IT Procurement: Buying Software Effectively

How to Buy Software - IT Procurement

• This course provides guidance on buying software effectively, highlighting key issues with software compliance, and the importance of understanding entitlement and implications of not having effective controls.

Fundamentals

• A software program is a written set of instructions to a computer.
• The software program is owned by its creator/developer, who can be known as Suppliers, Vendors, or Manufacturers, and are ultimately the "Licensor".
• A software program is not sold to the public; instead, the right to use a software program is sold to the public, known as a "software license".
• Intellectual Property Rights (IPR) remain with the Licensor.
• A "software license" is permission to use the software program, and without such permission, use is unauthorized.
• You must have a license to use each software program you need to use.

Structure of a Software Licence

• A software license is always granted in writing (in a license agreement) and can take various forms, including:
  • A negotiated agreement executed by the parties.
  • A shrink-wrap or End User License Agreement (EULA) accompanying the software program provided by the Licensor.
  • A click-wrap agreement from the supplier that must be accepted before the software program can be used.
• The entity granting the software license is called the "licensor".
• The entity being granted the software license is called the "licensee".
• A software license describes the way a software program may be used.
• If a license agreement does not explicitly grant you permission to use a software program in the way you intend to use it, the intended use is unauthorized.

Forms of Software

• Software can be developed and used in different ways, including:
  • Desktop Applications (e.g., MS Office, Photoshop, and Email).
  • Mobile Applications (e.g., WhatsApp, Waze, and Instagram).
  • Systems Software (e.g., Windows and Apple iOS).
  • Software As A Service (e.g., many business applications services moving to hosted models such as ERP, Sales & Marketing applications).
  • Drivers Software (similar to Systems, but operates hardware devices and keeps them updated).
  • Programming Software (covering languages like C++, Laravel, and Python).

Right to Copy & Distribute

• The right to copy a software program must be explicitly stated in the license agreement.
• The right to use the copy must also be explicitly stated.
• Unauthorised copying is stealing and in violation of copyright laws.
• The right to distribute is closely related to the right to copy, but covers your right to distribute software programs as part of your Standard Operating Environment (SOE) images.

Usage Rights

• License agreements must grant one or more of the following usage rights:
  • The right to use the software for internal business operations.
  • The right for your contractors to use the software.
  • The right to grant access to the software for any affiliate/legal entities.
• Consider the right to use the software in different hosted environments (e.g., MS Azure or AWS).

Software Licence Models

• Software programs can be licensed under the following models:
  • Perpetual: right to use the licensed capacity of a software program in perpetuity; typically with optional annual maintenance & support (circa 20% of licence fees).
  • Term: right to use the licensed capacity of a software program for a limited period; there is no right to continue using the software program after the end of the term unless the software license is renewed.
  • Enterprise License: "All you can eat" with no restrictions, products specified can be deployed without limits on volumes.
• Software-as-a-Service (SaaS) model:
  • Subscription/Usage: right to use as much or as little of a software program as needed; usage is monitored and reported regularly; payment for actual usage on a monthly (or quarterly) basis.
  • Licensor can also offer use of its software programs as a hosted service.

Commercial Considerations

• Type of License: Perpetual, Term, Enterprise License, or SaaS.
• General Principles: consider the licensing model, identify the required licensing model to suit your business, and ensure the license agreement reflects the desired model.

Software Licence Audits

• Set in most Licence Agreements, the Licensor has the ability to audit the Licensee's usage of the Software.
• If the Software usage cannot be remotely monitored, the Licensor will conduct an Audit or Compliance review.
• The Audit will take the form of running scripts across the environments where the software is deployed.
• The Licensor will then provide a report which details Licence usage rights vs Licence deployments and highlight areas of non-compliance, including any potential costs to rectify the situation.
• Key focus areas for negotiations:
  • Undertake a thorough review to ensure the Licensor's claims are valid.
  • Consider relationship length and sell benefits of working with you.
  • Understand future pipeline and request trade-in legacy non-compliance for new functionality.
  • Explore different types of licensing which may be most efficient.
  • Do not pay list prices, and some form of discount is always negotiable.
  • Challenge any proposed backdated support, at least agree a cap on the exposure.
  • Use influence of your Executives to leverage final concessions.

Tools

• Software Request Form
• Software Pricing Template

How to Buy Software - IT Procurement

• This course is designed to provide guidance on how to buy software effectively, highlighting key issues with software compliance.

The Fundamentals

• A software program is a written set of instructions to a computer, owned by its creator/developer.
• The right to use a software program is sold to the public, known as a "software license", and Intellectual Property Rights (IPR) remain with the Licensor.
• A software license is permission to use the software program, and you must have a license to use each software program you need to use.
• Unauthorized use of a software program is a violation of copyright laws and may result in detrimental consequences.

Structure of a Software Licence

• A software license is always granted in writing, which can take various forms, including a negotiated agreement, shrink-wrap or End User License Agreement (EULA), and click-wrap agreement.
• The entity granting the software license is called the "licensor", and the entity being granted the software license is called the "licensee".
• A software license describes the way a software program may be used, and if a license agreement does not explicitly grant permission, the intended use is unauthorized.

Forms of Software

• Software can be developed and used in different ways, including:
  • Desktop Applications (e.g., MS Office, Photoshop, and Email)
  • Mobile Applications (e.g., WhatsApp, Waze, and Instagram)
  • Systems Software (e.g., Windows and Apple iOS)
  • Software As A Service (e.g., ERP, Sales & Marketing applications)
  • Drivers Software (e.g., operating hardware devices and keeping them updated)
  • Programming Software (e.g., covering languages like C++, Laravel, and Python)

Right to Copy & Distribute

• The right to copy a software program must be explicitly stated in the license agreement.
• The right to use the copy must also be explicitly stated, including permission to use a copy for purposes like disaster recovery, testing, backup, and archiving.
• Unauthorized copying is stealing and in violation of copyright laws.

Usage Rights

• License agreements must grant one or more of the following usage rights:
  • The right to use the software for internal business operations
  • The right to grant access to the software for contractors, affiliates, or legal entities
  • The right to use the software in different hosted environments (e.g., MS Azure or AWS)
• Considerations include:
  • The right to use the software for testing and development
  • The right to redeploy the software
  • The right to transfer, novate, or assign the software
  • Geographical deployment location and territories

Software Licence Models

• Software programs can be licensed under the following models:
  • Perpetual: right to use the licensed capacity of a software program in perpetuity, with optional annual maintenance and support
  • Term: right to use the licensed capacity of a software program for a limited period, with optional maintenance and support
  • Enterprise License: "all you can eat" with no restrictions on products specified
  • Subscription/Usage: right to use as much or as little of a software program as needed, with usage monitored and reported regularly
  • Software-as-a-Service (SaaS): offering the software program as a hosted service, with a hosted service agreement instead of a license agreement.

Commercial Considerations

• Commercial considerations include the type of license, general principles, and software license audits.

Software Licence Audits

• Set in most license agreements, the licensor has the ability to audit the licensee's usage of the software.
• If the software usage cannot be remotely monitored, the licensor will conduct an audit or compliance review.
• The licensor will provide a report detailing license usage rights vs. license deployments and highlighting areas of non-compliance, including potential costs to rectify the situation.
• Key focus areas for negotiations include:
  • Undertaking a thorough review to ensure the licensor's claims are valid
  • Considering the relationship length and benefits of working with the licensor
  • Understanding future pipeline and requesting trade-in legacy non-compliance for new functionality
  • Exploring different types of licensing
  • Negotiating discounts
  • Challenging backdated support
  • Using influence of executives to leverage final concessions.

Learn how to buy software effectively, understanding compliance, entitlement, and essential controls. This course covers the fundamentals of software procurement, from software programs to licensor rights.