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How do I calculate my Software Entitlement?

Introduction

Most software companies invest millions of dollars to create a world class product. They want your organization to use the software as much as possible as it is their major source of revenue. Software companies usually have a software management tool that they expect the client to install so that anyone with the access to that tool (usually IT Administrators at both ends) can track the usage and if you are reaching the entitlement threshold then you can get alerts or the vendor would point that it's time to release the next Purchase Order. However it is not always possible to get the management tool to a point where it is fully functional and it is connected to all endpoints. Sometimes there are legacy software issues that prevent the client organization to complete the install and track usage. If the installs are not tracked, then you can easily go over the entitlement before you even know it. So, unless you are in an unlimited licensing usage agreement for the software for a fixed price, this gap has the potential to hurt your bottom line significantly and leave the executives fuming.

How to know / calculate my entitlements

If you are not technical or analytical, deciphering the licensing model to come up with your entitlement can be mind numbing. It takes huge amount of effort and multiple people to understand what are the licensing metrics, what factors drive the cost up, what information is available, what do we need to assume? 

This can be applied to both new software purchases or true up situations. The best place to start is your proposal / existing licensing agreement. It usually contains information on the number of licenses you own, what are the licensing metrics and how is the entitlement calculated? Insist on a formal document from the vendor, if this information doesn't exist. This information must be included in the new agreements as it will prevent you from future disputes on licensing. 

Once you have the information on how is the software licensed (Perpetual, Subscription or Open Source), then you need to find the matching information that you need to get from your system administrator. I will try to demonstrate with few examples below:

Simple

  • Licensing: The software must be licensed by each Physical server that has the software installed. Each server requires one license.
  • Info you'll need: Ask your IT Admin or TAO (Technology Asset Owner) or if you are the TAO, then get the total number servers filtered by the installed application. Ignore any server that does not have the software installed. The resulting number is the number of licenses you need in order to be compliant with the software licensing requirements.

Moderate Complexity

  • Licensing: The software must be licensed by each Linux server (Physical or Virtual) that has the software installed. Each Physical server requires one license and each Virtual server requires half license. 
  • Info you'll need: Get a report that contains a list of all servers, filtered by Operating Systems. Choose Linux as the OS and then create a pivot table that gives you the count of Physical and Virtual Linux servers separately. Assume you have 1000 Physical Linux Servers and 500 Virtual Linux Servers. You'd need 1000 licenses for Physical servers and 250 Licenses for Virtual servers. Total 1,250.

Complex

  • Licensing: The software must be licensed by each Linux server (Physical or virtual) that has the software installed. Each Physical server is licensed by total processor cores on the server that are dedicated to the software. Each Virtual server is licensed by the lesser of virtual cores and host cores. The license comes in the packages of 32 cores and 64 cores.
  • Info you need: Get a report that contains a list of all servers, filtered by Operating Systems and environment like above, plus additional columns for physical cores and virtual cores. run a pivot report by Servers > OS = Linux > Environment = Virtual, Physical > Cores =physical host, virtual guest. Run a formula to only count the lower of virtual and physical cores on Virtual Servers. Assume that you get 6400 cores for Physical servers and 3200 cores for Virtual. You'd need 100 licenses of 64 cores for Physical Servers + 50 Licenses of 64 Cores for Virtual Servers. Total 150.
There are umpteen ways software can be licensed, I can't cover everything here, but you get the idea. Understand the metrics for the licensing you're working on (Server, OS, Entitlement, cores, users, processor count, desktops, workstations, something else) and apply the principle on your data. It helps if you know, but you don't have to necessarily understand the technical part of what is a processor core or what is an operating system?

Best Practices

  1. Know your contract. What it allows and what is prohibited?
  2. Understand the licensing mechanism by heart
  3. Develop regular cadence with TAOs (quarterly, half yearly, yearly or as needed) to review the install report
  4. Educate your users on licensing compliance requirements so that they do not install if it is not needed
  5. Have a quarterly or half yearly true up arrangement with the vendor
  6. Maintain data hygiene otherwise it is garbage in - garbage out. You'd end up paying for the decommissioned hosts if the server status is not up to date.
  7. Understand the vendor audit rights and frequency
  8. Explore an unlimited licensing option with the vendor. Many vendors are happy to sign up for that.

Summary

Typically the software companies would use the licensing mechanism that fits their product requirements, and you'd usually not have a choice. It is important to keep track of your deployments on a regular basis to avoid running into software compliance issue. The cost of doing a true up later can runs into Millions of Dollars. Few vendors are notoriously known to audit the clients and if you are found non-compliant then they will also charge a penalty that again runs into Millions, plus it will become a reputational issue. I can't emphasize more on the fact that it is important to put controls around how is the software deployed and tracked. It will not hurt your P&L if your organization follows the best practices.

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