Software licensing and SaaS
Understand and optimize the impact of software licensing and Software as a Service (SaaS) investments on your organization's cloud cost structure and business value. This requires understanding the licensing terms, usage rights, and pricing options of specific vendors. Careful usage planning is necessary to minimize over-deployment, which creates compliance risks, and under-deployment, which leads to idle applications and waste. Collaboration with your finance, procurement, and legal teams is essential.
Understand software licensing and SaaS pricing and procurement
Understand how to purchase through organizational agreements, including vendor management, contract terms, renewal policies, secondary billing metrics, and price adjustment parameters.
Understand Bring Your Own License (BYOL) entitlements and software license management considerations in the cloud. These considerations include matching the needs of specific cloud services, requirements for using vendor-specific metering tools, and compliance issues related to overusing or underusing license entitlements.
Understand perpetual software licensing versus service-based licensing options and their impacts.
Understand how to purchase software licenses and SaaS products in the Alibaba Cloud Marketplace.
Understand the use of software licensing and SaaS in the cloud
Define how to tag and allocate the costs of software licenses and SaaS products, regardless of whether they appear in cloud billing data.
Collect software license information, including billing data from cloud service providers and other software or SaaS providers. Ideally, you should collect this data in the FinOps Open Cost and Usage Specification (FOCUS) format.
Use software license servers or services.
Manage the use of software licensing and SaaS
Compare Infrastructure as a Service (IaaS) or cloud service options with software licensing, Platform as a Service (PaaS), or SaaS options.
Weigh the software license, SaaS, and IaaS models. When making decisions, consider that most software licenses and SaaS products require long-term commitments.
Understand when to communicate and collaborate with the IT Asset Management (ITAM) or Software Asset Management (SAM) teams in your organization.
Definition
FinOps helps organizations manage the pay-as-you-go services common in cloud platforms, including public and Apsara Stack clouds. In addition to IaaS cloud services, most organizations also use licensed software and SaaS in the cloud. This is more common in organizations that migrate to the cloud from long-established on-premises data centers.
Software licenses can be used for operating systems, individual software components of applications, databases, or even platform software. SaaS solutions can provide managed enterprise applications, such as customer relationship management (CRM), databases, messaging platforms, or data warehouses. SaaS solutions can also be used to deploy, monitor, analyze, and secure your organization. In some organizations, the cost and scale of SaaS or software licenses can be significant. Because of their large impact on business value, they can become a key focus area for the FinOps team.
Although the billing data for SaaS or software license usage is often less detailed, granular, or voluminous, their use is still typically variable and based on usage. The billing data might be included in the cloud bill, or it might need to be obtained separately from the software publisher or vendor, depending on how these products are purchased. SaaS products and software licenses are often used as alternatives to IaaS cloud services. Therefore, the FinOps team should clearly understand how they are used, how to quantify their value, and how to manage their use effectively.
It is crucial to understand how your organization buys software licenses and SaaS products. You must involve procurement staff, who are typically responsible for purchasing licenses and software on behalf of the organization. If your organization has an ITAM or SAM function or team, you must collaborate with them. You need to share information about the usage of externally purchased licenses and software, coordinate plans for using or discontinuing these services, and evaluate and manage the risks associated with contract terms.
Like cloud contracts, software and SaaS licenses often include variable cost elements. They are charged per seat, user, core, amount of storage, or other billing mechanisms. In addition to these primary charges, there may be secondary billing items, such as the number of accesses, API usage, or data stored. This adds more cost data and billing complexity. Unlike most public cloud services, software license and SaaS contracts are often for multi-year or perpetual license entitlements. They typically allow for "true-ups," which let an organization increase the number of licenses purchased, but not "true-downs." Also, not all licensors have real-time visibility into the number of licenses their customers are using. Because of this, they may require audits and compliance checks. Penalties can be imposed if the number of licenses used exceeds the number permitted. In addition, software vendors often have complex and rapidly changing rules. These rules govern the conditions and ways their licenses can be used in the cloud versus in a customer's own data center (for example, BYOL). The ITAM, procurement, and legal teams can effectively help the FinOps team understand which contracts have been signed, what the terms are, and for which cloud assets these options can be considered.
Software licenses and SaaS products can be purchased in several ways. When purchased as part of an organizational agreement, they typically specify a certain number of users or processor cores. Customers can install this software in their own cloud environments, subject to the vendor's restrictions. For licensed operating systems or databases, the cloud service provider might include the license cost in certain versions of the cloud resources they offer, charging by the minute. In other cases, the software license is more expensive than the virtual resources required to run it. Discounts applicable to these resources, such as savings plans, committed use discounts, or reserved instance discounts, do not necessarily cover the license cost. An increasing number of software licenses and SaaS products can be purchased through the Alibaba Cloud Marketplace. The Alibaba Cloud Marketplace can provide more on-demand purchasing options. It lets organizations buy licenses for specific purposes and stop paying when they are no longer needed. This avoids having to buy perpetual licenses with multi-year support commitments. However, the terms of these Alibaba Cloud Marketplace purchases may differ from the terms your organization uses. Also, if your organization already has the right to use a specific software in the cloud (such as with BYOL), buying a duplicate through the Alibaba Cloud Marketplace can be wasteful.
Collaboration with the procurement department and ITAM team enables the FinOps team to provide the best guidance to engineering and product teams on how to purchase and use required software licenses. In addition, the FinOps team can plan to adjust the procurement of existing software licenses or SaaS services based on business value. Unlike the public cloud, most software license and SaaS procurement agreements cannot be changed quickly. Some may even take years to adjust or terminate. Therefore, detailed advance planning with members of the procurement and ITAM teams is essential to ensure that changes can be implemented smoothly.
Maturity assessment
Crawl
Software licenses and SaaS products are billed separately. Complex cost sharing or allocation is not included in cost showback reports.
There is a basic understanding of the software licenses used in the cloud environment. The related use cases, types, and terms are relatively simple.
You understand which SaaS products integrate with your applications and infrastructure, or provide deployment, monitoring, analytics, or security capabilities.
Key contacts in procurement, Financial Planning and Analysis (FP&A)/Technology Business Management (TBM), information security, and SAM teams are identified. There is a basic understanding of the process for acquiring licenses and software.
Existing tools or reports for tracking software assets are identified, or the need for such tools is minimal.
You understand how overage fees are charged when consumption exceeds agreed-upon contract thresholds or when costs increase or decrease due to tiered pricing models.
Walk
Billing data for software licenses and SaaS products is available in FOCUS format. This allows for showback and reporting that includes license/SaaS spending from the Alibaba Cloud Marketplace or subscriptions to support more complex cost sharing and allocation.
BYOL or other complex use cases exist and require review and analysis.
For more mature software license and SaaS usage, the FinOps team is consulted at renewal time to enable data-driven decisions.
When creating, migrating, or upgrading workloads in the cloud that require software licenses, the ITAM/SAM team collaborates on the assessment.
FinOps is involved in the approval process for purchasing new software licenses or SaaS products from third parties other than the cloud service provider. FinOps is also involved when software licenses based on previous data center system designs and architectures need adjustment.
Forecasts are updated to include software costs to reflect the total cost of services and applications.
Software licenses and SaaS products are procured through various channels and require tracking. The dynamic increases or decreases in license usage are managed.
For pay-as-you-go software, actual usage is monitored and compared against the total contract amount. Overage fees are incurred when thresholds are exceeded.
Run
The costs of software licenses and SaaS products are dynamically included in showback and chargeback reports using the FOCUS format.
Software licenses and SaaS products are procured through other means, such as the Alibaba Cloud Marketplace, direct purchases, or value-added resellers, based on complex terms.
Automation is used whenever possible to retrieve billing data from software vendors.
The FinOps team collaborates with other functional teams, such as engineering, ITAM/SAM, and procurement, to perform usage analysis and fully identify optimization opportunities before the next renewal of each software product.
After optimizations are complete, future contracts are forecasted and estimated.
Total Cost of Ownership (TCO) showback reports include software spending.
The FinOps and SAM teams use the same tools and data sources to obtain software contract details, usage, and spending.
Functional activities
FinOps practitioner
Identify which cloud resources use billable software licenses or licenses purchased from the Alibaba Cloud Marketplace.
Understand which SaaS products integrate with my cloud applications and infrastructure, or provide deployment, monitoring, analytics, or security capabilities.
Identify which cloud resources are configured or can be configured for BYOL.
Participate in reviews and discussions for new or migrated workloads that require licenses or SaaS integration.
Understand the use cases, contracts, channels, and related restrictions for currently used software licenses and SaaS.
Build models to understand and communicate the value of various trade-offs between different software architectures, license usage, license alternatives, and application modernization.
Product
As a product owner, I will...
Use the information on licensing and SaaS provided by FinOps and SAM to help determine the total cost of a resource or resource group.
Pay attention to licensing and SaaS when designing new products or features, and ensure they are included along with cloud costs.
Understand and communicate long-term plans and trade-offs for software license usage.
Finance
As a finance professional, I will...
Include software license and SaaS costs in planning and forecasting.
Procurement
As a procurement professional, I will...
Collaborate with engineering, FinOps, and finance departments when purchasing through the Alibaba Cloud Marketplace, negotiating private purchase contracts, or working with resellers to understand the needs, costs, and potential usage throughout the contract term.
Review all available software license and SaaS purchasing options and how these options affect the spending thresholds set in the cloud service provider's enterprise agreement.
Engineering
As an engineer, I will...
Consider existing or BYOL software licenses and SaaS when building new cloud infrastructure or software.
Tag resource metadata to easily identify resources that are eligible for BYOL.
Communicate with the FinOps and SAM teams when a software license is no longer needed or when there is a plan to terminate a SaaS contract.
Collaborate with the FinOps and SAM teams to determine if changes to existing workloads will affect software license or SaaS usage.
Collaborate with the FinOps and SAM teams to ensure that cloud resources are reviewed and optimized before license or contract renewals.
Management
As a manager, I will...
Establish a needs review process for software licenses or SaaS to ensure teams do not purchase duplicate products.
Ensure the organization can weigh the best value and make decisions when selecting a model for deploying software to support business functions.
ITAM
As a related role, I will...
Provide summary information on unallocated or mixed-use entitlements, including budget and ownership information, so the FinOps team can optimize cloud service spending.
Use the information provided by the FinOps team to track and manage the software license status of cloud resources.
Manage software license renewals, optimize licenses that have been migrated to the cloud, and maximize the use of BYOL when it is more economical than Alibaba Cloud Marketplace software.
Use the Alibaba Cloud Marketplace software procurement information provided by FinOps practitioners and compare it with existing entitlements.
Success metrics and KPIs
Software license and SaaS costs are clearly visible and reported.
Software licenses purchased through the Alibaba Cloud Marketplace are fully utilized.
Resources that require software licenses are compliant.
Inputs and outputs
Billing and usage data from the cloud service provider.
Software license data from SAM/ITAM tools.
SaaS contract details.
Cloud-oriented architectural designs to adjust the use of software licenses and SaaS products over time.
Alibaba Cloud Marketplace data that is acquired and tagged using the Data ingestion capability.
Data from software license servers or license tracking services in use.
Identification of BYOL usage in cloud billing data through tagging or other means to distinguish it from licensed cloud resources. BYOL refers to running customer-installed software or operating systems on virtual resources that are sold by the cloud service provider without a bundled license.