The Gathering Storm – SAM in the Age of the Cloud

By Phil Hames

“Nothing is so painful to the human mind as a great and sudden change” Mary Wollstonecraft Shelley

The cloud is here to stay, changing the face of software asset management forever. Everyone in the SAM industry will be affected and they will either adapt and prosper or do the same old things and become irrelevant. The question for SAM managers is “how to adapt and weather the gathering storm?”

“Predicting rain doesn’t help, building arks does” Warren Buffet

SAM managers have used the three P’s to cope with traditional software asset management, i.e. People, Processes and Products.

People skills, effective processes and best of breed SAM tools have all been successfully implemented to ensure that software licensing is controlled in and efficient manner. The same can be applied to managing cloud based or SaaS licensing, but changes in the IT environment need to reflect the changes in the ways that new licensing models are managed.

History of Software

Events in the past determine what we do today and tomorrow. Three key events from the history of software help to explain how we have arrived at the SaaS licensing model from back in the day when software was part of a computer and licensing was never even thought of.

Event #1 – The invention of the software compiler

In 1952 Grace Hopper was working for the US Navy when she created the first software compiler for the A-0 programming language. This meant for the first time software could be written once and then transferred from one computer to run on many others. The idea was further developed by IBM and it became the norm for software to be written once and used on many different devices for different users. This had implications for software in that it became a product in it’s own right. Interestingly when Grace Hopper was asked why she created the compiler she explained that basically she was lazy and didn’t want to keep doing the same thing over again when she could do it once and transfer it many times.

Event #2 – Bill Gates’s letter to hobbyists

Early in the career of Bill Gates he became frustrated by hobbyists taking the software that he and Paul Allen had created and copying it and using many times. In February 1976 he wrote an open letter to computer users complaining that the hard work of computer programmers was being taken and used free of charge. He distributed the letter through the computer magazines of the day and started to put in place his strategy for selling software licenses. Microsoft followed the model of selling software that would work on personal computers made by other vendors and their licenses would need to be paid for.

Event #3 – Larry Ellison meeting with Evan Goldberg and Marc Benioff

In the late 1990s Larry Ellison was discussing the future of computing with Evan Goldberg and Marc Benioff. The internet was gaining popularity and all three were contemplating the impact this would have on business software. The discussion focussed on what has become known as cloud computing and how this would change the face of software. Business Insider magazine pinpoints this discussion as the invention of cloud computing and the SaaS business model. Evan Goldberg went on to found Netsuite and Marc Benioff started, the rest is history.

Differences between SaaS and Application Service Provision (ASP)

Mention SaaS and often someone will say “I remember when it was called ASP”. It is true that both models bear similarities but subtle differences apply which mean they are entirely different technologies. To manage SaaS effectively it is essential to understand the differences and how both models can be applied to cloud computing. The following chart gives a concise comparison of the key differences:


  • Hosts 3rd party software
  • Client server model – often needs a component on a client device
  • Separate instances
  • Separate updates/maintenance for each user organization
  • Increased costs to scale due to separate implementations
  • Similar cost structure to onsite
  • License focused


  • ISVs host their own software
  • Nothing to install on client devices (web access)
  • Multi-tenant
  • All user organizations on the same version
  • Economies of scale as only one version to maintain
  • Reduce operating costs
  • Subscription focused

Some pundits describe ASP as a failed business model because essentially the same costs and technology fundamentals apply to ASP and onsite deployments whereas SaaS provide a radically new way of working due to the economies of scale achieved from the one implementation can be used across many user organizations. In effect this is as radical as the invention of the first software compiler by Grace Hopper back in 1952.

SaaS Management vs Traditional SAM

Market research (IDC) estimates reveal that the SaaS market is growing at a CAGR of 18% year on year, whereas tradition licensing is experiencing a gradual decline. The fundamentals of managing these different types of licensing mean that both need a separate approach.

Traditional licensing is generally focussed around compliance and treating each license copy as an asset that is owned or leased for a long period of time. Audits and assessments for maintenance and support payments have focussed attention by vendors and users on ensuring that what is installed has to be paid for if it is to be supported and kept on the latest version. Failure to be compliant can mean considerable back payments or in some cases fines.

SaaS licensing in its purest form is truly pay as you go. Ideally payments are for active users without the need for excess licenses or subscriptions. In practice some SaaS vendors ask for annual commitments and may restrict flexibility in downsizing the number of subscriptions. However, the trend by vendors is to make the licensing flexible and responsive to the business needs of a customer. Terms and conditions are simpler than traditional licensing and compliance becomes irrelevant simply because if you don’t have a subscription you cannot access the service. As a result the focus for SaaS management is much more about reducing the unused subscriptions and becoming efficient rather than being compliant.

For traditional licensing SAM tools, processes and training has been focussed on governance and compliance and managing licenses as assets owned by the business. SaaS subscription management is much more akin to inventory or stock management. With SaaS the goal must be to ensure what is being paid for is being used and reducing costs where appropriate.

SaaS Inventory Management

Inventory management consists of three main components:

  1. Forecasting analysis. This analysis is the quantitative aspect of the process. You need to ensure you have enough subscriptions but no more. The key question is how many users need a subscription? You should be able to gather the data to show how many of your subscriptions are being used and more importantly how many and which ones are not used.
  2. Optimizing procurement. The second element is to ensure you have the right type of subscriptions. If there are different types of subscription, are your users on the right profile? e.g. do your users need an Office 365 E1 or E3 subscription in terms of the facilities they use. In this assessment there are two ways to optimize. The first is ensuring that users have access and are trained to use all of the facilities. This may include transferring usage from some legacy applications over to the new SaaS service and getting rid of the old apps. The alternative way of driving usage economies is to simply “downgrade” the users to the cheaper and more appropriate subscription type.
  3. Inventory control. Once you have done your analysis and optimization you will need to take action and this means changing your subscriptions by re-harvesting, re-allocating and reducing subscriptions where appropriate. IT suppliers will often perform these tasks for you depending on your agreed services. If you have to do this yourself it can be time-consuming, in which case you can automate the tasks with a quick and easy to use re-harvesting tool.

Best Practices for SaaS Management

Inventory management is a mature and logical business practice. The best practices can be drawn from tried and tested management techniques such as “Just in Time Manufacturing.” Here are some key best practices:

  1. Define your starting position. This means to know what you are subscribing for in terms of quantities, types and costs compared with what is actually used. For example, what percentage of subscriptions are used and what is the cost of non-usage currently?
  2. Set targets. Once you know where you are starting from set your goals for where you want to get to and when. If you are starting from 60% usage you may set a goal to get to 75% usage within 6 months. Also estimate how much this will return in terms of cost efficiencies either by increasing usage or reducing expenditure.
  3. Create your plan. Break down your potential efficiencies and usage improvement to eradicate unused licenses and optimize your subscription types. This will include prioritization by focusing on the biggest savings first.
  4. Implement and review. The analysis is often the easy part but doing the task can be laborious so where possible get someone else (your IT supplier) to do it or automate the task. Once implemented review the results and consider if you are hitting your goals and how you can improve the process.
  5. Benchmarking. You can benchmark usage both internally and externally. Often if your IT supplier is performing a managed service in this area the will know what has worked in other cases and will be able to “fast-track” you into using best practice ways of becoming more efficient.

SaaS subscriptions and cloud computing are the future. Sooner or later organization will need to manage these for cost efficiency. The methods and processes are more akin to inventory management than traditional software asset management. Tools and services are available now to make the job easier and a good supplier of IT services will be able to help you manage these subscriptions to deliver a good ROI.

About the Author

Phil Hames is the Director of The Business Software Centre Limited.