On License Audits

The licensing policy of the majority of (B2B) software and device vendors falls in one of the following  categories:

  • Technical (proactive)
    • In-house licensing solution
    • External/professional licensing solution
  • Audits (reactive): no technical licensing, terms regulated on paper
  • Hybrid – combination of technical licensing and audits

The challenge for every vendor is to choose the policy that best serves both him AND his customers. After covering in-house licensing, it is now time to shed some light on the case of audits.

Audits (or contractual licensing mechanisms) are particularly common in new B2B products (startups) since vendors are justifiably more focused on sales and growth than preventing revenue leakage. In such cases, vendors retain the right to perform license audits at the customer’s site. While license auditing is a great way to technically bypass the issue, let your engineering department focus on your core, and avoid licensing headaches when installing, testing or running the software, there are aspects to be considered:

  • Resources and Growth: Auditing is a process draining valuable resources on both sides. It can become a nightmare with a growing customer base (ask Microsoft). This is one of the reasons that Software Asset Management is a big industry, with companies specializing in the field.
  • Customer Relationship: Most enterprise customers not only have no intention of cheating, but do their best to be compliant. Unfortunately, sometimes they are under-licensed without even knowing. Instead of having to react, they prefer to prevent. It is crucial for vendors to realize that auditing is a reactive solution that may catch the customer by surprise and create unnecessary tensions. Any proactive solution would have prevented any potential mess.
  • Revenue Leakage: Lack of technical licensing facilitates (if not guarantees) revenue leakage. Few vendors have the capacity to perform regular audits. Therefore, in the long term a revenue delta is almost certain.
  • Lifecycle/Dynamic Entitlement: In a time in which customers demand maximum flexibility and pay as you go models, audits will always struggle to catch up with the constantly changing requirements.
  • Analytics: Without technical licensing, vendors squander the chance of real-time access to a synced customer database, providing valuable information about the real customer landscape.

At the end of the day, the question of audit (or any other licensing policy) suitability depends on the application and the (size of the) customer base.

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