Software licensing: the hot growth sector

Software licensing: the hot growth sector

When a Sydney computer company was ordered to pay more than $2 million in damages last month after importing and supplying counterfeit copies of Microsoft software programs, it underscored the need for organisations to ensure their employees do not use software illegally, either knowingly or unwittingly.

The most logical, cost-effective way to avoid accusations of piracy is to buy software licences. Typically, this results not only in the certainty that all software copies are legal, but in savings of up to 30 to 40 per cent over buying single copies.

Until recently, however, these licensing deals were targeted only at very large organisations. Now, licensing can be employed by virtually any organisation which runs a network, with the real benefits kicking in at 25-plus users.

Growth sector

With more network computing announcements imminent, according to international IT research company IDC, software licensing programs and reseller channel participation are in transition as processes are being streamlined and pricing is being reworked.

Software vendors are re-evaluating their licensing agreements and resellers are being encouraged to use software licensing most effectively for meeting user requirements and staying competitive.

Licensing is the fastest growing sector in the software business, accounting for 35 to 40 per cent of total sales and rising. The process has been facilitated by the advent of CD-ROMs, which enable large, intuitive help files and documentation to be contained on the one disk and made available to everyone on a network.

In the first licensing agreements, licences came in blocks of 10, which may have led to a reluctance in licensing an extra one or two machines. Now, however, most vendors offer the ability to buy just one more licence at a time.

The reseller's job is not to police a customer's software usage - the legal system does that and the onus is on the end user to maintain sufficient licensing. The reseller should focus on making sure the customer understands the benefits and cost savings of a licensing program, with the help of an experienced licence distributor.

The cost base of a product is driven by two major factors: the cost of development and the cost of packaging and shipping. Licensing, therefore, creates savings along the entire supply chain.

As Michael Ossipoff, marketing director of Lotus Development, Australia and New Zealand, explains: "Licensing agreements take much of the dumb costs out of buying software. Increasingly companies require smarter ways of managing their software purchases. Software licences are corporate assets and need to be treated accordingly.

"Vendors continue to develop licence agreements to best service customer requirements. By improving the process, the vendor is also able to deliver tremendous value."

Benefits for all parties

The vendor benefits from licensing by gaining commitment from the customer that the whole organisation has moved to standardise on a particular product. And the customer benefits from standardisation by cutting the costs of supporting a variety of often incompatible products. Standardisation also assists organisations in sharing resources and collaborating on projects.

Licensing allows organisations with multiple platforms to leverage their purchasing power across all of their IT infrastructure. For example, if a customer is looking to buy an antivirus product for their PCs and they are using a mid-range or mainframe system from the same company, they may get a discount on that company's software. Savings are significant in comparison to retail prices.

Resellers benefit from licensing because they no longer have problems with inventory warehousing, shipping costs or stock obsolescence. And when your customer standardises on a particular package, you may be able to leverage the sale into other systems or application products.

Selling licences allows the reseller to build an ongoing relationship with their customers. To do this effectively, resellers need to assess their customers' requirements carefully and select the appropriate products that will be supported and enhanced in future versions.

Licences come in a variety of flavours from a broad range of vendors, as short-term contracts or agreements that can go on for years. Among the industry leaders that offer licensing agreements are Microsoft, Novell, IBM, Lotus, Netscape, SCO, Cheyenne, Symantec and Check Point.

Microsoft Open Licence Program (MOLP), for example, is a licence program suitable for organisations from 5 to 1000 users, while IBM's Strategic Account Offer (SAO) is targeted at large accounts with multiple operating environment platforms such as IBM RS/6000s, mid-range AS/400s and PCs.

For resellers to market licences successfully, they need intimate knowledge of each company's licensing products and methodology. Or they can communicate with a company that already specialises in licence distribution.

Such distributors can take away the burden of administering licences and provide the information resellers need to bill customers on an on-going basis and keep them up-to-date with market developments.

Microsoft national distribution account man-ager John Ball said that his company is putting significant resources into licensing.

"By working with a distribution partner, we can reach a much broader market than we could hope to reach through direct reseller relationships," Ball said. "A partner like Express Data makes the whole licensing model more efficient and adds tremendous value by providing the training and education that empowers our channels to do a better job. In turn this means that everyone down the supply chain can manage their businesses more tightly.

"In fact, Microsoft has just released a CD which explains the benefits of licensing and how to best use the Microsoft licensing programs," added Ball.

At Express Data we have made an investment in licensing so we can understand all the programs and vendors, making it easy for the reseller to sell and manage licensing programs.

Electronic distribution

Electronic software distribution is on the horizon as high bandwidth becomes more available through cable modems and ISDN. We can already see the day when full product will be downloaded from the Internet and Java will have "pay-per-use" applets. IDC predicts there will be 50 million network computer (NC) or NC-enabled devices by the year 2000 using downloadable software.

Our belief is that resellers will have a better opportunity of remaining part of this new supply chain if they are involved in licensing. Software will, as ever, need to be part of the total solution and the reseller has an opportunity to help the customer fit the pieces of the IT puzzle together, whether that customer is purchasing 500 licences or 50.

To complement its existing 200-page software and hardware catalogue, Express Data has released a separate book all about licensing: from logistics to participating vendors to pricing for every size of organisation. For your free copy, please contact the Express Data office in your area:

NSW Tel (02) 9598 9100

ACT Tel (06) 257 7695

SA Tel (08) 8271 8600

QLD Tel (07) 3221 2444

VIC Tel (03) 9696 0770

WA Tel (09) 322 5605

Ross Cochrane is general manager sales and marketing, Express Data

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