Decoding the Maze: Why your software contracts are a silent budget killer
We recently sat down with our licensing experts to discuss the state of vendor contracts. We were expecting a pretty dry conversation about paperwork, compliance and spreadsheets.
Instead, the conversation highlighted an often-overlooked issue that is quietly and significantly effecting budgets. During the conversation, Microsoft licensing expert James Curtis dropped a statistic that should worry any CFO or IT Director reading this:
“Most organisations are 25% over-licensed AND 25% under-licensed. At the exact same time.”
In a logical world, those two things should cancel each other out. If you have too much of one thing, you shouldn’t be starving for another. But in the complex, intentionally opaque world of software licensing, it seems logic rarely applies. You are currently paying for software you don’t use (the 25% over), while simultaneously facing massive audit fines for software you are using without permission (the 25% under).
How did we get here? And more importantly, how do you fix it before an audit letter lands on your desk?
The death of ‘set and forget’
Ten years ago, the rhythm of IT procurement was predictable. You bought a perpetual license. You owned it. Every three years, a new version came out and you decided if you wanted to upgrade. It was a capital expenditure, depreciated over time. That world is coming to end. We have moved from an ownership model to an annuity model. You don’t own your software anymore; you are renting a liability.
Shaun Louis, our ITAM (IT Asset Management) expert, pointed out during our discussion:
The speed of change has accelerated from every few years to every quarter. Vendors like Microsoft, Oracle and VMware (now Broadcom) are constantly shifting terms, pricing and product bundles.”
The most dangerous part? They can change the rules of the game while you are still playing it.
The “overnight liability”
If you think “contract terms” are just fine print, consider the example of Oracle Java.
Kris Lester explained, prior to January 2023, you could license Oracle Java based on the specific amount of users or servers you needed. It was a manageable, minimal cost for most businesses. Then, overnight, Oracle changed the model. They shifted to a metric where if you have one license installed, you must license every employee in your organisation. (needs fact checking)
“It’s that type of visibility which is crucial, you can go from a manageable renewal to owing millions to a vendor simply because they made a slight adjustment to the T’s and C’s.”
We discussed the recent headlines regarding Broadcom and Tesco, a lawsuit involving a claim for £100 million. These aren’t rounding errors, these are board-level crises caused by a lack of attention to the fine print.
The 25/25 Paradox: How the “left hand” betrays the “right hand”
So, how do companies end up both over-licensed and under-licensed simultaneously?
The answer lies in decentralisation.
In the modern enterprise, IT no longer holds the keys to the kingdom. Marketing buys SaaS tools on a credit card. HR subscribes to a new platform. A subsidiary office in another country
purchases their own server licenses. James described this perfectly: “The left hand doesn’t know what the right hand is doing.”
· The Over-Spend: Your central IT team buys a massive Enterprise Agreement (EA) covering the whole company. But local teams don’t use it; they prefer their own tools. You are paying for shelfware.
· The Under-Compliance: A developer spins up a server to test an application. They forget to shut it down. Or they use a license key they found on a shared drive. Suddenly, you are deploying software you haven’t paid for.
Shaun shared a story about an audit defense for TalkTalk. Because their purchasing was decentralised, they were buying licenses “all over the place.” By simply centralising and optimising their position, Shaun’s team stripped £300,000 off their contract.
That is £300k of pure waste, simply because nobody was looking at the whole picture.
The Solution: From Acquisition to Adoption
If you want to decode this maze, you have to stop treating software contracts as a “Procurement Problem” and start treating them as a “Data Problem.”
The experts outlined a clear, three-step process to regain control.
1. The discovery (The what) You cannot manage what you cannot see. The first step isn’t negotiation; it’s an audit of yourself. “Find out what you’ve got and I don’t just mean what contracts you own. I mean what is actually deployed on your network.” This requires tools and expertise. You need to reconcile the paper trail (contracts) with the digital footprint (installations). If those two things don’t match, you have a problem.
2. The strategy (The where) Once you know your baseline, look at your roadmap. Are you moving to the Cloud? Are you consolidating data centres? James shared an example of a customer looking for SQL licensing. By understanding that the customer was planning a massive data centre overhaul, they were able to structure a deal that saved money in the long run. If you buy for today without telling your vendor about tomorrow, you will pay double.
3. The governance (The how) This is the boring part that saves you millions. You need policies that prevent “Shadow IT.” You need a centralised “gatekeeper.” This doesn’t mean slowing down innovation, it’s ensuring that when a new subsidiary is bought, or a new team is formed, they are folded into the main agreement to leverage volume discounts (often 30% to 50% off) rather than buying retail price on a credit card.
The complexity of these contracts is now so high that expecting a generalist IT Director to understand them is like asking a GP to perform brain surgery. It’s simply not their specialty.
“There are thousands of vendors, to be an expert on every single one is almost impossible.”
This is why the relationship with a specialist partner is changing. It’s no longer about a “salesperson” trying to hit a quota it’s having a partner who knows the detail, the inside story who can have your back when you need it. You need someone who knows the dark alleys of Microsoft licensing, who understands the “gotchas” in a VMware contract and who can stand
between you and an auditor and say, “No, actually, read page 45 of your own terms. We are compliant.”
In one case mentioned during our talk, this kind of expertise reduced a compliance fine by 87% just by correctly interpreting the vendor’s own rules.
The final word
The software market is moving toward a pure consumption model. Eventually, we will pay for software like we pay for electricity, turning the tap on and off. But we aren’t there yet. We are in a messy, hybrid transition period where vendors are hungry for revenue and aggressive with audits.
If you take one thing away from this, let it be this: Silence is expensive. If your procurement team isn’t talking to your technical team and if neither of them is talking to a specialist who understands the market trends, you are bleeding money.
Don’t wait for the audit letter to find out how much.
About SCC
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Editor : Julian Gustea, Software & Security, Marketing UK, SCC