The on-premise approach to Information Technology (IT) and Software Asset Management (SAM) is continually being disrupted by ongoing digital transformation, the Internet of things (IoT), and artificial intelligence (AI). As a result, traditional IT operating modes that rely on in-house applications and systems are being phased out in favor of multi-mode IT – a combination of on-premise assets and those hosted in the cloud. Gone are the days of solely acquiring software and hardware from third parties, building data centers, and maintaining them through periodic asset refreshes. As technology advances, we will continue to see the emergence of public, private, and hybrid cloud environments.

The costs of cloud migration

As a result of the changes in the tech industry, companies have begun to discuss a necessary migration to the cloud to gain ground on cross-industry giants like Amazon. Cloud migration is also seen as critical to remaining relevant in a market that leaves behind companies that fail to innovate or go digital. However, companies must be wary of increased IT operational expenditure during migration to the cloud and lookout for retiring older equipment and software too early, as it may result in material impairments or write-offs.

Vendors leverage tech advancements to pad profits

IT suppliers and vendors recognize these paradigm shifts and opportunistically use cloud migration as a commercial lever to push newer and often more expensive products and technologies.

In what is known as solution bias, IT vendors upsell their cloud technologies during migration without considering their client’s current or future usage needs. At the same time, these vendors are adapting their license agreements and software counting rules for their own benefit, making it more cost-effective for customers to use their cloud solutions.

In addition, IT suppliers are revisiting old unfavorable enterprise agreements which granted unlimited product usage, as they were written without the cloud in mind. In the process, they are capitalizing on any contractual landmines or “gotchas,” such as site or hardware restrictions, to uncover one-time and ongoing license fees.

Uncovering non-compliance in the cloud

Licensees who have already migrated to the cloud often get a free pass from vendors and auditors during a traditional software review. Due to evolving supplier license models, rules, product metrics, and unpredictable customer behavior and patterns, IT suppliers have been excluding XaaS environments from the scope of their license assessments. SAM tool agents and audits scripts are also not yet commonly installed in the public cloud, so there isn’t an easy or effective way to discover software deployments. However, XaaS environments will likely soon become a standard part of inspections unless customers acquire software licenses as a service (e.g., SQL through Azure) through a public cloud supplier.

With all that being said, companies should not wait on the sidelines and observe how vendors or auditors begin to address software licensing in the cloud. Without proper SAM governance and controls in place, the risk of software deployment proliferating is incredibly high due to the agile and scalable design of cloud environments. Even companies with mature SAM disciplines are at risk, as they are not accounting for the layer of complexity that the public cloud adds to the SAM world.

Addressing cloud-based compliance risks

To address these changes, companies must proactively inspect and uncover potential cloud licensing risks in vendor agreements before major migrations occur to help avoid significant license premiums and preserve their leverage over vendors.

Companies should re-evaluate, challenge, and enhance their “people, process, and technology” framework that was standard for on-premise SAM to account for the perils of cloud licensing. Even when the supplier does not raise any issues, it is sensible to determine and assess potential licensing risks before migrating to the cloud.

Once software licensing risks are identified, IT Executives can decide whether to assume them or develop a strategy to mitigate their negative impacts, potentially saving their companies millions of dollars and protecting technology innovation funds.

Connor can help

Have your IT vendor contracts been evaluated for migration risks, or does your CIO prefer to take a leap of faith into the cloud? To learn more about how you can best prepare for software licensing “gotchas” in the cloud, contact Connor Consulting at softwareadvisoryservices@connor-consulting.com today.

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