Achieving Best in Class Software Savings through ... · Disparity in software costs by functional activity are dramatic. The variance is greatest with the largest categories and Database

software asset optimization

August 10, 2012

Achieving Best in Class

Software Savings through

Optimization not Negotiation


Copyright 2012, ISAM, Inc. All Rights Reserved

2

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



3

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.



4

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……



5

Agenda



• Conclusion



6

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



7

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



8

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



9

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



10

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

$20,000

$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%



11

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.



12

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.



13

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

$3,000

$3,500

$4,000

$4,500

$5,000

Financia

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Govern

ment/E

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Manufac

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Outsou

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Teleco

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Utility

Unit Cost



14

$-

$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



15

$-

$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

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Syst

ems

Data

base

and

File

Man

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Prod

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ools

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ode

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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



16

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.



17

9

1417

26

31

45

50

69

35

53

0

10

20

30

40

50

60

70

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



18

25 25 22 25 2822

3124 23

66 71

55

72

101

52

93

59 58

116

141

95

144

244

81

179

10496

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250

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mm

Transport

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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



19

Agenda



• Conclusion



20

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


Product Count

Best in ClassAverage



21

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


Vendor Count




22

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


Unit Cost




23

Agenda



• Conclusion



24

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?



25

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




26

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



27

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 Class have 29 fewer lower cost products



28

124

235

64

103

38

60

2741

0

50

100

150

200

250

Prod

ucts


Product Pricing Summary5,000 - 10,000 MIPS


Medium Data Centers: 44% of installed products are available at a lower price




29

151

181

48

71

48 47

28 30

0

20

40

60

80

100

120

140

160

180

200

Prod

ucts


Product Pricing Summarygreater than 10,000 MIPS


Large Data Centers: 39% of installed products are available at a lower price




30

Agenda



• Conclusion



31

$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



32

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 $$$



33

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



34

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



35

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



36

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$



37

Agenda



• Conclusion



38

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………



39

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



40

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



41

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



42

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



43

For further information please contact:

Michael Swanson President +1 612 850-4726 Email: [email protected]

Optimization thru Measurement

Documents

Achieving Best in Class Software Savings through ... · Disparity in software costs by functional activity are dramatic. The variance is greatest with the largest categories and Database