Getting Savvy About Software Licensing Can Save Thousands

Licensing software for a cloud environment can be tricky: who owns the license? Should you buy it outright or treat is as an operational expense and part of your subscription? But beyond the puzzle of setting up the license itself, there is the problem of software license sprawl and expense in general.

Gartner predicts $332 billion in software charges this year. One report found that of these massive software expenses,  wasted licensing cost an average of $224 per computer. That added up to $7 billion in idle or underused licenses.

Adding software licensing to your list of things to actively manage might sound like a hassle, but reclaiming those expenses will allow you to demonstrate IT cost savings and put that budget towards more valuable projects.

CapEx vs. OpEx and Improving Profit

Generally, licensing comes either in the form of capital or operational expenses. For your accounting team, a capital expense is a one-time purchase that is a depreciating asset. It is accounted for over a multiyear lifespan, generally, and is considered property or business equipment.

Operational expenses, on the other hand, are ongoing costs of business. They can be monthly or annually recurring charges and they are deducted in the current tax year. Therefore they have a direct impact on the profit/loss sheet.

CapEx vs. OpEx is a common topic when discussing cloud computing. Hardware is a typical CapEx, while cloud servers would be OpEx.

When it comes to software, it can be difficult to hunt down the savings and project expense changes as you change your license agreements. The process can still be very worthwhile though, as the majority of software license agreements today are subscription-based, and can contribute gross profit to your bottom line.

An update last year by the Financial Accounting Standards Board essentially declares that if a cloud computing service agreement includes software licensing, that license should be capitalized as an asset (i.e. a capital expense) and depreciated over the length of the contract, treating it as an expense on income statements. If the contract does not include licensing, the services are merely a service contract, or an operational expense.

Optimizing Your Software Licenses

According to a study, only 44% of IT managers have an accurate idea of their annual software licensing costs. 66% do not have a software asset optimization policy in place. If you’re among that 2/3, now is the time to draft, develop, and implement a policy.

There are several vendors now offering software that is designed to help you automate and manage other software licenses. Some examples are Microsoft Software Asset Management, LANDESK IT Asset Management Suite, and Symantec Asset Management Suite. They can help track and reclaim underutilized software licenses.

Outdated or underused software can also offer an attack vector from outside your organization, undermining your cybersecurity efforts as unpatched and unmonitored software sits idle.