How to reduce IT cost of ownership with… the right licensing model
And that is also the reason why it is necessary to compare how IT handles licenses in the company, which subscriptions it uses and where effective adjustments could be made.
Licenses can be a stumbling block for companies, because they are quite often considered gray areas. When IT costs are mentioned, quite often only one thought comes to mind: hardware. Perhaps then the thought of operation and management also creeps in.
But licenses are not a small part and sometimes you can save a lot on them. How? We will look at that now. We will analyze the licensing options and it will become clear to us where you can save.
Why do companies overpay without realizing it?
The fundamental reason is the wrong approach to the finances spent on IT. It is not just about some purchases, but for a correct assessment of the costs, it is necessary to pay attention to TCO = total cost of ownership.
This attitude then includes, for example, a look at the following areas:
- Suitably selected licensing models
- Number of unused licenses
- Overpaying for licenses due to unnecessary functions
Problems with licenses arise right at the beginning, when the company chooses them. It does not pay enough attention to its own needs. But it is the right decision at the beginning that leads to the greatest savings. Even if marketing tries to tell you that the discount is really significant.
What does TCO actually mean from a licensing perspective?
Like everything else in IT, software cannot do without two basic elements: the purchase price and operating costs. Software needs to be maintained, updated, integrated (even increasingly so) and sometimes also adapted to its supplier.
So it’s nice that you can buy software at a discount at a certain time, but the real indicator of financial efficiency is the long-term costs of its operation. In other words: what is the cheapest to buy today may be the most expensive to operate tomorrow.
Open-source vs. commercial software
When choosing software, one of the first questions we need to answer is the type of provider. Should we go for an open-source solution or a commercial system?
Let’s first dispel two myths.
Open-source does not mean free.
A commercial solution does not mean no work.
While it is true that open-source software often has a zero acquisition cost, costs appear in other areas. Such a system is more demanding to manage and maintain, because all activities fall on your shoulders (as the user). But with this also comes a great advantage in the form of freedom of use and settings.
Commercial software, on the other hand, will “squeeze” you out of it right away when you buy it. However, support and maintenance are largely on the provider’s side. This means that you have less opportunity to influence some settings and functioning.
However, deciding between these two categories is not only about costs. They also differ in responsibility for operation and risks. The decision-making process should therefore include not only the costs of acquisition and operation, but also an assessment of the priorities that your company has. Sometimes it is freedom of operation, sometimes the need not to worry about anything.
Multi-licenses, subscription vs. pay-per-use?
Are you paying for capacity or for reality? They may not be the same. Multi-license is actually the purchase of licenses for several users or devices at once. A subscription is the right to use the software for a given period of time (with a discount on the annual plan). Pay-per-use provides the ability to pay for a specific activity (for example, a course).
Not every software provider will offer such a diverse range of options. However, it may happen that the same software can be obtained from different providers under different types of licenses.
However, the basis for the decision is something completely different than the properties of the given types of licenses. It’s the way your company uses the software.
- “We only need one license in the long term, but they have a multi-license at a discount, so why not buy it?”
- “The annual subscription is now at a discount. What if we need it longer than we think?”
- “It’s not exactly what we needed, but they have pay-per-use.”
Better. What if. It’s not exactly that. These are exactly the traps that companies fall into and pay for it with inefficiency.
SaaS vs. perpetual licenses
Subscriptions solve the problem today. A permanent license solves the budget in three to five years. However, providers are massively abandoning permanent licenses because subscriptions mean much more interesting earnings for them.
But once you manage to find a supplier who offers short-term, long-term or permanent licenses, how do you choose between them? Each has its own benefits.
A short-term subscription can cover your short-term needs or, for example, testing new software before you decide on something. It limits costs to the shortest possible time horizon. Since it is SaaS, taking care of the operation of the system (except for the internals, which you manage yourself) is the responsibility of the provider.
A long-term subscription is usually more financially advantageous, but you have to pay for it in advance for at least a year. Otherwise, everything else is the same as the previous category. However, both are SaaS, so by using them you build a dependency on the given supplier.
A permanent license means a one-time investment. However, everything related to the deployment and operation of the given software is up to you. So you do not create a dependency on the provider. But on the other hand, you have to take care of the system from start to finish.
To make the right choice, you need to compare how long you want to use the system, how dynamic your traffic is, and how much the number of users will change. This information will then help you avoid as many unnecessary costs as possible.
The most common mistakes made by B2B companies when choosing software
The basic problem is ignoring the needs of your own company. You can find a lot of articles on the Internet about how one system is suitable for such companies and another for different ones. But every company, even within the same industry, is simply different. The key aspect for the right choice is the specific context of your company.
This is given by both the current functioning and the expected one. So another mistake is the non-existent audit of the existing software and its use. And yet another mistake is ignoring the strategic outlook. Both of these mistakes deprive your company of the opportunity to base the choice of a system on real information.
Another problem is the use of complex systems that the company does not actually need. So the question is, is a set of simple tools a much better option than one robust one that requires more care? On the other hand, there is the fear of system fragmentation. Staying reasonable is essential.
And then there is the inefficiency of paying for multiple pieces of software that do the same thing. Duplicate payments don’t bring duplicate benefits. So let your IT experts oversee this. It will pay off. Literally.
A practical checklist for decision makers
So what questions should you ask yourself?
- How long do we have it for?
- How many people will actually use it?
- What happens if our company grows or shrinks?
- How difficult and expensive will it be to change suppliers?
- Is freedom or minimal software maintenance key for us?
- What do we need it for?
- How does it cover our needs?
And of course, add all the information in this article to that. In particular, don’t forget to audit the needs and current use of the software, the possibility of combining different models, and base everything on facts.
IT is not about technology, but about decisions
And your decisions should now involve re-evaluating your current systems and consulting before making future purchases. This is the only way to streamline your licensing costs. Don’t leave your corporate IT decisions in the hands of technology and its providers – make them yourself.
