Software Contracts – in a Pandemic led Recession

Monday, April 20, 2020

OK, so I am not a financial expert – but if our current world-wide pandemic (COVID-19) does not put us officially into a recession then I will be extremely surprised.

Frankly, I think we are already there – experts are debating.  I’ll leave it to them to figure out and in the meantime speak to you about your software contracts and what to think about them in a recession.

As we all know, the US was in a recession just a few short years ago and it was a doozy!  But at that time many companies still had not made the transition to subscription based licensing for most of their business productivity software.

Think about your companies software contracts today – Adobe, Microsoft, Autodesk, Oracle and others on your productivity software are probably all heavily subscription based today.  On your infrastructure/platform software they are also probably heavily “hosted” or subscription based.

Why is this point important in a recession?  Old licensing models were perpetual licenses with maintenance. In most circumstances you could continue using the software regardless of whether or not you maintained the maintenance. So in a recession, if you could get out of the maintenance contract you were arguably still in business. If you are tasked with saving money on software costs your options are more limited in a subscription world.

Subscription licensing models is a pay as you go model.  While that is useful in moving costs to the expense line rather than amortizing it also means you must continue paying or you can no longer use the software.  Your software vendors are now in the drivers seat (although here is a very interesting read on the financial impact of this for software companies by Gavin Baker which I thoroughly enjoyed and you might,too).

So, here are some keys to consider:

  • Are your subscription users going to be reduced?
    • Inventory your existing contracts to know specific clauses and dates:
      • Many multi-year software contracts have an option to reduce subscriptions on an annual basis as long as you do it by the prescribed deadline. 
      • Some also have an option for reduction based upon a reduction in force.
    • When are your contract expiring for those that do not have a built in reduction option?
    • How will this impact your hosted infrastructure/platform needs? Make sure you are aware of those contract terms and dates as well.
  • If your user base is not expected to be reduced, will you be asked to cut costs regardless?
    • Look for the fat in your current contracts.
    • Identify critical vs nice to have suites
    • Ensure you are leveraging your legacy licensing benefits when available in your hosted environments.
  • Those software audits that have slowed down over the past 2-3 years, expect them to gear back up in different fashions:
    • Microsoft – do not be surprised for a server focused “assessment”
    • Adobe and Autodesk – I expect to see them come back around to see who still has old on-premise software that is not covered under the existing subscriptions.
    • Micro Focus – remember all that software they picked up in the deal with HP Enterprises? They have already been an active auditor, expect that to continue or pickup.

We know the pandemic is hitting us hard, but we cannot afford to be so distracted by life or death news (she says, sadly and somewhat sarcastically) that we get caught by surprise by the longer term economic impact we will all be facing.  If you need a refresher just go back to my blogs from 2007-2010 such as this one. While each turn is unique, there are aspects that are the same…with over 21 years in the Software Asset Management business Cynthia Farren Consulting can help. Reach out to schedule a conversation with me to discuss a game plan for your organization. Stay safe and stay well…

Share on facebook
Share on twitter
Share on linkedin
Share on pinterest
Share on pocket
Share on whatsapp
Share on vk
Share on telegram

Leave a Reply

Your email address will not be published.