In the never-ending game of bigger fish eating smaller ones, Broadcom recently announced its intention to acquire VMware for US$61 billion in one of the largest tech deals of all time. You may be familiar with Broadcom as a chip manufacturer, but the company is tripling down on its commitment to the software business. This shift in focus began in a major way with its 2018 acquisition of CA Technologies for US$19 billion and 2019 purchase of Symantec for around US$11 billion.
Emulating strategies employed by enterprise software solution providers such as IBM and Oracle, Broadcom’s expansion of its software portfolio enables further cross-selling and margin expansion of products that corporate IT departments find challenging to swap out. Once a vendor has a significant presence in an organization’s data center or technology stack, the vendor can leverage that to compel the purchase of additional products or force significant price increases at licensing renewal.
It is commonplace for acquisitions to trigger a new round of license audits as acquirers are eager to better understand their client base and accelerate value realization. Insurers that have failed to manage their software license may be at risk of adverse licensing audit results. Non-compliance provides insurers with a Faustian choice: pay the penalties or buy additional licenses.
Technology audits are difficult to manage as each vendor measures “usage” differently; they may also have multiple metrics for each product. A midsized IT organization may be dealing with over 100 different licensing metrics. Furthermore, certain usage metrics may be difficult to measure, and the software license monitoring solution provided by the vendor may be sensitive to improper installations.
A number of tactics can be taken to optimize audit outcomes. These include:
- Proactive management of the auditor
- Building a cross-functional team to understand entitlements and usage
- Scrutinizing audit results
- Proposing win-win alternatives to the software vendor
Technology vendors have every right to be compensated for the usage of their products. Given technology’s nature, product usage can proliferate within an organization without the knowledge of the vendor or the carrier’s IT or procurement organizations. Audits are a means to capture this information and charge the carrier appropriately.
Broadcom’s VMware acquisition is likely to trigger a wave of licensing audits. These audits are disruptive, and they consume time and money. Taking proactive action to minimize these events is appropriate. Insurer IT organizations who have scrutinized their auditors’ initial findings have been able to reduce the ultimate cost by as much as 90%. As they say, “Knowledge is power,” and this may be truer in technology licensing audits than anywhere else.