When software can be a licence to lose money

Rented software has many attractions. Costs are minimal, the complexity of choosing is gone and maintenance is taken out of users' hands. However, a myriad of licensing issues is now being uncovered, which could catch out some vendors posing as application service providers (ASPs), as they find they are not licensed to rent a particular software program. Mean- while, users may discover that they are unwittingly infringing copyright laws.

Rented software has many attractions. Costs are minimal, the complexity of choosing is gone and maintenance is taken out of users' hands. However, a myriad of licensing issues is now being uncovered, which could catch out some vendors posing as application service providers (ASPs), as they find they are not licensed to rent a particular software program. Mean- while, users may discover that they are unwittingly infringing copyright laws.

It was forecast a year ago that ASPs would be the next big thing. That hasn't happened yet, but they are making their presence felt. Analysts at the Giga Group, for example, believe the ASP market will be worth $3.6bn (£2.6bn) in 2001.

But there is still no clear idea of which ASPs are likely to succeed. If, as predicted by research firm Gartner, 60 per cent of vendors offering ASP solutions today are offering different services by 2001, many customers will find that their licensing contract has changed or their provider no longer exists.

With ASP models still emerging, companies need to be even more vigilant over licence contracts. With the web taking over as the preferred delivery method, and free services such as hotmail.com and salesforce.com being construed as ASP services, licensing is becoming a quagmire.

To cover any eventuality, some larger companies have thrown away as much as £4m a year on superfluous licensing, according to Corporate Software & Technology, a software asset management vendor. It developed a licence calculator last year for companies to work out what the costs are likely to be and plug into relevant discounts.

Lawrence Westwood, head of copyright protection and legal services at the Federation Against Software Theft (Fast), says: "Customers must protect themselves and check with the publisher of the software that the ASP provider has the appropriate licences. Diligence is vital as there's always a risk."

He adds: "Companies must choose a company that will be around in the future, and they must make sure they understand the liabilities, so that if a server goes down or a connection doesn't work, this should be detailed in the contract."

Fast believes that companies should check the potential ASP agreement with lawyers to ensure copyright breaches will be kept to a minimum.

It suggests a number of ways to minimise licensing pitfalls, but maintains it is a company's responsibility to check the ASP provider is legally licensed to sell a certain product. Mr Westwood also suggests that the more a company relies on various ASP agreements, the more it needs to keep track of software ownership. Data protection can also become a legal issue, and companies asking ASPs to process data should ensure they have the appropriate registration. If data is exported out of the EU by the ASP, it could be in breach of data-protection legislation, according to Fast.

In the immediate future, ASP agreements could come to resemble the mobile phone market, with ASPs offering a "free try before you buy". Users will have a fixed rental fee per month and charges will be based on usage, like a mobile. Even then, companies will still need to monitor their ASP as discrepancies could occur between how an ASP rents and charges for the use of the software and the company's actual usage.

Despite Fast's endeavours to enlighten UK plcs, its second annual software survey revealed that senior management was not taking the issue seriously.

Fast discovered that only 21 per cent of organisations had a board member responsible for managing software licensing, a fall of 9 per cent from 1999.

Meanwhile, 61 per cent of respondents believed that their company had a high risk of failing to stay within the terms of their licensing agreement, yet only 38 per cent had a written software management policy.

For more information see fast.org.uk