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Sales reps out of control on issue of software license compliance

A software vendor trolls a toll collection agency, and other ridiculous stories in the world of software license compliance.

Sales reps have a reputation for wringing blood from a stone, but when it comes to software license compliance, things are getting ridiculous.

Ray Wang, principal analyst at Constellation Research, relayed to me a story of a toll collection agency. A large software vendor told executives that although they were only paying for a certain number of seats, the agency had a million people every month crossing through its toll booths. The vendor wanted the toll collection company to pay for all of them as if they were software users.

Now, Wang didn't say who the vendor was. Could have been Oracle; could have been SAP; could have been some other big software vendor. But Wang said the problem isn't confined to one vendor. It's everywhere. He calls it "trolling for indirect access," and thinks it's overboard.

"These are ballsy sales reps that are doing this," he said.

Wang also wrote about the problem on his own blog, saying Constellation Research has received an "alarming increase in inquiries" from its end user clients. The process often goes like this:

  • A new sales rep makes contact and is super friendly;
  • The sales rep tries to sell more software;
  • If you decline to buy enough new software, threats of software audits and claims of indirect access begin.

As Wang said, this is clearly a blatant shakedown for cash. Sales reps are under the gun to make their numbers. Since aggressive tactics seem to be widespread across vendors, it also seems clear that sales managers must know about the techniques. And while vendor executives may not know the specifics, you can be sure they're the ones putting the pressure on sales.

Wang's suggestions: Do thorough self-auditing of your software and be prepared to fight the vendor on the indirect access issue. If that doesn't work, consider taking the issue public by telling analysts, press and user groups about what's happening. And if you have had issues like this with vendors, certainly let me know.

Software revenue growth has slowed, according to research firms like Gartner. While still growing, it isn't doing so nearly as fast as it once did. In an April forecast, Gartner predicted a 6.8% increase for applications software spending this year, saying that "economic uncertainty continues to drive organizations to conservative budgeting and spending plans."

In its latest quarterly earnings report, Oracle reported a 4% increase in software revenue compared to the same quarter last year, but that included a 2% drop in new software licenses and cloud software subscriptions. The last time Oracle had a decrease in new software licenses was four years ago.

Could the slower software market have something to do with sales reps trolling for indirect access? I think so. Wang added that there is even more pressure on sales reps now, as cloud computing gives customers more software options from which to choose. Whatever the reason, the strong-arming has gone too far.

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Not to worry. Greed and open source will be their undoing.
Part of the problem is the pay-per-user models that SAP, Oracle, and most others use. I like how modern ERPs like Acumatica are no longer penalizing companies for growing.
While I would agree some of these issues exist in the industry, and from what I have seen in the business Oracle and Microsoft come up with some of the most creative nooses to hang around their customers. With that said, it is interesting to see how many media outlets have jumped on the issue completely against the software companies and blindly in defense of customers. At least in my organization, the definition of "Use" is clearly defined in license agreements, which were approved by customers' legal and signed by them. As technology has advanced customers have created many ways to use our intellectual property and the data within our systems outside of them. They have created ways to bypass the front-end UI to get data into the systems. As one example, if a customer develops a mechanism used by hundreds or thousands of people to create sales orders and dump that data into an ERP system -- is it not expected the customer should pay something for that? Does it mean they have to have an expensive, full-use named user for that limited use scenario? No. But the vendors I have worked for and with in that offer various license types, including consumption-based licenses, which are more aligned to the value tied to the use case.

I would agree though this is an issue we see more and more, and I believe more of the issue is comes from *how* the software companies handle it.