Software companies struggle with user compliance: KPMG

Illegal and unlicensed software installations continue to be a significant problem and source of revenue loss for software companies worldwide, according to a recent survey of software company executives conducted by KPMG LLP, the U.S. audit, tax and advisory firm. In fact, 55 % of the executives estimated their firm’s revenue loss at greater than 10 % of total revenue.

Overall, in the KPMG study, 87 % of the executives claimed revenue loss due to unlicensed users. What’s more, 77 % of those surveyed agree with IDC (International Data Corp.) estimates that 35 % of software installed is unlicensed, leading to an estimated $34bn in lost revenue to the industry.

The KPMG study found that 64 % of software publishing executives indicated that their companies have a program designed to ensure customer compliance with software license agreements. And 36 % said that they do not have compliance programs.

“Executives of software companies are struggling to find answers to combat unlicensed software use,” said Arpinder Singh, Executive Director KPMG in India. “Some firms are either not executing their compliance programs or need them analyzed or overhauled. Effective compliance programs do help firms recoup revenue and maintain strong customer relationships.”

In fact, 20 % of the KPMG survey takers say that their compliance programs deliver over five % of their ongoing software revenue streams, and 30 % say they derive between five and 10 % of annual revenue. Seven % of respondents indicate that these programs actually contribute 10 % or more to the top line.

When asked if compliance activities resulted in negative outcomes with customers, 94 % of survey takers indicated that customer loss is very rare or never occurs. And, 50 % of those surveyed said customer satisfaction is a key measure used to gauge compliance-program success.

“In India also the picture is quite grim as almost 50 % software is pirated. One of the major problems in India is the weak law enforcement and awareness. Though a number of companies have started software compliance programme but we still need to go a long way. Several leading practices were revealed through our survey that can be applied by software publishers to help recover lost revenues, strengthen software license controls, and improve business relationships with major institutional customers.” concludes Arpinder Singh.

According to KPMG’s survey, software companies could be doing a better job of helping their customers understand what they have purchased, and what types of usage their license agreements allow. Only 36 % make such information easily accessible by their customers, while 43 % say they share such information on a case-by-case basis. In addition, the information that is made available may not be as comprehensive as necessary. While 45 % say their entitlement information is comprehensive, 55 % say the data may provide only an average or limited level of understanding.

KPMG surveyed 50 executives from software publishing companies collectively represented almost 50 % of total industry revenue. Twenty-eight % of those who responded are with companies earning US$5bn or more in software revenues. In addition, 62 % are with companies earning more than $250 million. Additionally, KPMG interviewed executives at six prominent software companies to validate the survey findings, and identify software license compliance practices worthy of note.

The survey was conducted in cooperation with the International Business Software Manager’s Association (IBSMA), a trade group that represents enterprise-level software customers. The objectives were to detect the substantive issues underlying this enormous industry problem by surveying a valid cross-section of software publishers. The approach also focused on identifying better practices in license compliance, so the industry could learn from successful techniques being applied in the industry today.