Licensing me, licensing you


1 April 2005

Software licensing is perceived as a ‘difficult’ area by some resellers. In fact, it’s fair to say their response to the issue is like a vampire’s to sunshine. This can be a problem because, unlike the effects of the sun’s rays on vampires, software licensing can be very beneficial to those resellers who take the time and effort to learn how to sell it.

But that’s one of the problems of course – time and effort. In the current difficult climate, the pressures to get the business make it even more difficult for resellers to focus on an area which, for many, has been considered peripheral. As Paul Mason, Microsoft Ireland senior group manager, puts it: ‘Most resellers are selling hardware infrastructure and support/maintenance contracts on the back of it. When the month starts getting tough, they’re told to sell more hardware.’

This view is echoed by Julian McMenamin, chairman of the Business Software alliance (BSA) in Ireland: ‘A large percentage of the Irish IT channel comes from a hardware background – very often, they still specialise in hardware.’ Nevertheless, he believes that there are signs of a shift. ‘The margins are so compressed, they’re having to look at alternatives to their traditional tin business.’
He believes that while in the past resellers looked at hardware as their core business with software being sold on top, the situation is coming full circle and some are beginning to see software as core and hardware as the icing on the cake.

Maybe so, but according to a source at one Irish distributor, there’s still a long way to go. ‘The majority of resellers in Ireland aren’t capable of handling licence sales. They’re not selling it every day – it’s an add-on for most resellers. They’re not going out there and looking for that business.’ The source agrees with Mason that most resellers are selling hardware and services. ‘Customers are coming back and asking for software and that’s daunting for those resellers. They see it as a minefield.’

If true, it suggests there is still a long way to go before the Irish channel is in a position to sell licences. The lack of enthusiasm also presents a problem for software vendors seeking to get the channel to become a major outlet for licensing sales, especially as they seek to implement and educate customers on different schemes, such as subscription, annuity-based and rental.

Niamh Carroll, software business manager at distributor CMS Peripherals, is keen to play up the importance of software licensing. ‘There is a major shift in the software industry in the way consumers are buying software. More software is sold via licensing programmes as compared to traditional “boxed-product” methods.’
She says the main attractions of licensing are that it offers greater choice, easier procurement, faster implementation, more value and significant revenue opportunities.
‘Currently, there is no technology issue bigger than software licensing,’ Carroll declares. ‘It is a concern for company directors in terms of the actual cost of the software and the cost of managing its deployment. Software is now a major strategic component of an organisation.’

But Mason feels the message hasn’t fully got out to the partner community, arguing it has played two contradictory roles – as a key driver of Microsoft products, but also as a key resister. ‘The majority are not motivated to sell solutions – they’re not able to and they don’t get it.’
Part of this is down to the vendors themselves. In Microsoft’s case, for example, it has done a good job on the broader marketing message, but as Mason says ‘that doesn’t develop experts. Our partners weren’t becoming experts in our products or licensing. We’ve done a bad job of investing smartly with our partners.’

An expert’s mantle
Microsoft’s response has been to try and target those partners who might be prepared to take on the mantle of becoming experts in solutions and licensing. ‘We’re looking for individuals within organisations with the right motivation. Typically, they’re pre-sales or technical people who work in support of the account teams. They’re our solutions experts and we’re putting a lot of investment into it so that they genuinely become experts – and we give them leads from our call centre.’

Resellers seeking to place more focus on software licensing usually need to start with the issue of compliance and software asset management. To this end, Microsoft has launched the software asset management (SAM) champions initiative. Software asset management is hugely important in identifying the software installed at a customer site, checking for compliance and ensuring any licence schemes in place are appropriate.

According to the BSA, the software piracy rate in Ireland is 42 per cent, a figure McMenamin described at the time it was published (in June) as ‘appalling’ and which he argued ‘seriously undermines Ireland’s reputation as a legitimate business base’.
The BSA quoted an IDC Study which suggested a ten point reduction in software piracy in Ireland would boost Ireland’s economy by EUR570m, create 2,400 new high-wage jobs and deliver EUR236m in tax revenues by 2006.

The BSA is also keen to enlist resellers in the drive for compliance among customers (so much so that it’s launching a new channel initiative – see news pages). Although admitting that it’s the user’s responsibility to ensure the software is legal and licensed, McMenamin sees a role for the channel in helping customers to be compliant.
‘The problem with the industry is that we don’t offer standardisation to users. Symantec’s licensing agreements bear very little resemblance to those from Microsoft, Adobe or Novell. So it’s extremely difficult for the user to understand. As users see their channel partners as consultants and advisers, we’re targeting them to skill up and offer licensing advice.’

He argues that BSA activities in trying to promote awareness of compliance in the wider world has led to users ‘beginning to push back on the channel. They’re saying “we’re spending money buying IT consultancy, hardware and software and now we need some advice on our licensing”. They want to see a report on what they have and what they need to buy. It’s definitely something customers are beginning to demand of channel partners.’
Emer Breathnach, marketing director at Sharptext, welcomes the BSA initiative for helping to make resellers act as software consultants, giving them training on the legal aspects of licensing and encouraging users to become fully compliant. ‘This will mean that they will hopefully become more proactive with regards to the compliancy issue.’

She believes it’s good for distributors too ‘as it should increase business in the channel. Distributors don’t have access to users’ sites, so are generally powerless to encourage users to become compliant. We would, however, be in a position to advise resellers if they have any questions about the legal aspects of licensing.’
Niamh Carroll at CMS picks up McMenamin’s point about the plethora of licensing schemes available from different vendors. ‘With software vendors employing so many different licensing models, it is nearly impossible for users to understand and determine what licences they require.’

She argues that resellers and distributors are in a strong position ‘to offer this very real value service to these organisations by understanding what the customer currently has against current and future needs and translating these into a coherent all-round licensing solution particular to their own environment and requirements’.

Smart movers
But is it worth a reseller’s while to take on the software consultancy role? McMenamin thinks so. ‘The smart movers and early adopters have picked up on it and are becoming synonymous with software consulting. There are users who, because of either purchasing the wrong licence or over-purchasing, end up wasting money – if you can save the IT manager money, he’s going to like you. In the same way as channel partners provide IT consultancy, it’s just as valid to offer consultancy around licensing asset management.’

It’s a point echoed by Angela Kelly, software product manager at MicroWarehouse. ‘Some resellers are being proactive about licensing. If they have the licensing knowledge, it’s so impressive to the customer – it’s very easy to win business off the back of that.’ In some cases, being able to audit a customer’s software and manage their licensing might offer an entry into an account which was previously closed to a reseller.

But while it appears simple on the surface, there are difficulties. One source suggests that in the case of Microsoft, for example, the vendor ‘is not offering enough margin to make it worth people’s while. It’s trying to move people away from ‘sell and forget’, but the margins are so low. Resellers are selling at three per cent, two per cent, even less – that’s a lot of work to do for that amount of money.’

A wider question is whether the provision of licensing knowledge is best done through resellers or through distributors. One Irish distributor complains that most resellers in this country ‘are completely dependent on distributors for their licensing [knowledge]’.
While vendors seek to train resellers on licensing, it can be too abstract. ‘Users don’t have a clue about licensing – if you blast them with lots of different options, you turn them off. It’s best if you ask them questions and give them advice on what to buy. I just don’t think the majority [of resellers] are capable of that,’ the distributor claims.

A number of distributors offer their own online licensing schemes, including Computer 2000 and Bell Microproducts, in a bid to try and address the problem. In the main, the schemes seek to automate as much of the licensing process as possible to make it as simple as possible for resellers to match the licence to the customer’s requirement.

Richard Hales, general manager of Computer 2000’s software division, says it does good business with online licensing in Ireland. Among the vendors taking part in its Licensing Online scheme are Microsoft, IBM, Novell, Symantec, Network Associates and Veritas.
‘The hard part is understanding schemes and how they work. Licensing Online automates all that to make it easier for resellers,’ he claims.

The increased role of distributors in the licensing process and the growing shift to electronic delivery has led some to question whether resellers might eventually be cut out of the chain, picking up a commission on the sale, but leaving the fulfilment to the distributors.

Mason is convinced fulfilment of licensing will move more and more to an electronic transaction. Those distributors who don’t move to this way of doing business will lose out. He says electronic provision is one of the reasons why UK and European distributors are growing exponentially in the Irish market, while indigenous distributors have remained flat.

But he still sees a role for resellers, because they will be getting customers to sign the cheque. ‘You can’t dis-intermediate that,’ he argues. ‘That’s a local gig, you need to have people to sit in meetings and have a relationship.’
Nevertheless, if any resellers ‘see their value as being good fulfillers, then perhaps they need to question their business strategy’.




Online may be ‘off’
But Breathnach at Sharptext warns that online licensing schemes from distributors aren’t always the best option. ‘Of course resellers can use these tools, but getting direct access to a distribution salesperson, who understands all the options and programmes available, often presents an opportunity to license the software differently and so save money on the deal for all involved.’
She argues that an online service ‘can cause confusion as it may not fully explain when different price breaks/products apply’ and claims several resellers ‘have ended up under-quoting or over-quoting their customers due to lack of proper information. This is information that distributor software salespeople have at their fingertips.’

Breathnach believes distributors are playing a vital role in helping resellers ascertain their licensing requirements. ‘It’s a time consuming exercise which, when working with low margin business, only adds costs to the deal. That’s why all resellers prefer to get distribution to look after the administration. Also, because distributors are doing this work all day every day, the level of expertise and accuracy is much higher.’
Regardless of how the different parts of the channel arrive at providing a licensing service to customers, the BSA’s McMenamin is adamant the channel will fulfil the role. ‘Although software licensing can be a quagmire, it isn’t brain surgery. It’s going to become as standard a channel service as setting up your network.’

Microsoft’s licensing problems
Microsoft has run into all kinds of difficulty since it first announced plans to introduce changes to its software licensing, with the introduction of Software Assurance in July last year. After overcoming initial resistance, the vendor has had to introduce other concessions, including adding free training and different levels of support in September this year.
One difficulty is that customers signing up for the three-year deal are entitled to upgrade to any revision in the product during the period of the contract. But because they don’t need to upgrade right away, customers can choose to upgrade after the contract has expired.
‘It’s an issue for Microsoft,’ admits Paul Mason, Microsoft Ireland senior group manager, SMB. ‘If people don’t deploy and don’t realise any benefit, they’re not going to re-sign the contract. We fundamentally believe there’s genuine value in this software and in keeping up to date with the latest versions. The big challenge is to prove that to the customers.’
Another problem is in annuity licensing. Under this scheme, users pay a proportion of the fee spread out over three years. Small and medium sized resellers have difficulty with the idea of being paid over a three-year period. There’s the issue of making a salesperson agree to a scheme where the commission is spread across three years instead of paid out in one chunk. Also, as one distributor points out: ‘They might not be around in three years’ time.’
The issue is clouded even further by the fact a customer does not need to stay with the same reseller over the three-year period. Unsurprisingly, Mason agrees this is a challenge and admits that in the current situation ‘if customers don’t ask for it, partners are not going to push it’.

The future of licensing?
The proposed shift towards utility computing – where computing resources are supposed to be supplied and billed to customers in the same way as electricity or gas – is leading some to rethink their licensing systems. To many, this is a necessary step to fulfilling the goal of computing on demand.
While vendors of hardware, and especially servers and storage, have begun to take the pay-per-use model on board, software vendors are still lagging behind.
At the CA World event in July, CEO Sanjay Kumar predicted a ‘difficult transition’ for the software channel over the next three to five years as it adapted to the utility computing future.
Two months later, at the OracleWorld show in San Francisco, Oracle chief executive, Larry Ellison went a step further and suggested a flat-rate fee should replace per-processor licensing.
‘It becomes very hard to count processors and to count users,’ he said. ‘I think we will go towards enterprise licensing where you pay an annual fee and use as much software as you want.’


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