Jeff Muscarella, a partner in NPI's Telecom and IT practice, says companies negotiating a license agreement should inquire about the ability to terminate, park, or exchange unused licenses down the road, so shelfware doesn't come back to bite them in the wallet. They also should negotiate the rights to use repackaged or remarketed versions of the same product, so they don't have to pay again for software that's only marginally different.
One way to avoid the shelfware problem is to opt for software as a service, says Jan Aleman, CEO of IDE vendor Servoy.
"The difference with software as a service is you don't pay upfront for the maximum number of licenses you might eventually need, you just pay for what you use," he says. "In the past, you might buy 100 licenses for a CRM app and find out a year later that only 30 people used them. Today, you start out by buying 20 seats from Salesforce.com and add more as you need them."
According to that Flexera survey, more than a third of software vendors plan to offer a usage-based pricing model by 2011.
Software audits: Watch your back office
Just as buying software you don't use will cost you money, so can using software you haven't bought. If a vendor audit determines you've exceed the limits of your license, your company risks heavy fines from the Business Software Alliance or the Software & Information Industry Association, with punitive penalties for repeat offenders.
"For companies without robust compliance programs, an audit letter from the BSA or SIIA is often the beginning of a long march of trouble," says attorney Heather J. Meeker, head of the IP/IT transactions practice at Greenburg Traurig.
And it's quite likely that all or part of your company is not following the rules laid out it in your SLAs, says Rosenberg. "While most companies intend to be compliant, the reality is that the majority of them are not compliant with their enterprise software vendor's licensing," he notes.
Most violations stem from a lack of oversight or from misinterpreting the terms of the license -- for example, installing software on two different machines when you've only purchased one end-user license, or using software that was licensed for evaluation or development in a production setting.
To be compliant, organizations must set clear policies about software distribution, educate users about license terms, and perform regular in-house audits to ensure compliance. They also need to look carefully at the audit language in the license agreement and make sure it spells out what can trigger an audit, who will conduct it, how much time they'll have to do it, and what types of proof are required to meet the standards set out in the license. For example, you may need to present packing slips or completed invoices as proof of purchase.
And beware of casual inquiries from your vendors' sales teams, warns Rosenberg. Though it may be framed as a way to offer you a better deal on your existing licenses, this could lead to the vendor conducting a formal audit down the road.
"We've seen a dramatic increase in informal queries from software vendor salespeople," he says. "By handing over information -- even within the bounds of seeking a better negotiation position before a purchase -- the risk of a formal audit increases. You need to make certain you are formally being audited before sending any information to the software vendor."