Achieving Best in Class Software Savings through ... · Disparity in software costs by functional...
Transcript of Achieving Best in Class Software Savings through ... · Disparity in software costs by functional...
software asset optimization
August 10, 2012
Achieving Best in Class
Software Savings through
Optimization not Negotiation
software asset optimization
Copyright 2012, ISAM, Inc. All Rights Reserved
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Agenda
• Introduction • Industry Trends • Best in Class Software Asset
Management – How good is best in class? – How did they get there? – How good can they get?
• Conclusion
software asset optimization
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Thesis Statements
• The software Industry is changing through: vendor consolidation, data center consolidation, outsourcing, changing pricing metrics, budget constraints.
• It is possible to take advantage of the changing software industry to reduce your unit cost.
• Best-in-Class companies focus on product management to reduce unit cost.
• Software Unit costs can be further reduced by 40% for Best-in-Class companies.
software asset optimization
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Over 100 million product usage data points 26,242 asset names
• Every mainframe product classified among 422 product categories • Each product shows every available product alternative
2372 software vendors • IBM, CA, BMC, SAS, Compuware, Oracle, HP, Symantec, VMware etc.
Over 8 million customer pricing data points Industry best in class pricing by product Industry best in class by category
Over 1000 major corporations 13 major outsourcers 4 of the Top 5 global IT consulting companies 5 of the Top 10 global corporate brands Largest U.S. & Canadian Federal & state agencies
Tied to ISAM proprietary IBM & ISV vendor pricing applications
A database that took over 100 full-time employee years to build!
ISAM’s software industry pricing practices & trends research comes from……
software asset optimization
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Agenda
• Introduction • Industry Trends • Best in Class Software Asset
Management – How good is best in class? – How did they get there? – How good can they get?
• Conclusion
software asset optimization
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Industry Trends - 1997
• Many software vendors • Little correlation between data center size and unit cost • Lots of products • 5-7 year ELAs representing 70% of ISV budget • Pricing based on MIPS or Tiers • Little product substitution (high vendor retention level) • Lots of CPUs and data centers • Costs managed thru negotiation • Average costs at $5500 per mip • Best in class at $2500 mip
software asset optimization
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Industry Trends - 2011
• Fewer software vendors • IBM is in the replacement business • High correlation between data center size and unit cost • Reduced products • 2-3 year ELAs representing 80% of ISV budget • Pricing based on MIPS, Usage, Sub-capacity, value
units • High product substitution (low vendor loyalty) • Consolidate CPUs and data centers • Costs managed thru product management • Average costs at $4206 per mip • Best in class at $910 mip
software asset optimization
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SAM Challenges
• Incomplete data • Inaccurate data • Cost reduction focused on rates • Costs managed by departments not
responsible for software budget • Customer requirements to maintain high
inventory level • High rate of product uniqueness
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Observations of Common Software Asset Management Practices
1. SAM starts with the contract a. Legal and Financial processes are set up to
manage contract compliance b. Database designed to ensure license compliance
2. Procurement is set up to manage vendors 3. Inventory management is tactical 4. Hardware decisions are made with limited
software cost analysis 5. Costs are managed by negotiating rates 6. Unit cost
– $4206 Average – $910 Best in Class
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How much are the software vendors growing? IBM has taken 81% of Top 5 vendor’s increased revenue
Revenue History
$-
$5,000
$10,000
$15,000
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$25,000
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Reve
nue
($ m
illio
ns)
IBMCABMCCompuwareSAS
4%6%
5 yr growth10 year growth
-2%-4%
4%1%
5%2%
5%7%
software asset optimization
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Software costs are aligned to an outdated paradigm of managing hardware & software as separate discrete assets
Cost of True Up
Cost of True Up
Distributed Annual Software Costs
Current license management processes result in significant unplanned expenses related to the cost of true-ups and the subsequent jump in maintenance prices.
software asset optimization
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Best in Class data centers have higher concentration of costs on IBM & CA
All Data Centers
Market Share by Vendor based on customer spend
Best in Class Data Centers
49.8%
22.7%
6.0%
4.9%
1.6%
15.0%
IBM CA Compuware BMC ASG Others
53.5%
30.2%
3.2% 3.2%
7.7% 2.3%
$4206 per mip $910 per mip
**Note** Best in Class represents 3 lowest cost data centers
Most data centers can cut their software costs in half be getting to best in class.
software asset optimization
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Average Unit Cost varies slightly across all industries
Best in Class spend less than half of an average data center in most industries.
Best in Class Average
$0
$500
$1,000
$1,500
$2,000
$2,500
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$5,000
Financia
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Govern
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d
Healthca
re
Manufac
turer
Outsou
rcer
Retail
Teleco
mm
Transport
ation
Utility
Unit Cost
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$-
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$30,000,000
IBM CA
Compuware
BMCSAS
ASG IBI
Software
AG
LRS
SterlingC
ommrce
Annu
al S
oftw
are
Mai
nten
ance
Cos
t
100-2,500 mips 2,500-7,500 mips greater than 7,500 mips
Disparity in vendor costs result in dramatic cost variances. The variance is greatest with CA at over $25 million.
Software Cost Variation by Vendor
Not knowing the price disparity among vendors can cost a data center millions in lost savings.
Top 10 software vendors measured by data center market share.
Data Center Size
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$-
$1,000,000
$2,000,000
$3,000,000
$4,000,000
$5,000,000
$6,000,000
$7,000,000
$8,000,000
$9,000,000
Ope
ratin
g Sy
stem
s - B
ase
Syst
ems
Data
base
and
File
Man
agem
ent -
Dat
abas
ean
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le Sy
stem
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Prod
uctio
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anag
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stem
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trol
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lopm
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ools
-La
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ge a
nd C
ode
Gen
erat
ors
Ope
ratin
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stem
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Appli
catio
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rver
Data
base
and
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Man
agem
ent -
Utili
ties
Deve
lopm
ent T
ools
-La
ngua
ge E
xten
der
Reso
urce
and
Per
form
ance
Man
agem
ent -
Sto
rage
Man
agem
ent
Deve
lopm
ent T
ools
-Te
st/D
ebug
/Opt
imiza
tion
Data
base
and
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Man
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ent -
Dat
abas
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cess
Too
ls
Annu
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ftwar
e Main
tenan
ce C
osts
100-2,500 mips 2,500-7,500 mips greater than 7,500 mips Trendline
Disparity in software costs by functional activity are dramatic. The variance is greatest with the largest categories and Database Access Tools.
Software Cost Variation by Functional Category
Data centers can save millions in each of the Top 10 functional categories.
Top 10 software functional categories, measured by data center market share, and represent 57% of total software costs.
Data Center Size
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CA & BMC each have the greatest price variation of ISVs in 2 of the 4 categories where ISVs compete
Large Data Centers
60%
72%
111%
66%
83%
58%
162%
149%
86%
104%
89%
102%
124%
96%
110%
95%
156%
124%
87%
115%
128%
113%
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
Database and File Management
Development Tools End User Tools Operating Systems Production Management
Resource and Performance Management
Uni
t Cos
t flu
ctua
tion
as P
erce
ntag
e of
Ave
rage
(Coe
ffici
ent o
f Var
iatio
n)
IBM CA Compuware BMC ASG
Knowing the pricing variation for each category by vendor, millions in savings can be realized during negotiation.
software asset optimization
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9
1417
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45
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Prod
ucts
0 - 100 100 - 1,000 1,000 - 5,000 5,000 - 10,000 greater than 10,000Data Center MIPS Range
Database & Development products grow with data center size
The growth in Development and Database products provide savings opportunities through product standardization and vendor consolidation.
Product Count by Environment
Database Development
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25 25 22 25 2822
3124 23
66 71
55
72
101
52
93
59 58
116
141
95
144
244
81
179
10496
0
50
100
150
200
250
Financia
l Srvc
s
Govern
ment/E
d
Healthca
re
Manufac
turer
Outsou
rcer
Retail
Teleco
mm
Transport
ation
Utility
All mainframe products are categorized into 80 different L2 & 422 different L3 functional categories.
Comparison of Products to number of Functional Categories
Cat2 Cat3 Products
Large number of unique functional activities provide opportunities for significant savings thru product consolidation and data center optimization.
Industries have comparable number of licensed core functionalities in spite of varying deployed products
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Agenda
• Introduction • Industry Trends • Best in Class Software Asset
Management – How good is best in class? – How did they get there? – How good can they get?
• Conclusion
software asset optimization
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How Good is Best in Class? Although larger data centers have more products …
3849 49
89
116
149
124
235
151
181
0
50
100
150
200
250
Prod
ucts
0 - 100 100 - 1,000 1,000 - 5,000 5,000 - 10,000 greater than 10,000Data Center MIPS Range
Product Count
Best in ClassAverage
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How Good is Best in Class? and larger data centers have more vendors …
8
10 11
18 19
23
29
34
25
28
0
5
10
15
20
25
30
35
Vend
ors
0 - 100 100 - 1,000 1,000 - 5,000 5,000 - 10,000 greater than 10,000Data Center MIPS Range
Vendor Count
Best in ClassAverage
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How Good is Best in Class? Large data centers have lower unit costs.
$2,533
$5,454
$2,249
$5,765
$1,487
$3,292
$1,419
$2,572
$1,039
$1,643
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$/M
IPS
0 - 100 100 - 1,000 1,000 - 5,000 5,000 - 10,000 greater than 10,000Data Center MIPS Range
Unit Cost
Best in ClassAverage
software asset optimization
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Agenda
• Introduction • Industry Trends • Best in Class Software Asset
Management – How good is best in class? – How did they get there? – How good can they get?
• Conclusion
software asset optimization
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Larger data centers are able to reduce the costs of their core products without losing critical functionality
5 5 5 5 54
5 56
6
$2,655
$1,494
$1,025
$679
$2,638
15
17
22
28
22
0
5
10
15
20
25
30
0 - 100 100 - 1,000 1,000 - 5,000 5,000 - 10,000 greater than 10,000$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
CategoriesVendorsUnit CostProducts
How did Best in Class get there?
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How did Best in Class get there? BIC drive costs down across product functionality
$285
$972
$126
$923
$56
$218
$1,104
$103
$534
$178
$585
$0
$200
$400
$600
$800
$1,000
$1,200
$/M
IPS
Database andFile Management
DevelopmentTools
End User Tools OperatingSystems
ProductionManagement
Resource andPerformanceManagement
Software Category
Unit Cost by Category
Best in ClassAverage
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Product Substitution Percentage of Installed Products (by cost) that can be replaced by Competitor
14% 23% 45%
4% 28%
30% 5%
5%
64% 73%
68%
14%
10% 1%
6%
1%
39% 55%
58%
76%
72% 82%
65%
85%
14%
ASG BMC CA Compuware IBM
Total IBM Compuware CA BMC ASG
85% of Compuware’s products can be replaced by 4 major ISVs
76% of products can be replaced by IBM
Only 14% of IBM’s products can be replaced by Top 4 ISVs
**NOTE** Replaced products measured by cost
BIC utilize product alternatives to reduce software costs - Compuware has the greatest percentage (85%) of installed products which can be replaced – IBM has the least (14%)
65% of CA’s products can be
replaced
82% of BMC’s products can be
replaced 72% of ASG’s
products can be replaced
Market Share
IBM: 49.8% Compuware: 4.9% CA: 22.7% BMC: 6.0% ASG: 1.6%
68% of products can be replaced by CA
45% of products can be replaced by ASG
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Small Data Centers: 60% of installed products are available at a lower price
116
148
60
89
53 51
3239
0
20
40
60
80
100
120
140
160
Prod
ucts
Total Products Lower Cost Products Alternatives Lower Cost Alternatives
Product Pricing Summary1,000 - 5,000 MIPS
Best in ClassAverage
Best in Class have 29 fewer lower cost products
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124
235
64
103
38
60
2741
0
50
100
150
200
250
Prod
ucts
Total Products Lower Cost Products Alternatives Lower Cost Alternatives
Product Pricing Summary5,000 - 10,000 MIPS
Best in ClassAverage
Medium Data Centers: 44% of installed products are available at a lower price
Best in Class have 39 fewer lower cost products
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151
181
48
71
48 47
28 30
0
20
40
60
80
100
120
140
160
180
200
Prod
ucts
Total Products Lower Cost Products Alternatives Lower Cost Alternatives
Product Pricing Summarygreater than 10,000 MIPS
Best in ClassAverage
Large Data Centers: 39% of installed products are available at a lower price
Best in Class have 23 fewer lower cost products
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Agenda
• Introduction • Industry Trends • Best in Class Software Asset
Management – How good is best in class? – How did they get there? – How good can they get?
• Conclusion
software asset optimization
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$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
$18,000
$20,000
MIPS
Uni
t Cos
t
0
50
100
150
200
250
300
Prod
ucts
Products Average Unit Cost Best in Class unit cost
Growth in new products creates an opportunity for incremental savings thru an effective software portfolio optimization strategy
Larger data centers can realize larger savings.
BIC are approaching $600 (£375) per MIP
Best in Class data centers consistently pay less than half of an average data center
50 50,000 **Note** Best in Class represents 3 lowest cost data centers
1,000 5,000 10,000
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Best in Class software asset management focuses on optimization
Purc
hase
d
Inst
alle
d
Opt
imiz
ed
Traditional Software Asset Management • Ensures installed licenses have been purchased • Validates compliance for installed licenses • Tracks payments of licenses • Focuses on pricing of installed & purchased licenses
Best in Class Approach to Software Asset Management
• Establish the business requirements for each license
• Identify hardware requirement for licenses • Identify software requirement for license • Determine the optimal hardware and software
configuration to minimize deployed licenses and the lowest cost architecture
• Compliance is a natural byproduct of an optimized software environment
Savings $$$
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Networking & Communication
BIC create discrete IT infrastructure of hardware and software for each Business Unit or Application
Networking & Communications
Hardware
Software
Business Units Applications
Traditional IT Software Perspective manages software as an independent asset from hardware. Hardware is standardized across all business units and applications.
To minimize software TCO, software & hardware need to be managed as a single asset. Each asset supports either a business unit or application. Hardware standards may be unique to each business unit or application.
Software / Hardware
Software / Hardware
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When considering vendors to migrate to, IBM is consistently a lower cost alternative – CA is consistently more expensive
Price Difference in Migrating to another VendorComparison of Average and Best in Class Pricing
20%
-32%
10%
74%
-38%
113%
-12%
15%
-33%
-21%
-50%
-30%
-10%
10%
30%
50%
70%
90%
110%
130%
150%
ASG BMC CA Compuware IBM
Average Best in Class
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When managing software costs, BIC consider lower cost product alternatives to either migrate to, or as negotiation leverage with current vendor Best in class pricing from lowest cost alternative is 73%-95% lower than industry average pricing.
Product A Product B Product C Product D Total 1-1000 mips
Market Share 49.0% 24.5% 6.1% 20.4% 100.0% Avg Unit Cost $35.55 $34.87 $30.68 $19.99 BIC Unit Cost $8.81 $8.28 $30.68 $9.60
1000-5000 mips Market Share 22.2% 25.4% 12.7% 39.7% 100.0% Avg Unit Cost $15.32 $21.50 $11.96 $30.48 BIC Unit Cost $2.78 $2.50 $7.14 $10.30
>5000 mips Market Share 14.3% 30.2% 20.6% 34.9% 100.0% Avg Unit Cost $3.82 $11.13 $7.85 $18.18 BIC Unit Cost $1.64 $0.47 $0.79 $4.70
software asset optimization
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BIC drive savings from product mix, product deployment and product pricing
BIC understand the causes of its software costs and sources for savings Unit Cost Total Cost
Explanation of Variance from Best in ClassCurrent Cost 2,459$ 12,811,390$ Product Mix Variance 485 2,526,850 ISV Pricing Variance-Best in Class 165 859,650 Other ISV Pricing Variance-Best in Class 42 218,820 Product Count Variance 446 2,323,660 Redundant recommendations (130) (677,300) Best-in-Class 1,451$ 7,559,710$
Recommendations to Correct Variances What does this fix?Current Cost 2,459$ 12,811,390$ Product Migration-ISV 277 1,443,170$ Product Mix VarianceProduct Migration-IBM 123 640,830$ Product Mix VarianceProduct Migration-Other 49 255,290$ Product Mix VarianceDevelopment Isolation 160 833,600$ Pricing VarianceDB2 Isolation 168 875,280$ Pricing VarianceCA Negotation 165 859,650$ Pricing VarianceOther ISV Negotiation 42 218,820$ Pricing VarianceInternal Redundancy Elimination 19 98,990$ Product Count VarianceRedundant recommendations 5 26,050 Best-in-Class 1,451$ 7,559,710$
software asset optimization
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Agenda
• Introduction • Industry Trends • Best in Class Software Asset
Management – How good is best in class? – How did they get there? – How good can they get?
• Conclusion
software asset optimization
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Balance business needs, hardware standards and software cost reduction.
Hardware
Software Making hardware decisions without considering software costs WILL drive costs higher.
Software
Hardware
Making software decisions without considering hardware costs WILL drive costs higher.
Making balanced technology decisions while considering both hardware and software costs WILL drive costs down.
Software Hardware
Software Asset Management Best Practices involve………
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Software Asset Management practices at best in class data centers assume ….
1. Effective SAM starts with the deployment a. Processes are set up to track deployment & usage b. Database designed to ensure optimal deployment
2. Technical groups set up to regularly review and migrate to lowest TCO products
3. Inventory management is strategic 4. Hardware decisions are made after extensive software
cost analysis 5. Costs are managed by optimizing data center thru
product mix and product deployment 6. Unit cost
– Don’t be satisfied with industry average – Pursue $910 per MIP Best in Class status
software asset optimization
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Conclusions
• Software budgets continue to increase • Software unit costs are falling • Software industry is consolidating • IBM is growing its market share at the
expense of ISVs • Manage product inventory
– Eliminate – Migrate – Negotiate
• Follow Best Practices trends to reduce overall costs
software asset optimization
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SAS Base
SAS GRAPH
SAS ACCESS for DB2
SAS STAT
SAS CONNECT
SAS FSP
SAS ACCESS for IMS
SAS ETS
SAS AF
SAS Share
SAS Assist
SAS C Compiler
SAS QC
SAS EIT
Average Data Center
• License only SAS Base + 1-2 additional SAS products
• No excess functionality • Licensed at less than
full capacity • Pays between $3-$15
per MIPS • SAS represent 0.52%
of total software budget
• Licenses 5 SAS products • Unused functionality • Licensed at full capacity • Pays $149 per MIPS • SAS represent 3.6% of
total software budget
Best in Class Data Center
Best Practices Case Study - SAS
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Benchmarking – Utilize industry BIC software benchmarks
Price Assurance – Utilize available pricing tools to ensure you are paying industry best
in class rates Usage Analysis
– Ensure that unused products are eliminated and compliance issues are minimized
Deployment Analysis – Link product purchases to architecture and ensure that standards
are being followed Product Standardization
– Establish core set of products and functionalities to minimize software & labor costs and maximize client revenue
Data Center optimization – Maximize software savings by designing optimal hardware and
software configuration
Recommended Next Steps – Tools and Techniques
software asset optimization
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For further information please contact:
Michael Swanson President +1 612 850-4726 Email: [email protected]
Optimization thru Measurement