggs in one basket
Must have aggressive negotiations for favorable pricing and terms
Unbundling can be a future issue

Don't Forget to Negotiate and Optimize Your Oracle Licensing Agreements

The Oracle sourcing environment has always been tough to navigate, especially when you don’t know what elements are negotiable. By default, most IT sourcing teams have limited transactional exposure with Oracle – typically just once every year or two. When negotiating your Oracle licensing terms, it’s important to have expert help to reduce costs across all facets of your Oracle estate. This equips Oracle customers with the knowledge gained from frequent, regular transactional exposure.

If you are looking to reduce your software licensing costs, renew or make a net-new purchase with Oracle, NPI can help. Our price benchmark analysis, license optimization, and software license audit services frequently deliver six and seven-figure savings for enterprise clients.

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The SAP License Audit Process: Understand the SAP Audit Escalation Process

Mar 3, 2021

One thing that makes it difficult to navigate a software license audit is that the process varies by vendor. At an atmospheric level, the process may be seem straightforward enough (receive a formal notification, share data, etc.), but it’s the nuances that count. And the nuances of the SAP audit process make it stand out.

Without a full understanding of what makes the SAP license audit process unique, customers may be hand-delivering the evidence that results in a multi-million-dollar invoice. In this post, we walk through the stages of an SAP audit.

Self-declaration – The Most Basic Form of an SAP License Audit

As we discuss in this bulletin, SAP requires customers to perform an annual self-reporting process, of which the self-declaration is a key component. The self-declaration requires reporting of metrics that cannot (or cannot easily…) be tracked by existing SAP tools. Self-reporting requirements and “Notes” (patches and updates) that need to be applied to SAP systems are distributed each year. The reporting requirements may vary from year to year.

Many SAP customers apply the Notes and submit the requested reports without much review or thought. It seems mundane enough, is contractually stipulated and happens at a regular cadence. Yet the reality is that the reports, and self-declaration in particular, can expose SAP customers to 7- and 8-figure penalty fees that show up unexpectedly as invoices.

Once SAP formally issues self-reporting requirements, customers must apply the Notes, then run SAP’s USMM scripts to collect the required information and aggregate into LAW reports. Customers then combine the LAW reports with self-declaration data and submit. SAP’s Global License Audit and Compliance (GLAC) center conducts a review, or basic audit. If SAP sees the customer has over-deployed a particular product, SAP sends them an invoice for that overage – sometimes with no confirmation or questioning.

In many cases, the SAP license audit process ends when the customer pays the invoiceand remedies licensing shortfalls. But not always. With growing frequency, customers find themselves moving into a more a more intrusive and structured type of audit.

This is why it’s important for customers to perform their own internal analysis before submitting reports to SAP (read why here).

Enhanced Audit – An Escalation Beyond Basic

In addition to receiving a true-up invoice for any license shortfalls, SAP may escalate a self-declaration to an Enhanced Audit. Entering this phase, the customer should proceed with even more caution. Enhanced Audits typically lead to additional scrutiny from SAP with regard to indirect access and use of business objects.

Indirect access occurs when the vendor’s solutions are accessed or initiated by non-SAP solutions. SAP continues to evolve how it monitors this activity and gets compensated for the use of its products that are initiated this way. Unfortunately, SAP’s current tools, Passport and the Estimation Tool, are still imprecise and review remains highly subjective. It’s a point of concern and confusion for many SAP customers, and it can be a large liability given the expanse of most customer’s SAP estates and level of integration with other systems.

During an Enhanced Audit, representatives from SAP’s GLAC senior management will collect additional usage data by requesting that more scripts be run, and they will then follow up with additional inquiries. It’s important to note these reports do not produce definitive results, yet findings may be presented as such. This is why it’s critical for customers to fully understand what the data in these reports actually mean, and what they do not. It’s best to get an independent licensing expert to provide analysis and recommendations because the compliance exposure presented as an audit finding can be substantial.

As the customer and SAP debate the veracity of the findings, a few scenarios may emerge:

The customer is discovered to be compliant, but at this point a finding of compliance is atypical.
The customer is found to be out of compliance, penalty fees are presented and SAP offers a “Partnership Proposal” as an alternative to paying the proposed settlement fee.

Negotiating the Final Outcome – The Last (and Critically Important) Step of the SAP License Audit Process

When SAP finds noncompliance, the penalty fees are typically significant and new licenses will need to be purchased. But payback for under-licensed environments is only the short game in SAP’s audit revenue strategy. SAP uses noncompliance as leverage to “motivate” customers to purchase new solutions or accelerate their migration to S/4HANA. In an Enhanced Audit the two likely options to be offered as a “Partnership Proposal” are participation in their Digital Access Adoption Program (DAAP) or purchasing Analytics Cloud. If a purchase is necessary, customers should perform a price benchmark analysis to ensure they pay at or better than fair market pricing for new solutions.

If you need help navigating an SAP license audit, NPI can help. Our vendor-specific license and audit management experts will guide you through every step of the process. NPI helps you control the cadence, avoid self-incrimination, establish an independent license position, validate the vendor’s data accuracy, identify vendor misinterpretations and negotiate an optimal outcome. We work with you to minimize and mitigate penalties and reduce future audit risk.

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8 Ways IT Sourcing Can Enable Business Resiliency and Continuity

Feb 21, 2021Contract Negotiation

Disruption has reshaped expectations of how IT sourcing pros can enable business resiliency, continuity and agility in times of unexpected change. It has also rescoped what it means to be a good steward of the technology and telecom budget. Today’s IT sourcing teams must do more to de-risk IT spend and secure protections that minimize the cost of disruption and transformational change.

The changes brought forth in recent years have created new challenges for IT sourcing. Reprioritization of IT spend, accelerated purchasing cycles, rapid implementation requirements, new vendor partnerships – these are just a few factors that have created an IT buying environment rich in opportunity for overspending. It’s also a time when procurement best practices can make a big impact on cost control.

Disruption of all kinds have unleashed a wave of critical digital transformation initiatives as well as new pressures to quickly deliver on those projects. Many businesses are reexamining how IT sourcing can increase IT agility from both a cost and functional perspective to ensure operational resiliency. The ability to easily respond to changing business requirements with minimal disruption and well-managed cost is now an IT sourcing imperative. In this bulletin, we list eight steps IT sourcing pros can take to meet this mandate.

HOW TO INCREASE IT AGILITY, MINIMIZE DISRUPTION AND DE-RISK IT SPEND

Secure forward-thinking price protections that lessen the cost of disruptive and transformational change.

It’s best practice to build flexibility into vendor agreements to prepare your organization for changing user counts and requirements. That’s even more important today as companies engineer their operations for sustained disruption. Those changes will ripple through markets creating new waves of adjustment and competition that will drive aftershocks of transformation. Just as the first wave did, these will create new winners and new losers.

For optimal agility, it’s important to secure price protections – such as well-negotiated tiered pricing (as applicable) and upgrade/downgrade structures – that allow for changes in demand. While most IT vendors are hesitant to provide “flex down” contract language, having tiers that reflect not only growth but also contractions could mitigate price hikes. Renewal protection is also an area to be explored. Contract language should either remove or cap the ability to increase pricing for a specified period of time. Also, negotiating the ability to rollover any unused “units” for underutilized IT assets can help you get more mileage out of your IT investments for lower total spend.

Eliminate toxic spend in the IT budget through price benchmark analysis and license/ subscription optimization.

Despite rampant change and transformation, it’s still business as usual. Pricing disparity for same-scope purchases is as prevalent as ever – and that’s even more true if the vendor senses the customer has a tight deadline. Performing IT price benchmark analysis for renewals and new purchases will validate you’re getting a fair deal from your vendor and ensure you pay a price that’s at or better than market. Many enterprises make it a requirement to subject purchases over a certain spend threshold (for example, $75K) to third party price benchmark analysis for validation – this is a rapidly expanding best practice.

Another way to get rid of toxic spend is to right-size license assignments and liberate license currency on major SaaS software estates. This will help you identify areas where you’re over- or under-licensed and ensures you’re only paying for what you actually need. Another byproduct? Elimination of shelf-ware that may be inflating maintenance and support costs.

Negotiate contractual business terms that support flexibility, agility and future-state requirements.

How does the “new reality” business climate impact your IT environment (e.g. software user counts, IaaS requirements, etc.)? Will workers need access to more or less functionality if they return to the office (or permanently stay remote)? Will accelerated digital transformation initiatives require more cloud investment?

These are just a few questions highlighting the importance of negotiating contractual business terms that allow for flexibility. Software examples include the ability to upgrade/downgrade licensing and subscriptions, use tokens or credits to meet changing usage requirements, and apply annual monetary commitments across disparate product families (e.g. Salesforce and Tableau).

Understand the tradeoffs that come with “better” payment terms.

Many vendors are offering flexible payment terms that allow customers to defer payments. That’s been helpful for companies that need to rapidly expand IT investments without taking a near-term financial hit. But extended payment terms typically come at a price – usually in the form of smaller discounts. Any payment relief up front can quickly be negated by higher costs over the term of the contract as well as having a lower discount as a baseline during renewals. If you’re considering taking advantage of more flexible payment terms, be sure to model and factor in the long-term cost impact as part of your decision.

Keep competitive vendors and solutions close at hand, or multiple vendors in the mix to handle changes in demand.

Competitive pressure shouldn’t be limited to new purchases and renewals. Keeping multiple vendors/solutions in the mix throughout the vendor relationship gives you credibility at the negotiation table. It’s also best practice for business continuity and resiliency. To that end, IT sourcing teams should prioritize critical business processes and the vendors and solutions that support them. For processes supported by a single vendor/solution, consider a multi-vendor approach that eliminates single points of failure and strengthens leverage.

Be as hypervigilant about software license compliance as your vendor.

Disruption and economic volatility have done little to slow the frequency with which software vendors are auditing enterprise customers. If anything, vendors find themselves at an advantage. Customers’ adaptations to changing business requirements have created ample opportunity for software license noncompliance. The best way to minimize compliance risk is to stay in front of it by performing internal license position assessments on large software estates. This will help companies easily spot and remediate unintentional compliance issues before an audit happens.

Identify unknown solution overlap and rationalize (but not at the expense of business continuity).

It’s one thing to have a multi-vendor strategy to ensure business continuity, but another thing to unknowingly pay for redundant functionality. Even before recent disruptions, solution overlap plagued enterprise IT ecosystems and budgets. Decades of decentralized IT sourcing and shadow IT have made it easy for companies to unknowingly pay for multiple tools that do the same thing. Today, new technical requirements driven by transformation projects are prompting companies to look even further outside of their existing vendor/solution portfolio – often without first evaluating whether existing investments can meet those requirements. Now is a good time for companies to clean up redundancies in their IT environments, identify unknown solution overlap, and leverage existing vendor relationships (and spend) to rationalize.

Reexamine force majeure clauses.

The impact of the pandemic on contract performance obligations has caused businesses and vendors to reexamine force majeure clauses. Specifically, they’re determining if these clauses excuse them from any contract specifically define epidemics or pandemics as triggering events – but that may change as companies seek to modify the scope of coverage and prepare their businesses for the next unforeseen crisis. The legal runway for standardized changes to these clauses could be long, which is all the more reason for enterprises to start exploring changes that will better protect operations in the future.

MAKING THE CASE FOR IT SOURCING SUPPORT SERVICES

New pressures on IT sourcing bolster the business case for investments in services that support the IT sourcing function. These include third-party price benchmark analysis, license optimization assessments, audit defense, and licensing experts on the customer’s side of the table for large spend events like multi-year EA renewals. These services help IT buying teams move with speed and confidence, accelerating purchases and clearing the path for transformation and business resiliency.

Download the SmartSpend Bulletin™

Sustained disruption has resulted in a historical acceleration of digital transformation initiatives – and IT procurement teams are feeling new pressure.

Despite some IT vendors offering more flexible payment terms and pricing in response to disruption, it’s still business as usual. The risk of overspending is as great as it’s ever been.

NPI is a premier provider of data-driven intelligence and tech-enabled services designed specifically to assist large enterprises with IT procurement cost optimization. NPI delivers transaction-level price benchmark analysis, license and service optimization analysis, and vendor-specific negotiation intel that enables IT buying teams to drive material savings and measurable ROI. NPI analyzes billions of dollars in spend each year for clients spanning all industries that invest heavily in IT. NPI also offers software license audit and telecom carrier agreement optimization services.

NPI Vantage™ Pro is the newest addition to NPI’s solution portfolio – a platform developed specifically for IT Procurement Professionals to help them manage growing renewal portfolios, prepare for negotiations, and achieve world-class purchase outcomes. For more information, visit www.npifinancial.com and follow on LinkedIn.

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An Update on MicroStrategy Licensing for Enterprise-Grade Data Visualization

Feb 19, 2021

The data visualization space continues to heat up as enterprises demand more information visualization, analytics, and business intelligence tools. The global market, valued at $8.85B in 2019, is projected to reach $19.2B by 2027. The competitive landscape is also changing as established enterprise software vendors acquire new capabilities (e.g. Salesforce’s acquisition of Tableau in 2019) and new pure-play contenders come to market. With more, shinier options to consider, some established players find themselves overshadowed. MicroStrategy is one example. In this post, we give a recap of why it makes sense to consider this “legacy” analytics provider, and a few thoughts about MicroStrategy licensing and pricing.

Tableau Drawbacks Direct Clients to MicroStrategy Licensing

While NPI increasingly sees clients purchasing their data visualization solutions from Tableau, there are some drawbacks to working with Tableau. On the deal front, they’re not always customer-friendly; offering minimal discounting, and migration paths to new products can be confusing.

That’s prompted some companies to reconsider providers like MicroStrategy. While the competition may deem them “old guard,” it’s not necessarily because of their offerings – they deliver a solid product. More likely it’s because the company lost its way back in 2012. While it was chasing a dream of creating a social media vertical across its platform, competitors like Tableau came out of the woodwork to take the industry by storm.

After a few years and a couple of hits and misses, the company refocused its efforts on its bread and butter – analytics. MicroStrategy version 10 was released in 2015 and the company regained clarity and focus, with added attention to self-service as that was really what the market was asking for. But the wasted time did a number on the company’s competitive positioning.

Prioritizing Enterprise-grade Scalability and Integration with Business Productivity Tools

Don’t overlook the importance of enterprise-grade scalability and integration with business productivity tools. Competition for data visualization and analytics is incredibly strong, but one thing MicroStrategy has going for it is the ability to scale across the entire enterprise. If a customer is looking for a tool that is easy to use but also has the bandwidth to handle a large scale of users accessing a centralized repository, then MicroStrategy licensing should be considered.

A few other features of note from a competitive POV include the ability to plug directly into Microsoft Office. People love their Excel worksheets and PowerPoint slides for presentations. MicroStrategy allows customers to plug a dashboard or report directly into Microsoft’s tools and refresh directly from there. It helps eliminate the need to constantly update through copy and paste – a simple click of a refresh button will do.

With MicroStrategy 2020, the release of “hypercards” was introduced. Like popups, they can get a little annoying but if you want your analytics directly in front of you, connected to specific words (like a company name or a KPI like “revenue”), they offer that ability to experience the company’s “Intelligence Everywhere” promise.

MicroStrategy Pricing Overview

MicroStrategy licensing and pricing has become complicated over the last year. There will be a cost based on what exactly you want to do with it. However, to get down to the important details, it depends on a bunch of different factors. MicroStrategy pricing ranges from $600 to $5,000 per user depending on type of access for an on-premise solution and one-third of that cost for cloud (annual).

A sample of license types include:

Reader-only licenses on either a mobile device or a web browser.
For users that would need to create their own reports/dashboards there are a couple of cost factors. One is, as previously mentioned above, the cost per web/mobile access. The second cost is to use MicroStrategy “Developer” or, as they put it, access to the “server.”
Another license type is for “architects.” These are considered the true administrators of the platform and include those building the actual attributes and metrics that go into a dataset to create reports/dashboards. Enterprises typically only need a small handful of these – no one wants too many cooks in the kitchen.

Additionally, all MicroStrategy applications can be white labeled as your own branded app or integrated into your website/application.

Users looking to have a serious analytics tool across their company and a single version of the truth in terms of their data should look at MicroStrategy. Scalability, integration with Microsoft, and newer “in your face” analytics capabilities make MicroStrategy a solid contender among a crowded field of competition.

Navigate MicroStrategy Licensing with Data and Savings Experts

Need to make sure you’re getting the best deal on a MicroStrategy or Tableau purchase? NPI can help.

Our vendor-specific price benchmark analysis and license optimization services can help you determine if pricing is within fair market value range as well as identify opportunities to reduce cost through license optimization.

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Negotiating Software License Agreements

Feb 1, 2021Audit Defense, Contract Negotiation, Cost Optimization, Price Benchmarking

As enterprises accelerate their transformation initiatives, a meticulously negotiated software license agreement has never been more important. But that’s easier said than done – particularly now. Disruption challenges even the strongest negotiation plan. Vendors’ licensing, pricing and contractual business terms have become increasingly complicated and change frequently. And many enterprises are working with software vendors for the first time, which removes the advantage of experience. In the content below, we explore ten tips for negotiating software license agreements in the coming year.

Perform IT Price Benchmark Analysis on all Renewals and New IT Purchases
Break Down Bundled Pricing
Align Software Usage with Best-fit License and Subscription Options
Consider Taking Advantage of Better Pricing in Exchange for Longer Term Commitments
Buy Only as Much Support as You Need and Explore Third-Party Support Options on Major Software Estates
Negotiate Favorable Renewal Rights – and Don’t Wait Until the Last Minute to Renew
Inspect Product Use Rights and Online Services Terms – Particularly for Renewals
Pay Close Attention to Clauses that Govern Software License Audits
Get Price Benchmark Analysis on Professional Services Rate Cards
Have a Protocol for Who Communicates with the Vendor During Negotiations

REGISTER NOW for our free “Inside the Mind of the Vendor” webinar to learn how vendors think and negotiate smarter.

Negotiating Software License Agreements: Our Top 10 Tips

1. Perform IT Price Benchmark Analysis on all Renewals and New IT Purchases

Pricing in the IT world is notoriously inconsistent, making it difficult to determine fair market pricing. Licensing terms are also becoming increasingly complex and, as noted above, change frequently. What one customer pays for a similarly-scoped IT purchase or renewal can often be 20, 30 or 50 percent more than the next customer.

Performing IT price benchmark analysis on material purchases and renewals serves as guardrails for overspending. It ensures you pay equal to or better than best-in-market pricing. Smart businesses use this tactic to eliminate overspending, keep pace with changes in vendor pricing and licensing, and conduct data-driven vendor negotiations. By equipping your IT buyers with transaction-specific IT price benchmark analysis, you will be ensuring you get the best possible deals, purchase-by-purchase.

2. Break Down Bundled Pricing

Enterprise software vendors favor bundled pricing that combines multiple SKUs into a single package. However, failure to show line-item pricing makes it difficult to understand what you are paying for and the value of each item in the bundle. To boost perceived value, vendors often include offerings “at no additional charge.” What may seem like a good deal can be a perfect recipe for shelf-ware that drives up maintenance costs. NPI recommends requesting vendors provide item level pricing and discounts. This way each item can be evaluated for its true value to the organization, and line-item price benchmark analysis can be performed.

3. Align Software Usage with Best-fit License and Subscription Options

When it comes to negotiating software license agreements, the savings tactics that happen before negotiations even begin are often the most impactful. Case in point: software license optimization. Most companies overspend by paying for unused licenses and subscriptions or higher-level licenses than necessary. To avoid overpayment, you need to fully understand which licensing options (including the cost implications of things like virtualization, indirect access, etc.) best fit your unique user and business requirements. If you don’t have vendor-specific expertise in house, consult objective third-party licensing experts that do.

4. Consider Taking Advantage of Better Pricing in Exchange for Longer Term Commitments

The practice of trading better pricing for long term commitments is common among many industries, including enterprise software. Focused on growing their businesses, many software providers are willing to lower their prices in exchange for continued user loyalty. This is a good opportunity for companies to balance their own needs to minimize IT spend while still pursuing mission-critical IT objectives – but requires careful evaluation. Vendor lock-in can have negative implications on IT and cost agility.

5. Buy Only as Much Support as You Need and Explore Third-Party Support Options on Major Software Estates

Companies routinely overpay by purchasing more maintenance and support than necessary. This can occur when either opting for a premium support package versus the standard alternative, or by failing to evaluate less expensive third-party support alternatives. Like license optimization, support optimization should be performed prior to negotiating software license agreements. Be sure to clearly define and align your support requirements with available options. In many cases, those options will include both vendor-direct support and third-party support alternatives.

A note on third-party support: these options are becoming more mainstream as providers often offer support at levels that match or exceed those offered directly by the vendor. The benefits are numerous with the most obvious being significant cost savings – often half the cost of standard vendor direct support.

6. Negotiate Favorable Renewal Rights – and Don’t Wait Until the Last Minute to Renew

How well you negotiate the renewal rights covered in your software license agreement will have a direct bearing on your costs down the road. Vendors know your motivation to renew will likely be much stronger than your motivation to enter a new agreement with a different provider. It’s one way they extract higher rates at renewal time. For that reason, consider negotiating caps on annual and renewal price increases with your vendor.

Another piece of advice – don’t wait until the last minute to renew. It used to be best practice to let your vendor sweat it out as end of quarter/year/term approached. That’s no longer the case with many vendors. As deal pipelines get full, a vendor’s deal desk can get overwhelmed making it difficult to secure last-minute concessions. Timing is a lever that’s applied differently depending on the vendor – know how to use it to your advantage!

It’s also worth considering the terms that will govern what happens if you don’t renew. As the IT landscape and your business requirements evolve, you may need to switch vendors. It’s important to negotiate favorable termination and transition assistance clauses that clearly outline who’s responsible for what and what kind of transition assistance will be provided.

7. Inspect Product Use Rights and Online Services Terms – Particularly for Renewals

Your renewal is a perfect time for vendors to sniff out the state of software license compliance. Vendor tactics range from formal true-ups and self-declarations to more innocuous exercises like cloud economic assessments. Regardless, it’s important you have your compliance house in order before negotiating your renewal.

Most enterprise software license compliance issues are unintentional. Inadvertent misuse, misinterpretation of licensing definitions and product use rights, unintended consequences of upgrading or downgrading license types – to name a few. But the hard truth is most vendor audits uncover noncompliance and seven- and eight-figure penalty fees are typical.

The best defense is proactively conducting an internal self-audit – a License Position Assessment – on your largest software estates. Think of it as preventative maintenance. Rather than waiting until a vendor initiates an audit, you can proactively spot potential risk, and fix it. The ideal time to do a license position assessment is well before your next renewal or true-up, allowing yourself plenty of runway for remediation decision-making and implementation.

8. Pay Close Attention to Clauses that Govern Software License Audits

When negotiating software license agreements, it is crucial that all audit rights are stipulated and agreed upon with every enterprise software vendor involved. As a result, the negotiated audit rights should specify the following:

The allotted time a company must respond to a formal audit request
Which vendor resources have the authorization to audit
What tools will be used
What data must be provided (and how soon)
How arbitration will be handled

By fully understanding audit rights prior to an official audit, companies can model their self–audit using the same rules of engagement that the vendor will use.

9. Get Price Benchmark Analysis on Professional Services Rate Cards

If there are material implementation fees associated with your purchase and they are being provided on a time and materials basis, be sure to get a detailed project plan that outlines the resources, talent, time, and milestones required by the project, and a rate card for the various roles. Then perform price benchmark analysis on the rate card – this frequently identifies multiple roles that are overpriced as compared to market and need to be negotiated downward.

10. Have a Protocol for Who Communicates with the Vendor During Negotiations

As we’ve covered in another post, team alignment is fundamental to strong software license negotiations. You’ll likely have multiple stakeholders involved on your side of the table – all with their own motivations and communication styles. Vendors know how to work this dynamic to their benefit.

All vendor communications and interactions need to happen under the purview of a shared internal protocol and process. Who in your organization is a target for vendor communications? Who is allowed to speak to whom on the vendor side (and who is not)? What is each person’s role and what are they allowed to share with vendors? When do certain team members need to “go dark” or tell the vendor they don’t know any details? Remember, your vendor has a playbook for negotiating software license agreements – you should too.

Negotiating Software License Agreements

Software license agreement negotiations are complex and resource-consuming. The risk for overspending is high and the cost implications can be years-long if not properly executed and managed. On the flipside, there are levers that can be used counter this risk – and savings are only one important measure of success. A strongly negotiated software license agreement can increase IT agility, accelerate digital transformation and other strategic initiatives, smooth the pathway to compliance, and uncover areas of toxic spend that need attention.

If your enterprise has a software purchase or renewal negotiation on the horizon, NPI can help.

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SAP Self-Declaration – How to Avoid Compliance and Cost Risks

Jan 18, 2021SAP

SAP’s annual self-declaration requirement is one way the vendor sniffs out non-compliance among enterprise customers. It may seem like a benign true-up exercise, but it’s really a less-obvious form of a software license audit – and a potentially costly one to unsuspecting customers. By proactively validating self-declaration findings internally before providing information to SAP, customers have an opportunity to minimize compliance and cost risk exposure.

As software vendors seek to boost and protect revenues amid economic volatility, enterprise software license audits are on the rise. In some cases, these audits are obvious, formal engagements. But, in other instances, audit activity takes a less recognizable form.

A typical self-declaration goes like this: Annually, SAP asks the customer to self-declare usage details around particular products that SAP tools don’t automatically measure. Additionally, the customer utilizes SAP’s USMM scripts, which list the users, license types and chargeable objects. This information is fed into SAP’s License Administration Workbench (LAW) tool, which consolidates the USMM data for reporting to SAP. If SAP sees the client has over-deployed a particular product, they send them an invoice for that overage and require a true-up.

SAP’s requirement for self-declaration helps them avoid the fear and resistance most software vendors encounter when serving an official audit notice to their customers. It’s designed to seem mundane and routine, and it’s largely benefited SAP’s bottom line. Most customers go along with self-declaration without objection and without fully understanding the compliance (and cost) implications. Yet the reality is self-declaration can expose SAP customers to 7- and 8-figure penalty fees disguised as true-up costs.

WHY SAP SELF-DECLARATION TOOLS RARELY WORK IN THE CUSTOMER’S FAVOR

Vendor-side compliance discovery tools rarely work in the favor of the customer, and that’s certainly true of SAM’s USMM tools, LAW and digital access reports. Managing SAP licenses and subscription data is a complex endeavor. It’s not uncommon for a customer to incorrectly assign user capabilities to roles and mismanage license allocations. This problem is compounded in an SAP estate that’s recently undergone significant change, or one where license optimization hasn’t been performed for some time.

Fortunately, mismanagement doesn’t always require the purchase of new licenses or remediation. Existing licenses can often be reallocated to bring the customer into compliance. This, of course, isn’t factored into the usage data and reports compiled by SAP’s discovery tools. Likewise, SAP rarely interprets product use rights to the benefit of the customer – even when an acceptable alternative interpretation exists.

This is why it’s imperative for customers to perform their own internal analysis before submitting reports to SAP for review. SAP’s self-declaration process is fertile ground for self-incrimination and inaccurate assumptions that can lead to multi-million-dollar compliance penalty fees.

Self-declaration is just one of many moves SAP has taken to build up its software license audit capabilities and resources in recent years (others include changes to its Indirect Access policies and metrics). NPI has seen an uptick in the number of clients being asked to pay material fees as a result of self-declaration. To avoid cost surprises, NPI recommends SAP customers do the following:

Assume self-declaration will lead to compliance risk/cost exposure – so be ready. If you have a renewal coming up, assume self-declaration will be part of the process.
Analyze discovery findings and perform remediation before submitting reports to SAP.

After an initial run of USMM scripts and creation of the consolidated LAW, enlist third-party SAP licensing expertise to help you analyze and validate findings. This will allow you to identify and prioritize self-remediation opportunities, and establish your position on product use rights to your advantage. Once you’ve remediated/minimized compliance risk exposure, you can submit accurate findings to SAP that will either fully mitigate or minimize additional licensing fees.

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Without proper analysis and licensing expertise, “out-of-the-box” self-declaration can lead to hefty compliance penalties that can often be avoided. How hefty? A recent example: A 9-figure cost exposure for one SAP enterprise customer.

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Top 5 Software Compliance Issues

Jan 12, 2021Audit Defense

This content was updated January 12, 2021.

Most enterprise software compliance issues occur unintentionally. By and large, companies try to walk the line through rigorous software asset management and transparency with software vendors. Despite those efforts, however, most software license audits uncover noncompliance – and the penalties associated with these compliance failures can be crippling. Audit penalties in the 7- to 8-figure range are not uncommon.

Are you wondering if your business is unintentionally out of compliance? Below, we explore the five most common software compliance issues and discuss how to put parameters in place to avoid audit failure.

#1. Inadvertent Misuse

Inadvertent misuse is a top offender in software compliance issues. For example, certain license types can only be used in non-production environments like development, testing or failover (these are examples of “limited-use licenses”). Companies often purchase these license types to save costs and align with then-current usage requirements, then later discover they are somehow being used in production environments for things like internal data processing operations.

To avoid the risk of license misuse, have a clear understanding of use rights and verify all licenses are being used for their intended scope.

#2. Misinterpreting Licensing-Related Definitions

Licensing programs and definitions constantly evolve as new ones enter the mix. Do you know what constitutes a qualified user or device with Microsoft? Or IBM’s concurrent versus floating user? How about Oracle’s application full use license versus an embedded software license?

This complex and confusing licensing “flexibility” offered by the vendors, combined with your own evolving usage needs conspire to make it easy to violate licensing terms, and make you a target for software compliance audits. You can prevent unintentional software compliance issues by requesting clarification on any licensing-related definitions and allocating software licenses in accordance.

#3. Changing Product Use Rights that Leave Your Software Unlicensed

Another top software compliance issue occurs when a vendor changes their product use rights without your knowledge. As a result, you now have unlicensed software, and (if left untreated) a crippling noncompliance charge on the way.

Product use rights can change at any time. Unless you proactively look for changes, most of which are buried online, you can easily miss the details. We’ve seen this with Microsoft, Oracle, and particularly SAP as they try to establish more “customer-friendly” indirect use policies.

To avoid noncompliance on major software estates, establish a cadence for regular inspection of product use rights and online services terms.

#4. Upgrading or Downgrading Software Without Understanding Product Use Rights Implications

Which product use rights apply in an upgrade/downgrade scenario: the rights included with your original purchase, or the rights that came with the upgrade/downgrade? Depending on the vendor, it varies.

Before upgrading or downgrading software licenses, determine any product use rights implications to prevent software compliance issues.

#5. Unsuspecting Compliance Implications of Virtualization

Virtualized environments are hotbeds for noncompliance. Vendors have different (and very specific) rules for how hosts and software are both coupled and managed. For example, Microsoft and Oracle licensing don’t always play nice with VMware, and both vendors have been rumored to target joint VMware customers for compliance inspection.

Therefore, be sure to validate compliance implications of virtualization to avoid costly noncompliance charges.

Avoid Software Compliance Issues with a License Position Assessment

Most enterprise customers will be audited by at least one large software vendor this year. The best defense is proactively conducting an internal self-audit – a License Position Assessment – on your largest software estates.

Consider this as preventative maintenance. Rather than waiting until a vendor initiates an audit, you can proactively spot potential risk and fix it. The ideal time to do a license position assessment is well before your next renewal or true-up, allowing plenty of runway for remediation decision-making and implementation.

Engage Software License Audit Services

It’s important to understand what deployment tools vendors use to detect noncompliance, and to have the deep licensing expertise to know how the vendor will interpret noncompliance. These are just some of the reasons why companies turn to NPI’s software license audit services.

We collect your actual software deployment data and compare it against your entitlements to identify usage gaps (over- or under-utilization) and provide remediation recommendations. We use vendor-side and independent data collection tools to validate findings and are keenly aware of where specific vendors frequently misinterpret findings.

Remember, vendors partner with outside audit consultants (Deloitte, KPMG, etc.) that are financially motivated to find noncompliance, which they most often do. Enterprises should take all precautions to avoid or minimize noncompliance risk. Performing a preventive internal self–audit using the very same level of scrutiny that the vendor’s team would use – as well as similar tools and processes – is the most effective tactic.

If you aren’t sure of your compliance position on a large software estate, or have a renewal on the horizon, you’re likely a good target for an audit. Don’t get caught off guard. NPI’s license position assessment and software license audit services have helped enterprises minimize noncompliance exposure and avoid or minimize multi-million-dollar penalties

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5 Ways to Cut Costs During Your Next SAP Contract Negotiation

Dec 21, 2020

As one of the world’s leading providers of ERP and business management software, SAP’s ecosystem of solutions is constantly evolving to keep pace with enterprise needs. However, as its offerings evolve so do the complexities of purchasing them, making effective SAP contract negotiation more challenging than ever.

SAP’s cloud focus, expanding solution portfolio, and push to move customers to its S/4HANA digital business platform has made it increasingly hard for enterprises to stay on top of changing product use rights, licensing/subscription options and pricing. The SAP estate is renowned for being difficult to manage from both a time and cost perspective, and the risk of overspending is high.

Fortunately, there are several steps customers can take prior to and during an SAP purchase or renewal to minimize this risk. Below are several ways to help you cut costs during your next SAP contract negotiation.

Navigating SAP License Negotiation: What it Involves

When it comes to negotiating SAP licenses, a thorough understanding of the intricacies involved is paramount for striking a favorable deal. Here’s a closer look at what SAP License Negotiation entails:

Understanding Business Needs: Effective negotiation depends on grasping your business’s needs. Identifying key functionalities shapes a tailored licensing agreement aligned with your objectives.

Cost Optimization: Securing optimal pricing and terms is essential. This involves exploring pricing models and leveraging bargaining power to maximize value within budgetary constraints.

Flexible Licensing Terms: In a fast-paced business world, flexible licensing terms to accommodate changes and growth are vital. Negotiating for scalability and adaptability ensures your agreement stays aligned with evolving needs.

Audit and Compliance Assurance: Clear audit processes and compliance procedures are essential. Establishing transparency minimizes risks and promotes compliance, protecting your organization from adverse consequences.

Support and Maintenance Agreements: A robust support and maintenance framework is crucial for SAP solutions. Negotiating the right level ensures timely assistance, safeguarding your operations.

Agreement Sustainability: Anticipating future changes is vital for a lasting licensing agreement. Incorporating flexibility ensures alignment with long-term goals.

Risk Mitigation: Identifying and addressing risks upfront is key for safeguarding the agreement. Proactively mitigating risks protects your organization from challenges.

In essence, SAP License Negotiation requires a comprehensive approach aimed at aligning licensing arrangements with your business objectives. By strategically navigating these dimensions, organizations can secure agreements that not only meet their current needs but also position them for future success in the ever-evolving SAP ecosystem.

How to Mitigate Overspending Risk During Your Next SAP Contract Negotiation

SAP purchase and renewal optimization is a complex process and highly specific to the customer’s unique current and future-state technical and business requirements. However, there are certain steps most any customer can take before and during SAP contract negotiations to reduce the risk of overspending.

1. Ensure right-size licensing/subscriptions before negotiations begin.

If it’s been a while since you inspected your SAP licensing and subscription choices for optimization opportunities, now is the time. Many enterprises miss the important step in ongoing SAP cost optimization, leading to overpaying for SKUs that are no longer the best option for their requirements.

One great way to eliminate overbuying and over-licensing is to routinely perform license/subscription optimization across your SAP estate. A License Position Assessment can provide excellent insight into what you actually use versus what you “own” and any delta that exists between the two. In some cases, customers may identify the need to get rid of unused licenses or subscriptions, or liberate that license currency to be used elsewhere. In other cases, customers may find they’re under-licensed and at risk for being found out of compliance. Both scenarios are grounds for significant cost savings and avoidance, and are foundational for your next SAP contract negotiation.

2. Don’t overbuy support and stop paying maintenance on shelfware.

Companies routinely overpay by purchasing more SAP support than necessary. Companies often opt for a premium support package versus a more standard alternative – even on underutilized products – or fail to evaluate less expensive third-party support alternatives.

The complexities of cloud migration only exacerbate this issue. Double payment for support is not uncommon as customers pay SAP professional services to handle unanticipated customizations while also paying for in-house support resources to handle lower-tier troubleshooting. It’s important for customers to determine the best-suited level of support for their unique SAP requirements (including the evaluation of third-party options) to ensure they’re paying only for what the need. Additionally, customers should perform price benchmark analysis for support costs to ensure they’re paying equal to or better than best in market.

3. Understand SAP’s changing indirect access policies for certain solutions.

In April 2018, SAP introduced a new pricing model to address growing concern around indirect access. the vendor also announced significant organizational and procedural changes to the way it handles software license audits. For many customers, this is a step in the right direction towards transparency – but only if the changes are fully understood.

Confusion around new definitions and licensing requirements have led many customers towards compliance risk. For that reason, customers should be clear on how SAP’s updated indirect access policies impact both compliance and cost across their SAP estate.

4. Perform price benchmark analysis.

As we alluded to earlier, price benchmark analysis allows you to determine if you’re paying a fair price for your SAP purchase or renewal. At NPI, we define “fair” as paying equal to or better than best in market pricing. How important is it? Our data shows if you fail to perform IT price benchmark analysis there is only about a 5 percent chance you are paying a fair price for any given IT purchase or renewal.

5. Proactively assess compliance risk.

SAP is known for aggressive software license audits, and this is not without reason. Noncompliance fees have become a major revenue stream for SAP and other software vendors. As you plan for your next SAP purchase or renewal, be sure your team assesses and proactively remediates any compliance risk. A license position assessment is a great place to start.

Strengthen Your SAP Contract Negotiations with NPI

If you are seeking effective measures to lower your SAP expenses, whether it’s through cost reduction, renewals, or optimizing a new SAP purchase, NPI is here to offer valuable assistance. Through our comprehensive suite of services, including price benchmark analysis, license optimization, and software license audit expertise, we have consistently achieved remarkable results for our enterprise clients, leading to substantial six and seven-figure savings. Our proven track record and data-driven approach enable you to eliminate overspending across your SAP estate, right-size your investment, and drive substantial savings.

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Microsoft True-Down Myths and Realities

What is “Reduction Eligible” and Why Is It Important?

In the Absence of a Microsoft True-Down, Plan Carefully

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Observations and Tips to Help You Save on Your VMware ELA Renewal

Take Your VMware ELA Renewal Off Autopilot

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Which Tactic Yields the Biggest Cost Reductions on Adobe for Enterprise Customers?

Now is the Time to Right-Size Adobe Licensing and Pricing

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Remote Hosting of the Windows Operating System

Remote Hosting of Microsoft’s Application Products

Changes to Microsoft Licensing on AWS Could Have Material Impact on Customer Spend

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Oracle Database Licensing Types: Understanding 5 Common Licensing Types

#1 – Cloud BYOL (Bring Your Own License)

#4 – Application-Specific Licensing

#5 – Unlimited License Agreement (ULA)

Don't Forget to Negotiate and Optimize Your Oracle Licensing Agreements

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Self-declaration – The Most Basic Form of an SAP License Audit

Enhanced Audit – An Escalation Beyond Basic

Negotiating the Final Outcome – The Last (and Critically Important) Step of the SAP License Audit Process

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HOW TO INCREASE IT AGILITY, MINIMIZE DISRUPTION AND DE-RISK IT SPEND

Secure forward-thinking price protections that lessen the cost of disruptive and transformational change.

Eliminate toxic spend in the IT budget through price benchmark analysis and license/ subscription optimization.

Negotiate contractual business terms that support flexibility, agility and future-state requirements.

Understand the tradeoffs that come with “better” payment terms.

Keep competitive vendors and solutions close at hand, or multiple vendors in the mix to handle changes in demand.

Be as hypervigilant about software license compliance as your vendor.

Identify unknown solution overlap and rationalize (but not at the expense of business continuity).

Reexamine force majeure clauses.

MAKING THE CASE FOR IT SOURCING SUPPORT SERVICES

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Tableau Drawbacks Direct Clients to MicroStrategy Licensing

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MicroStrategy Pricing Overview

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Negotiating Software License Agreements: Our Top 10 Tips

1. Perform IT Price Benchmark Analysis on all Renewals and New IT Purchases

2. Break Down Bundled Pricing

3. Align Software Usage with Best-fit License and Subscription Options

4. Consider Taking Advantage of Better Pricing in Exchange for Longer Term Commitments

5. Buy Only as Much Support as You Need and Explore Third-Party Support Options on Major Software Estates

6. Negotiate Favorable Renewal Rights – and Don’t Wait Until the Last Minute to Renew

7. Inspect Product Use Rights and Online Services Terms – Particularly for Renewals

8. Pay Close Attention to Clauses that Govern Software License Audits

9. Get Price Benchmark Analysis on Professional Services Rate Cards

10. Have a Protocol for Who Communicates with the Vendor During Negotiations

Negotiating Software License Agreements

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WHY SAP SELF-DECLARATION TOOLS RARELY WORK IN THE CUSTOMER’S FAVOR

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#1. Inadvertent Misuse

#2. Misinterpreting Licensing-Related Definitions

#3. Changing Product Use Rights that Leave Your Software Unlicensed

#4. Upgrading or Downgrading Software Without Understanding Product Use Rights Implications

#5. Unsuspecting Compliance Implications of Virtualization

Avoid Software Compliance Issues with a License Position Assessment

Engage Software License Audit Services

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Navigating SAP License Negotiation: What it Involves

How to Mitigate Overspending Risk During Your Next SAP Contract Negotiation

1. Ensure right-size licensing/subscriptions before negotiations begin.

2. Don’t overbuy support and stop paying maintenance on shelfware.

3. Understand SAP’s changing indirect access policies for certain solutions.