COVID-19 is fast-tracking a move into the cloud as companies realign their workplace and working strategies for a socially distanced world. The right approach to licensing provides a crucial financial underpinning.

By Nick Botha (Managing Director, 4Sight Dynamics Africa)

The move into the cloud has been under way for quite some time, driven by a series of unstoppable forces. Perhaps the most important of these remains the business imperative for a digital platform flexible enough to enable companies to respond rapidly to a constantly shifting and volatile market. The COVID-19 lockdowns have reinforced this trend: it’s clear that digitalisation and a solid cloud strategy are critical in helping companies pivot in response to change.

As many companies are learning, a carefully thought through migration strategy is critical to ensuring a successful transition to the cloud, but many overlook licensing as a value lever in the whole process. This is a pity, because licensing represents one of the major costs of any IT budget, and optimising an organisation’s licensing environment can unlock significant savings that CIOs can redirect towards the overall cloud migration effort.

However, getting to grips with one’s licensing environment is no easy task – most companies now have a sprawling application estate both in and out of the IT department. This is particularly evident in the Microsoft ecosystem, given the company’s expanding portfolio of applications.

Licensing model blues

To understand how and why licensing can play an important role in migrating to the cloud, it’s necessary to understand something about licensing models. The traditional Microsoft licensing model for large clients is volume-based, allowing for the software to be used on multiple machines or multiple users. The higher the volume, the better the pricing. These agreements typically run for three years, and are based on projected use. Adjustments are made at the end of each year – if too many licences were purchased, then the excess is forfeited; if too few, the company has to pay in.

The licence fees, denominated in dollars, are paid upfront so they essentially fall into the capital expenditure (capex) budget.

Volume licensing has been popular with large organisations because they offer generous discounts – but, as noted, there is always a reckoning for under-projecting usage.

By its very nature, volume licensing is a very inflexible model. On the payment side, the hefty upfront payment per year for the period of the contract affects cash flow. Many companies rushing to buy licences for digital collaboration platforms ahead of lockdown suddenly found themselves having to come up with large payments at a time when cashflow had become a key challenge.

Another inflexibility inherent in volume licensing is the difficulty of projecting application usage a year in advance. In practical terms, companies typically acquire more licences than they need – in other words, fruitless and wasteful expenditure.

When it comes to the cloud, the licensing picture changes substantially. Cloud is predicated on the “as a service” model, with a key benefit being the ability to scale up and down as needed. Not surprisingly, licensing operates on a similar model – there’s almost no upfront payment and licensing fees are directly correlated with usage and paid monthly. However, annual options are also available if still required.

However, to take advantage of this attractive model, it’s necessary to understand exactly which people in your organisation are using each component of the licensed software. Once this is understood, it’s then possible to manage one’s licences in line with actual usage. Ensuring you have the right type and number of licences can generate quite substantial savings.

It’s also worth noting that cloud licensing applies even if the infrastructure remains in a traditional, on-premises data centre as it often does, at least in the short to medium term.

But obtaining the necessary granular view of how your corporate software is being used is hard if manual processes are employed, and the picture changes regularly. A tool to automate this process is critical.

Licensing as part of the cloud migration strategy

This approach not only makes the whole migration process largely self-funding, it also builds acceptance by notching up quick wins that demonstrate progress and value. In essence, it acts as an important lever of change management, always a key success factor in any project.

We’ve all come to see cloud as a mission-critical technology leap because of the contribution it can make to enabling flexibility and responsiveness to changing business imperatives, and also for the positive impact it can make on IT budgets. Surprisingly enough, licensing can hold the key not only to unlocking many of the benefits of cloud, but also to a successful – and funded – migration.