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  • Writer's pictureSijia

Cloud Licensing Overspend is a Problem for Organizations

Updated: Aug 4, 2022

What does your company spend on M365 licenses each year?

If your answer is something like “Oh, probably around…” you are not alone.

In 2020, while businesses were looking for ways to cut costs, most did so by cutting expenditure around salaries. Yet, at the same time, Microsoft’s revenue in Productivity and Business Processes was $12.3 billion, an increase of 11%. What does this mean? Cloud software that supported remote working saw an increase even while staffing was reduced.

Gartner’s forecast indicates that annual Software as a Service (SaaS) expenditure will grow by more than 19%, yet 25% of this software will be underutilized or overdeployed.

Gartner further estimates that at any point in time IT operations may be running with 25% plus of software going unused. Something Gartner have dubbed as “Shelfware” back in 2008. The problem is so prevalent, Gartner has an entire blog series dedicated to Shelfware.

Given that the terminology is coined in 2008, well before the SaaS market taking off just before 2020, it is surprising that it continues to be a massive problem for organizations.

In all the organizations we’ve surveyed, this is typically attributed to 2 major factors.

  1. Lack of governance around software licensing

  2. Poorly managed user lifecycle processes

Cloud vendors have made it very easy for administrators or even users to add licenses and subscriptions. Since, every company employee is also an end consumer. Without proper governance and monitoring, it’s easy to see why software licenses can grow out of control.

In traditional environments, the potential for license audit meant that organizations at least made an attempt to keep their licensing in a semi-managed state, for fear of the audit. However, when it comes to the cloud, SaaS licensing has mostly been an honour system. The assumption is that an organization is unable to utilize a service until they’ve licensed it, therefore, license audits haven’t entirely been necessary. Organizations have gotten comfortable with their licensing for compliance’s sake, and forgot about the cost consequences.

To make matters worse, corporate, particularly when it comes to IT outages, on the heels of the massive Rogers network outage, is very trigger-happy dolling out terminations after an incident. This fear culture makes it hard for IT administrator to make a decision that they aren’t specifically delegated to manage. After all, IT administrators are not responsible for managing finances for an organization, and no one wants the responsibility of removing a license and potentially causing a service outage for an important user.

Software vendors makes it easy for new licenses to be added Just-In-Time as well. But once that license is added, it typically cannot be removed until the end of the contracted term. Which, generally is at least a year.

So, on the one hand, you can add licenses quickly, on the other, no one is removing them. While just-in-time purchases are highly effective in getting the end user productive ASAP, the downside, is the potentially high licensing cost that runs out of control.

Further, there is no incentive for cloud solution providers (CSPs) or license resellers to keep cost under control for their clients. Since these vendors live off of sales and consumption incentives from the cloud vendors like Microsoft.

For all these reasons, organizations need to carry out frequent cost optimization assessments and invest in the right cloud cost optimization tools, and select only licenses they need in order to control and optimize cloud spend.

SaaS spend is sapping budgets of companies worldwide, and they may not even know it.

“Many organizations are not really managing their SaaS spend yet” says Jochen Hagenlocher, a software asset management professional. The main reason you may be spending too much for your SaaS, Hagenlocher says are unused user accounts, and contracts that are not right-sized for what your company needs. Without active monitoring and managing SaaS usage and right sizing contracts, he says, you’ll end up paying up to a third too much.

While cloud vendors like Azure provide tools for PaaS to help organization mange costs, they don’t offer tools for SaaS licenses to manage costs.

For one, it is very difficult for cloud vendors to help organizations manage SaaS licensing decisions. If an organization has a disabled user, but that user is still licensed, has the organization made a conscious decision to do that for reasons that is completely justified? That leaves the management of cloud licensing spend entire in the hands of the organization decision makers.

Software Asset Management (SAM) tools are available as a subscription to help address these problems. However, if not implemented correctly, or managed, these SAM tools that should in theory help organization monitor SaaS spend, end up adding to the waste.

In our review of client environment of all sizes, it was very typical to find 5 figure annual savings through a targeted M365 License Optimization Assessment. That’s not including any other SaaS apps the companies may have also subscribed to.

The benefits of our M365 License Optimization Assessment are numerous:

  1. Recycle existing licenses by eliminating redundancy, and avoid the cost of purchasing new licenses.

  2. Provide usage-based information to cut licensing costs during license renewal.

  3. Tighten security by reducing user identity attack surface.

  4. Provide user-level report and analysis for IT administrators to easily clean up stale or redundant license.

  5. Easy to read report for executives and decision makers to see immediate ROI.

  6. No additional software to purchase or tools to install. We use data intelligence natively available from your environment.

  7. Zero operational disruption.

We perform a non-disruptive, deep-dive analysis, and provide user-level findings and recommendations that’s easy to action.

Are you wasting 20 to 30 percent of your software budget by not actively monitoring SaaS usage? Our license review, and optional continuous reporting service allows organizations to stay on top of SaaS spend, without paying for an additional Software Asset Management (SAM) license.

It is extra important to review licenses before renewal periods, so you are not stuck in another year, or possibly more, in contractual obligations.

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