A Flexera Software/ IDC Survey reveals most Australian organisations are ‘accidental software pirates’, out of compliance with software licence agreements, resulting in steep, unbudgeted ‘true-up’ fees from frequent vendor software licence audits. CFOs need to note that this can cost enterprises millions of dollars annually.
A new survey from Flexera Software, prepared jointly with IDC was conducted amongst senior IT executives in Australia working in organisations with $100m or greater turnover. The report reveals among other things, that 98% of organisations are out of compliance with their software licence agreements. Over the last 18-24 months, 84% were audited by their software vendors (60% by Microsoft, the most aggressive auditor), with 87% handed true-up bills (65% of which were for a million dollars or more).
Tom Canning, VP APAC for Flexera Software explains software licence audits are a legitimate way for vendors to ensure they’re getting paid for their software that’s actually being used. However, CFOs are often unaware of software contract provisions permitting these audits, which can result in true-up bills in excess of one million dollars. Additionally, many organisations are now adopting virtualisation strategies without realising that the added complexity of these environments makes them even more vulnerable to being out of compliance with existing software licences.
Of the 95% of organisations surveyed who deployed virtualisation technologies, all received true-up penalties of $5 million or more. Canning says the cost of these true-ups can be significant, so CFOs should take the necessary steps to reduce their risk by implementing Software Licence Optimisation processes and technologies to help ensure continual compliance.
Software licence audits are exacting painful, unbudgeted true-up fees that must be paid out to software vendors on top of the initial contract amount. Almost two-thirds of Australian enterprises (65%) were invoiced $1 million or more for true-ups, with 97% of respondents reporting audit fees of $100,000 or more within the last year. Additionally, 29% said their true-ups were $5M or more. These numbers, when compared to Flexera Software’s global 2014 Software Pricing and Licensing Survey, reveal that Australian enterprises are facing significantly higher true-ups than their global counterparts and they are being audited 13% more frequently.
The survey also reveals that organisations, especially larger ones, can continue to expect frequent audits from the vendors that supply their mission-critical applications. Eighty four per cent of respondents report having been audited in the last 18-24 months, with 37% of respondents audited three or more times during this same period. For enterprises with $1 billion or more in revenues, almost half (47%) report being audited three times or more over the last 18-24 months.
All of the major software vendors use audits as a means to capture additional revenue from customers’ non-compliant use. However some vendors are more aggressive in their auditing practices than others. For example, Microsoft was the most frequent auditor, with 60% of respondents reporting that they have been audited by Microsoft within the last year. Within that same timeframe, 51% report having been audited by IBM, 23% by Oracle, 17% by SAP, 16% by Adobe, and 14% by Symantec.
According to the report, most organisations are ‘accidental’ software pirates; this means they are using software they unintentionally have not paid for. This occurs when enterprises fail to implement the necessary processes and technology to track software installation and use across all environments – on-premises, virtualised, cloud and mobile – and reconcile that activity with the rules contained in their licence agreements. Among respondents familiar with their organisations’ compliance position, 98% reported that at least some of their licence spend is associated with applications that are out of compliance, while half said that more than 20% of their software spend is associated with applications that are out of compliance.
Canning explains software vendor audits are a fact of life, as are the large cheques CFOs are writing to their vendors to pay unbudgeted true-up fees. Best practice processes and technology are being implemented by prudent organisations to help ensure continual software licence compliance.