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ARTICLE: Profit Motives in Software Asset Management

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Business partners within the software licensing and software asset management market make their profits in different ways. An organisation engaging with a partner needs to be mindful of this before making a purchasing decision.

The Software Licensing Reseller

Licensing resellers typically make a modest profit on the software licenses sold and a better profit on the rebate they might receive from the software vendor. Rebates tend to drive behaviour in resellers, in that they are only awarded if the reseller jumps through certain hoops and meets certain criteria. Resellers are not typically motivated to reduce your software spend unless under competitive pressure. Price reductions will probably be based on cutting into margins rather than more creative or efficiency use of existing licenses.

Licensing resellers are not wholly independent but once you have committed to them they can often help you make informed decisions on technology choices i.e. We don’t care what you buy as long as you buy it from us, and can provide licensing expertise on the myriad of licensing and agreement options.

Independent SAM Reseller

These VAR’s usually do not sell licensing but are driven by the profit in SAM services, software asset management tool sets and the services used to implement them. The profit made on a tool implementation is rarely associated with the success of that implementation or any efficiencies gains that might have been made. In my experience, Independent SAM Resellers tend to have allegiance with a small selection of tools that they prefer to use, and will lead you to use those tools over other toolsets.

I would be wary of any reseller that claims to have expertise on all tools on the market and will help you make the best choice, this might mean they lack the expertise or confidence to actually implement the technology and are just trying to win your business at any cost.

A reseller with a long term business relationship with a tool vendor will benefit from hands-on experience, tips and tricks of using the software on a day to day basis and inroads into the vendor’s support infrastructure. All very useful when it comes to implementation. The reseller will also be rewarded with some form of accreditation in recognition of their expertise.

Independent SAM Consultant

Independent SAM consultants typically do not sell either software licensing or software asset management tools but are motivated by the sale of services. Again, the level of profit made is not usually aligned to the success of the services implemented.

Negotiator

An organisation or individual who has the primary goal of negotiating a better deal on your large software agreements. A software licensing negotiator makes his money from a fixed price project engagement, a slice of the savings made or a combination of both.

A Suggested New Hybrid

  • Sells software licensing (or drives the behaviour of the reseller that does) and is sufficiently motivated maintain your compliance position whilst driving efficiency gains.
  • Is rewarded with profit upon reducing software spend, removing waste and freeing up resources
  • Shares penalties in some way if found to be non-compliant
  • Sells and implements an audit tool and is rewarded based on successful implementation delivering agreed business metrics
  • Sells SAM Services and is rewarded based on successfully implemented policies, procedures and business benefits.

Is this the model for a truly independent and impartial SAM Partner? Is it a realistic business model or utopian ideal? Please add your comments below or contact us

About Martin Thompson

Martin is owner and founder of The ITAM Review, an online resource for worldwide ITAM professionals. The ITAM Review is best known for its weekly newsletter of all the latest industry updates, LISA training platform, Excellence Awards and conferences in UK, USA and Australia.

Martin is also the founder of ITAM Forum, a not-for-profit trade body for the ITAM industry created to raise the profile of the profession and bring an organisational certification to market. On a voluntary basis Martin is a contributor to ISO WG21 which develops the ITAM International Standard ISO/IEC 19770.

He is also the author of the book "Practical ITAM - The essential guide for IT Asset Managers", a book that describes how to get started and make a difference in the field of IT Asset Management. In addition, Martin developed the PITAM training course and certification.

Prior to founding the ITAM Review in 2008 Martin worked for Centennial Software (Ivanti), Silicon Graphics, CA Technologies and Computer 2000 (Tech Data).

When not working, Martin likes to Ski, Hike, Motorbike and spend time with his young family.

Connect with Martin on LinkedIn.

7 Comments

  1. Jacobo Senior says:

    Great article and idea. However, Partner (and highlighting that the term is aimed to show win-win relationship with

    the customer and not with the vendor) would need to be customer centric organization so that it is able to set arms-length distance with

    vendors and avoid end of Q and FY pressures.

    Some questions come to mind:
    1. Should Hybrid model Partner / Reseller receive or

    nor rebates from vendor?
    2. What percentage of savings should the Hybrid Partner receive?
    3.Can someone excel being a one-stop shop

    or would it be better to develop competing or overlapping joint ventures – that will enable the partner to better serve the customer

    according to their requirements and needs? Or would it be better that Partner could serve as Project Manager on behalf of the customer

    for those third party solutions and ensure successfully implemented projects?

    But I envision that this model makes sense for the

    customer and for the partner. Could it be coined SW Partner 2.0?

  2. Allan Mejer says:

    The idea of profit-sharing or risk-sharing is an interesting concept,

    and I’ve been involved in it a year back, but the potential problem is the lenght of the contracts:

    What constitutes a reduction

    in spending? A license not utilized/unused?

    And would a need of licenses be an expense (as the costumer will have to purchase

    these) or a saving (as they can purchase to contract prices instead of an audit, where the costumer would pay list price and a penalty at

    that)

    Next is the discussion of compliance-responsibility: In the end, no reseller can legally take upon them the costumers

    responsibility towards being compliant.

    What we can do, is set up an SLA to ensure, that if certain costumer criterias are met,

    the costumer will be compliant.

    Amongst the issues are:
    Do the reseller have carte-blanche to purchase any needed licenses?

    What if the costumer alters it setup (as in move to virtualized servers on a serverfarm), will this change the license-need outside

    reseller reach (F.I. if the application is licensed per processor and moves from 1-proc server to 24-proc server-farm, what happens

    then).

    So I’m not trying to shoot the idea down, we at PC-WARE are very open to such ideas, but it will take a lot of work before

    everybody is happy 😉

  3. Hi Allan, thanks for your feedback.

    A reduction in spending would be anything that means the client is getting more bang for their buck.

    New licenses would

    constitute additional investment but if a partner was able to provide a license from a stockpile, perhaps from efficient management of

    software and save the client the cost of a license – he should be rewarded for doing so.

    You are absolutely right – you cannot

    outsource responsibility for software licensing – but you can penalise the partner who is supposed to be managing them for you.

    I

    would welcome any additional information you may have regarding your SLA or experience in this area.

    ~ Martin

  4. Sandi Conrad says:

    Excellent article Martin! As a hybrid service provider myself, I think

    you’ve done a good job of highlighting the issues a client might have when working with business partners with too narrow a focus. I

    find that because I am working with licensing as a reseller, I have more insight as a SAM provider and have access to resources not

    normally available to someone who is not a business partner with the major vendors.

    I do work with my SAM clients independently

    though. I do not force my clients to choose between me and their existing reseller. I provide them with neutral third party information

    and encourage them to maintain their relationships if they are working, and their reseller fits in with their SAM requirements.

  5. Martin a very good

    article. Speaking as the owner of a consultancy that, whilst not delivering SAM on a day to day basis, but assists large corporates to

    find the right SAM solution. Your final approach ‘A Suggested New Hybrid Model’ is our preferred option and has been for some time.

    Putting aside issues of discovery, as when dealing with large, culturally, technically & geographically diverse corporates a single

    tool is never able to deliver a consolidated (mainframe, midrange, distributed, Citrix, virtual) view. Discovery in these organisations

    is about finding the right ensemble and feeding those inputs into a single data repository, enabling enterprise strategists to access the

    data and use it to shape IT strategy. However, this is about commercials….

    My experience has proven that the raw ‘Software Licence

    Reseller’ model makes the delivery of long term P&L SAM savings very difficult at a large corporate. As you mention these are most

    often cost plus models with a usually microscopic percentage of margin. It is from this margin that the reseller ATTEMPTS to make the

    money to run the service. It will only deliver P&L savings for the client organisation IF they have previously been victims of a high

    margin deal and delivers no motivation for the reseller to licence or procure efficiently.

    Jumping forward from the worst of

    models to ‘The New Hybrid’ model where the entire SAM piece is looked at holistically. What we have seen, is that this model allows for

    an organisation to have not only their SAM (including volume procurement) service run @ nil cost to their bottom line but it also allows

    for a cost plus ZERO model to operate on most spend, whilst ensuring a FIXED level of resource works at delivering all the savings

    associated with a world class SAM service: support reductions, licence re-harvesting, spend consolidation, application rationalisation

    etc

    There is no denying that this model is significantly harder to deploy than the ‘Software Licence Reseller’ model. However it

    is not only the option that is likely to deliver the largest year on year P&L benefits, but it is the only option where the SAM /

    procurement service can be delivered at nil direct cost to the client. That said there is no avoiding a detailed due diligence

    procurement process, with a clearly defined set of requirements developed in partnership with all areas of the client organisation to

    ensure that the partner and toolset chosen truly meet their needs.

  6. Partner 2.0, I like it! Thanks

    Jacobo

  7. Some great discussion but I think there are two additional items to be

    added to your descriptions above:

    1) Frequently your “Independent SAM Consultants” aren’t…most resellers have agreements with

    services companies that are capable of influencing deals. These payments are frequently unknown to the customer who has already paid the

    consultant their services fee and who (through their ongoing purchases with the reseller) are also now providing ongoing “kickback”

    payments. A truly independent consulting firm (such as we are) will be upfront with the client about these agreements and use them to

    benefit the customer (for example, we use these payments to reduce the costs of our services to our clients and provide ongoing

    statements of the amounts involved).

    2) While a really good reseller will accurately advise a customer on licensing strategy they

    will never do so in such a way that might tick off the publisher…the publisher is truly their first customer.

    My standard

    recommendation is…know what’s in it for everyone involved…ask the question “How will you benefit from my business?”

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