How to Identify and Prevent Overspending on Cloud Software

Organizations will spend a whopping $119 billion on cloud software in 2017, according to recent Forrester research. This represents a 23 percent increase over 2016, and there are no signs of this spending slowing down. As we move into an era where cloud spend will begin to dwarf on-premises software investments, IT administrators tasked with managing software across their enterprise will face new sets of challenges—some yet to be seen. Cloud software is an unavoidable expense, but given the size and importance of the investment, it’s incredibly important to ensure that resources are allocated and utilized efficiently. In this eWEEK slide show, Tim Jesser, director of global product marketing at Snow Software, offers his expertise on how to make your software estate lean and ultimately more budget-friendly.

Optimizing the cost of IT ranks high on both the CIO’s and CFO’s priority lists, which is why reining in the cost of software is important to every organization. It’s estimated that organizations don’t realize they are wasting about 30 percent of their cloud spend. A recent estimate from Gartner indicated that 30 to 50 percent of the virtual machines (VMs) running in public clouds are so-called “zombies,” unused and forgotten, yet still costing organizations for every hour they run. On the software-as-a-service (SaaS) side, Microsoft has admitted that Office 365 users on a per-user license payment plan will pay 80 percent more over the product lifetime than those with a perpetual license.

In an effort to achieve digital transformation, there has been a shift in enterprise software spending away from the central IT function (i.e., the CIO and their direct reports) toward individual business units. This fuels the “disruption gap”—a gulf or misalignment between IT and the business that stands in the way of thoughtful IT provisioning and that, according to Gartner research, is growing rapidly year after year. In 2016, only 17 percent of overall enterprise IT spending was controlled outside of the IT organization. By 2020, that figure could climb to 50 percent, researchers say. 

Wasted software spend is often found in an organization’s inactive or unused accounts—whether a user doesn’t need the software for their job function or role, or if they’ve left the company entirely. There’s also the possibility that due to the disruption gap, there are duplicate subscriptions purchased or missed opportunities for better pricing deals. It’s necessary to be able to understand who within your organization uses software, how they use it and for how long or often. This is necessary to successfully identify sources of wasteful software spend and prevent overspending in the future. 

Visibility is a foundational aspect and requirement for managing your organization’s software spend effectively. While some vendors will provide visibility into what’s currently being spent on their product or service, many do not (and have no incentive to) show what the optimal amount of spend could be. Many organizations that are allocated a certain software budget in January easily blow through it come Q2 without the granular usage-level insight into what’s happening on the network and how software is being used. Gaining a holistic view of VMs and individual devices across the corporate network will help eliminate redundant spending.

Allocating software licenses appropriately across your organization is helpful when done ahead of license review.  However, IT management is an ongoing process. Gaining visibility will make this easier, allowing for the easy evaluation of actual usage to avoid signing up for unnecessary subscription plans. It is the CIO’s, and thus central IT’s, duty to optimize IT resource allocation, ensuring that current IT investments are driving real business value and that future ones will, too.

IT managers are blessed with an array of software environments to suit their organization’s needs, whether that’s on-premises, private clouds or public clouds. Recent Gartner research shows that enterprises tend to choose a combination of these options, with more than 90 percent of organizations projected to adopt hybrid infrastructure management by 2020. Fortunately, there are a host of automated discovery applications available to measure how your enterprise uses SaaS vs. on-premises applications, consolidating that data into a consumable format.

While automation offers substantial benefits when it comes to software asset management, this is not a “set it and forget it” task for IT. For smaller organizations, administration costs can be 93 percent license costs, nearly doubling your Office 365 costs. It is important to determine what should and should not be automated.

Appointing a single person per application to serve as a vendor relationship manager can work toward optimizing the cost of your software. Acting as the liaison between your company and the software vendor—whether that’s Microsoft, SAP or Oracle—this person or team of people should be empowered with the responsibilities of overseeing usage, identifying issues as they arise and taking the lead ahead of a software audit or “true-up” meeting. Internal software managers become your in-house experts and will be indispensable in the new era of enterprise IT.