By Ryan Triplette, Executive Director, Coalition for Fair Software Licensing
Choice is not a privilege; it is essential. Choice provides individuals with the freedom to choose what is best for them and their organizations. What protects this freedom, and those who exercise it, is the assurance that retaliation is not an option.
When it comes to the selection of cloud providers, customers must have the freedom to choose the cloud services and products that meet their digital transformation needs. These choices are a cornerstone of their long term plans to innovate and expand in the digital economy. And their dismissal is a sign of a larger underlying threat to the industry – the abuse of customers by market dominant players. That is why the fifth principle of the Principles of Fair Software Licensing is “Freedom from Retaliation for Cloud Choices.”
Software vendors should not penalize or retaliate against customers who choose to use those vendors’ software on other providers’ cloud offerings.
Software customers should have the freedom to choose which cloud providers best serve their organization. According to a survey conducted by Morning Consult earlier this year, 89 percent of tech decision makers agree: companies should be able to run their on-premises software on the cloud of their choice. Yet many customers have faced retaliation from software vendors simply for utilizing other cloud providers. While retaliation can take on a number of forms, we want to focus on the use of punitive audits today.
Understanding punitive audits
A software audit is a review of a software program to ensure it is meeting quality standards and the scope of customer use. While auditing licenses are important to ensure compliance, they are also subject to abuse. Over the past several years, there have been a growing number of reports of the rise in software audits by legacy software providers not only to ensure compliance but as leverage in cloud negotiations.
These audits can take several forms or “flavors,” if you will. The most common form is the direct audit, in which a customer will receive a letter from their vendor noticing the intent to conduct an audit and giving customers a set amount of time to respond. More difficult to identify are “soft” or “stealth” audits that generally start out as one thing (such as a sales call) and quickly turn into something very different (namely, a threatened audit if the customer refuses the product pitch).
Regardless of the form, these audits are not about compliance. Rather, they are about driving up the vendor’s bottom line and sales numbers. They present customers with a simple choice: spend potentially millions of dollars undergoing an extensive audit or simply purchase vendors’ products for them to go away.
Even more troubling, these audits are generally conducted under non-disclosure agreements (NDAs). In addition to limiting choice, legacy software providers engaging in this behavior are limiting customers’ voices. Silencing customers prevents them from reporting this abuse – and allowing them to make public their experiences and warn other organizations.
Whether direct or stealth, these tactics are a cornerstone of some legacy providers’ cloud growth strategy. They are quite literally the “ABCs” – or “audit, bargain, cloud’ – for some sales teams.
Using the ABCs to take advantage of customers
Legacy software providers have long taken advantage of customers with unexpected audits. For example, Oracle has been accused of deploying predatory and unfair business practices against their customers, such as surprise audits to seek out significant licensing penalties. These are part of a larger effort to drive greater sales of their software products and unfairly restrict customers’ use of competing products. Customers have publicly described being “extorted” by Oracle during these audits, receiving demands to pay “potential use” licensing fees on servers where no related software is even installed and/or running.
These predatory practices have become so lucrative that they have given birth to what some have begun to call “software licensing trolls.” – the very ugly, though as yet less pervasive, step-cousin of patent trolls. What looks like aggressive auditing practices is actually much worse. As an article in Westlaw Today points out, “software license trolls are weaponizing the software audit process and squeezing millions out of unprepared targets.” We will explore the evolution of this business practice in a later blog post.
Customers, especially small businesses, are at a disadvantage and are often forced to capitulate to big legacy software companies
Unfortunately, these aggressive and predatory tactics often work. The threat of drawn out and expensive litigation with legacy providers causes fear among even the most well-equipped customers. Customers know any litigation will be resource-consuming, high-risk, and almost certainly a losing battle.
Companies will often try to resolve their audit, only to eventually give in to legacy provider’s unreasonable demands. To make matters worse, oftentimes customers must reconfigure their entire cloud environment to concede to legacy provider’s demands. If they don’t comply, they will face losing the benefits of their previous investments. Simply put, audits present customers with a lose-lose scenario.
The City of Denver has become a case study for this kind of retaliatory auditing. In 2016, Oracle pursued a large audit against Denver with only 3 days notice. The city ended up paying Oracle nearly $4 million after being initially threatened with a potential $10 million penalty for overuse. This audit was only brought to light as part of an investigative report authored by CBS News in coordination with Palisades Compliance. No doubt, there are thousands more audits ongoing at this moment in the dark, by nature of their very design.
Customers should prepare themselves
Predatory audits harm companies and stifle innovation. Customers should be able to make their own cloud choices without the threat of retaliation from legacy software companies. For now, though, customers need to take the steps necessary to prepare themselves against predatory audits.
The Coalition for Fair Software Licensing is pleased to enjoy the support of many experts who are specialists in navigating software licensing audits – experts who are as frustrated as we are with the threat that punitive licenses present. We are happy to connect customers facing threatened or actual audits with these experts given their alignment and support for the Principles of Fair Software Licensing.