Software Asset Management in Outsourcing Services

By Ludmila Kantova

Responsibility for Software Asset Management in company providing IT outsourcing services can be challenging. In this article I would like to share key terms which can be helpful for Software Asset Management professionals working for IT Service Providers.

Outsourcing Contract

Outsourcing contract is a contract signed between Customer and Service Provider where subject to delivery is a service. Examples of IT services are server monitoring, operating system and security management. Asset Management can also be provided as one of the outsourcing services.

In case of IT services it is always critical to define correct license ownership, financial responsibility and the responsibility for compliance assurance. The part of outsourcing contract containing these details is typically called Software Schedule.

License Ownership

License Ownership in software licensing represents the party who is the Licensee. Who owns the contract with software manufacturer (further referenced as Licensor). Who is auditable by software Licensor. Who will be found compliant or non compliant by software Licensor.

Financial Responsibility

Where financials are concerned two possibilities exist:

  • Scenario 1: Service Provider acts as a paying agent for the Licensee. That responsibility is then only described in the Outsourcing Contract and the Licensee is still the only financially responsible party to the Licensor.
  • Scenario 2: Service Provider is explicitly responsible for some or all payments in the contract between Licensee and Licensor. For example Service Provider is responsible for all ongoing Maintenance payments during contract life unless contract between Licensee and Licensor is modified.
Compliance Assurance

In licensing, via outsourcing contract, Service Provider has the obligation to perform certain activities which by default are incumbent on the Licensee.
To the Licensor the Service Provider has no responsibility of compliance. That “responsibility” is only between the Licensee and the Service Provider. For example Licensee delegates the work and responsibility to own that piece of work via the outsourcing contract.

Rights To Operate

Rights to Operate is a letter of consent signed between Licensor and Licensee. Licensor consents the Licensee allowing Service Provider access and use of the Software to perform the services in scope of Outsourcing Contract.

Service Provider License Agreements

Software manufacturers will typically offer two types of agreements to Service Providers:

  • Internal use: Use of software on hardware assets owned by Service Provider. Software is solely accessed by Service Provider employees for internal purposes. No commercial customer has benefit from such software.
  • Service delivery: Use of software to provide the service to the customers via outsourcing contract. In case hardware asset is owned by Service provider there are two scenarios:
    • Single-tenant – only one customer is hosted
    • Multi-tenant – multiple customers are hosted. In case multiple customers are hosted on hardware asset Licensor can mandate the use of Service Provider Agreement. Service Provider Agreements are typically based on software usage reporting.
Customer Benefit

Software manufacturers seek the opportunity to get their share on revenue generated with support of their software. Where customer has a benefit from the software, Licensor can mandate the use of Service Provider Agreement.

Direct Customer Benefit

Customer has access to the server, receives data from the server, or receives reports that depend on server operation.

  • Example 1: Server utilizes operating system to run customer applications
  • Example 2: Server utilizes software products to monitor server operations and the customer receives a report showing availability
Indirect Customer Benefit

Customer does not have access to the server, does not have access to data or reports but receives value from the server operation.

  • Example: Server utilizes operating system to run server monitoring software. Customer does not receive a report on CPU utilization or availability but the service received by the customer is due to the operation of the operating system.
License Transfer

License transfer from one Licensee to another Licensee requires authorization from Licensor. Not all software manufacturers allow to transfer the license therefore it is always important to ensure licensing terms and conditions documented by the respective software manufacturer.

License Reuse

Licensor may or may not allow the reuse of the license. Conditions for license reuse are defined by Licensor in license agreement. No further authorization from Licensor is required for license reuse.

License Mobility

Selected software manufacturers may allow customers to bring their own license to cover software in hosting environment. Service Provider is typically required to get certified as a partner. It is important to remember that not all products are always eligible for license mobility.

Responsibility for Software Asset Management in company providing IT outsourcing services can be challenging, however by clear understanding of these key terms Software Asset Management professionals can ensure top quality service for both, the Service Providers as well as for the customers contracted via outsourcing agreements.

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