May 28, 2019 | Larry Goldman | Senior Director, Product Marketing
In April, we published the outstanding results of our 2019 annual Customer Satisfaction Survey and included additional questions on topics that resonated with our customers. One question asked, “Has your software publisher audit frequency changed since you transitioned to third-party support?”
We are pleased to report that 89% of responding customers reported that they were audited less or the same after switching to Spinnaker Support. 2% saw an audit increase, and the remaining 9% told us that it was too soon to tell if auditing levels had changed. A clear majority of organizations saw no adverse change in their audit frequency from Oracle and SAP – a result at odds with what the publishers told them prior to switchover.
Audits are Serious Business
Software license audits are an important way to keep users in compliance. Software companies want to ensure that businesses aren’t pirating software, exploiting single-user software, or infringing on copyrights, for example—all legitimate interests.
Vague language in many contracts and “soft” interpretations of licensing, however, make it easy for vendors to nail customers for non-compliance. We always recommend that our customers remain diligent in compliance efforts, and we provide license compliance assurance and audit defense services to assist their efforts.
What Triggers Audits
Software vendors don’t audit in random fashion. Audits can generate huge amounts of revenue for them. If you’re being audited, it’s often because they think there’s money on the table.
As a tool to dissuade customers from leaving their lucrative support revenue stream, both Oracle and SAP are known to use the threat of audits. As defined in contracts, audits have a stated purpose – primarily, to protect the intellectual property of publishers from unfair use. They also have the unstated goal of guarding and extending license revenue. Given the increasingly competitive markets for ERP and CRM, it’s not a surprise when audit advisory firms report that audits are on the rise.
As for what triggers a software audit, an April Gartner research report on Oracle audits points to multiple issues including virtualization and a lack of Unlimited License Agreement (ULA) renewal. Oracle is carefully watching the activities of its customers, and we believe it’s safer to try and remain continuously compliant.
A lack of sales growth due to a lost RFP, a reduction in license spend, a refusal to move to the cloud, or a public announcement such as a merger or acquisition will most likely grab the attention of Oracle and SAP and could trigger an audit. Moving to third-party support is lower on the list of triggers, but it can still be a flag for Oracle and SAP.
Reconciling the Perception and Reality of Audits
Combining what we know of audit triggers with what we’re hearing from our customers, we can say with some confidence that companies who are considering annual third-party software support need not fear the kind of retribution hinted at (or openly discussed) in meetings with account managers.
Of far more concern to organizations should be their due diligence on the quality of the third-party service, the simplicity of the migration process, the security practices of the vendor, and the vendor’s overall reputation in the market.
As for audits, they appear to be the price of doing business, no matter who provides your support and managed services. Today, more than two-thirds of businesses receive at least one audit request each year, according to Gartner, and some organizations report that they’ve been audited by as many as four different vendors in the same twelve-month period.
We always recommend working with your internal team or an advisory firm to be as ready as you can for when they do occur. Know your licenses and products, have a strong asset management process in place, and nurture the relationship with your Oracle and SAP account manager so that they understand your business strategy and are not surprised (or angered) by changes in your roadmap. Friends don’t audit friends.
A strong offense is always your best defense against audits. When you’re well prepared for an eventual audit, then the threat of an audit is minimized. The decision to choose third-party support will be based on your own roadmap and needs, not the revenue priorities of Oracle and SAP.