Can SAM manage SaaS Spend? A historical peek

4 min read Indus Khaitan

Software Asset Management (SAM) is a process of keeping track of software licenses in an organization. SAM was created as a subset of Information Technology Asset Management (ITAM), designed to document, manage, and track hardware and software lifecycle in an organization. ITAM was standard practice in the 1990s. The use of ITAM/SAM exploded with the rise of IT outsourcing, the birth of the internet, and the explosion in the number of applications powering an organization’s software infrastructure.

This post tracks down the history of SAM and makes a case that as the delivery and consumption of software and hardware moves to the Cloud–tools and processes to manage SaaS and Cloud spend have to be redone.

1988: Paper Licenses

SAM tracks its roots to a trade group created by Microsoft and fifteen other software vendors. Built-in 1988 and named “The Business Software Alliance” (BSA), the group’s charter was to prevent copyright infringement of software products [1].

Software vendors distributed the software bits on physical media, and license keys were hard-copies. The license keys, though unique, could be freely copied and re-distributed. Hundreds of machines ran illegal copies of software without the vendor knowing about it [2].

In a large organization, it was impossible to track down each of these paper copies of licenses. It created chaos and frustration in IT departments trying to reconcile units purchased versus used. There were no standards for managing, tracking, and documenting the use of licenses. To make matters worse, organizations bought products from indirect channels, using a maze of distributors, resellers, and system integrators across different countries.

1995: Network Licenses

In the early 1990s, Compact Discs were the dominant media for distributing commercial software. While FTP sites were popular for shareware, freeware, and opensource software distribution, vendors were slow to adopt. They started using the online distribution to send out patches and maintenance releases that did not require any separate licenses. For example, Netscape released its Netscape browser through the FTP sites, but its Netscape Application Server distributed as discs.

The vendors soon moved the activation of client-side products via the Internet to complete the installation process. The installed software required a license key to activate the product. Server-side products such as databases, application servers, and other middleware components continue to work as an “honor licensing system” where the purchasers were given the bits along with an authorization to use the software on a pre-approved number of servers. These middleware binaries had a generic activation key, and the organizations would self-report the number of units consumed.

2000: License Managers and the birth of SAM

This frenzy of paper licenses, online activation, and purchase reconciliation from direct vs. indirect was a driver in creating a standard process and reporting mechanism. Though a more significant motivation of vendors was to get paid accurately. If we take Oracle’s example, its flagship Oracle Database and other middleware products were downloadable from their distribution site after a simple registration. However, organizations required a sales contract. In large organizations, especially in complex deployments across Virtual Machines, counting the usage unit was an exercise.

Often the audit requirements in License agreements resulted in firefights between vendors and customers. To make the job of counting units of consumption easier on everyone, vendors started mandating the deployment of “License Manager” software to help the customer track and record the use of licenses [3]. These License Management products would monitor the network and send an audit report to the controlling person, generating an invoice to the customer. This issue was so big that the Wintel duopoly enabled a desktop to be “wired for management” (aka audit-ready). One of the critical features of this was a remote wakeup capability so that IT staff could use tools and track an asset even if it had been put to sleep by the desk worker.

The increasing complexity and rapid adoption of IT and Software made customers an easy target for vendor audits. They often struggled to contest results and to prove entitlement to purchased software. History is littered with public feuds of enforcement stories between large vendors and customers.

Seeing an opportunity, niche vendors and service providers such as Deloitte and PWC emerged. The new category of “SAM Tools” helped organizations track licenses across multiple vendors while the service providers became a neutral third-party to help customers remain compliant. In parallel, a standard checklist emerged with a 27-step process to help organizations self-assess their license consumption [4].

2010: Software contracts outsizes SaaS consumption

As Software as a Service (SaaS) emerged as a preferred mode of software consumption via a browser or a mobile app, vendors started realizing that software fulfillment can be completed online and users can be “activated” in real-time. User provisioning and features to support the full lifecycle, such as account creation, password management, and offboarding, became a de-facto requirement. Self-service used to be a feature for classical, on-premise software but has become an integral part of modern SaaS. As fulfillment moved online, month-to-month pricing, freemium, limited time trials are now table stakes for an emerging SaaS product to drive user-adoption and product-led growth.

But something not-so-pleasant also brewed. To prevent customers from walking away to a competing product, a practice of long-term software contract was born. SaaS vendors signed customers into multi-year contracts, sometimes as long as 48 months. What started as an innocuous 10-20% discount for signing up a 12-month agreement became an industry-wide practice to lock-in customers for 3-4 years [5].

2020: SaaS Shelf-ware

Double-clicking into a few SaaS contracts of fellow entrepreneurs and a few prospects during COVID-19 made one thing visible: While SaaS consumers are just getting warmed up, vendors have decked their cards by the old school rules of ensuring their success. For example, hearing the story of an OTA going through a rough patch with 70% of its CRM seats unutilized did not get any relief. Slack’s recent acquisition has grapevine chattering about how Slack’s golden standard in usage-based pricing would be a thing of the past.

Customers often buy more than they can consume and renew their commitments without access to consumption benchmarks or ongoing utilization analysis. Just like the feud between the consumers and vendors for audit enforcement, there is no shortage of complaints from SaaS consumers on how the VP of Sales and CROs treat their renewal-ready customers as nothing more than a target for a minimum of 15% revenue expansion.

SaaS Spend cannot be managed with old rules

Software Asset Management (SAM) was created more than two decades ago by vendors to enforce audit-readiness and prevent software piracy. It assisted consumers of Software in proving innocence while helping navigate through the morass of paper and digital licenses sold through direct and indirect channels.

SaaS is rapidly becoming the default delivery, consumption, and fulfillment model in IT departments. Tracking the license count of SaaS is purely academic, but additional insights are required to look at layers below and cover newer themes and answer questions such as:

  1. How many units of SaaS seats are never logged in?
  2. How do we attribute user and departmental costs of tool usage?
  3. How can the finance team know the ROI of a product while approving the bills?
  4. How can IT teams ensure that tools are meeting data integrity and infosec policies?
  5. How can we automate payments and reconciliation of 100s of SaaS apps?
  6. Does it make sense to have a site-wide license when just a few users are active?

With SaaS, the vendors have different incentives than the traditional licensing model of Software. Hence, a new set of tools is needed to protect the interest of consumers.

References

  1. 16 Vendors created an alliance called BSA (Business Software Alliance) to become the enforcement police to force audits. They partnered with Deloitte and KPMG armies to send out notices and audit customers.
  2. In 2003, 4 out of 10 software products being used worldwide by businesses were pirated.
  3. Microsoft Software Inventory Analyzer was launched in 2003/5
  4. As part of the ITSM/ITIL process framework, a 27-step process was created to help organizations self-assess their software utilization. It later became the ISO/IEC 19770-1 certification.
  5. Interesting Learnings From ServiceNow at $5 Billion in ARR

Feature Image: Traditional tools being used to deliver ice. 1917-18. National Archives Catalog.