The Inevitable March to the Cloud – Should We Continue to Track Traditional Software Licenses?

By Andrew Rohrbough

The cloud has become the hot topic in information technology today. Although the cloud brings the promise of certain efficiencies, the reality is that most organizations have already made a substantial investment in their on-premises IT infrastructure. This existing investment will cause a more gradual shift to the cloud. If the prior investment in software licensing is not already being managed, there are compelling business drivers to do so now.

Latest Not the Greatest

In the U.S. alone, there have been billions of dollars spent on perpetual licensing for versions of software that are now four or five years old. That software is mostly still in use and works perfectly well for most business needs. Not every company requires the latest and greatest version of whatever software they are using.

Many businesses have decided that these older versions of software work perfectly well. Many have not kept up the maintenance of the licenses. For software companies, this means that they aren’t making as much revenue from typical maintenance renewals.

Providers’ Next Move

In order to remedy this downturn of revenue, some companies have made the decision to move aggressively to the cloud. The shift in business model will bring in more dollars from software renewals. Customers will be required to renew and upgrade if they wish to have access to the software.

But how are companies pushing this move to the cloud? Providers push the change by using an audit mechanism to motivate customers to move to subscription-based licensing, aka the “cloud” model. If an audit is performed and a customer is found to be out of compliance, then some companies offer full forgiveness if the customer makes the move to the cloud model. Once a customer agrees to this change of model, they are locked into the position of making continual (often annual) payments so long as they want access to the software. Maintaining usage of older versions of software will no longer be an option; the company will lose that perpetually licensed software.

The SAM Defense

However, if that customer had managed their licensing well, they wouldn’t find themselves in a non-compliance position post audit. Proper licensing management gives the customer freedom to make strategic decisions about when and how they might move to the cloud. They have the option to manage their expenditures on a subscription pricing model, with an understanding that costs might increase once the transition is complete.

For some companies, their marketed “cloud model” has little to do with cloud computing. The software is not actually running through the cloud, it’s actually still downloaded onto the user’s computer. Instead, “cloud” refers to the online storage and collaboration aspects that the product offers. More importantly, “cloud” has to do with the activation of the license. Once you activate a license via the cloud, you are locked into paying a subscription for the software. From that point on, you must continually pay for the software or lose access to it.

The reality is that moving to the cloud will require careful planning and substantial time to accomplish. Most organizations will achieve this migration to the cloud through a phased approach. This approach will create a period of time where they will have a hybrid on-premises/cloud environment unless the software publishers find ways to encourage the transition. At the end of the day, the promise of cloud computing won’t eliminate the need to manage licensing whether it’s perpetual or term-based.

About the Author

Andrew Rohrbough is the VP of License Management for SIMITAR.