Are used software licences an alternative to buying new ones?

Part 2 of the interview with Michael Vilain from Capefoxx is about available licences and aftersales services.

Microsoft justifies the new prices with continuous investments in new features and functions. This includes the core areas of communication and collaboration, security and compliance as well as AI and automation. In 2020, Microsoft would have released more than 300 new features in Teams. In addition, there are numerous new functions around the topic of IT security.

Companies find it difficult to buy used software licences for various reasons. One of the reasons is legal uncertainty. However, those who abide by the legal rules may buy used licences without hesitation. Behördenspiegel, a monthly national newspaper for the public sector in Germany, has published the 2nd edition of a compendium on the “Principles of Procurement of Second-Hand Software Licences by Public Contracting Authorities” only in 2021. At the beginning, Behördenspiegel quotes an ECJ press release: “A software producer cannot oppose the resale of its used licences enabling the use of its programs downloaded from the internet. The exclusive right to distribute a copy of a programme so licensed is exhausted with the first sale.”

In Part 1 of our interview with Michael Vilain, Director International Sales at Capefoxx, we already talked about the legal basis to buy and sell used software licences. The Swiss company is a provider of used licences, especially Microsoft licences. In the second part of the interview we will talk about the number of available licences, the after-sales service and Microsoft’s reaction to the market with used licences.

Whether you want to buy licences is one question. But you also have to buy licences in order to resell them. Why do companies sell their licences in the first place?

Michael Vilain: There are different reasons. Besides bankruptcy, it can be the change to another software provider. Then at least part of the new software can be paid for from the sale of the old licences. Or the IT department is being tidied up and you see that there are significantly more licences than current employees. In this case, selling the licences is a good way to buy new software versions for some of the employees.

What number of licences do you sell? Do you have enough if a company wants 2,000 licences of a software?

We are not brokers, so we do not buy licences in stock. We can supply a large number of licences and certainly 2,000 licences. Windows 2022 was released in December 2021. Then it’s clear that we don’t get used licences in March already. It takes 6 to 12 months to get the latest software versions. It can happen that it is quicker if a company goes bankrupt and licences can be made into money in the bankruptcy estate. However, experience shows that we are able to procure most of the licences requested by our customers within a reasonable period of time.

With volume licences, you usually buy a larger licence package, perhaps of several thousand licences. Do you have to sell them such packages as a whole or can you split the licences?

We can divide up such packages and sell them to several customers. There is a supreme court ruling on this in Germany from 2014. It says that you can divide the licences because it is not a framework agreement. So in the case of volume licences, we buy the right to use all the individual licences and not the conditions under which the contract was concluded at the time.

What about secondary use. In other words, the right to use a licence on several end devices: simultaneously on a PC, a laptop, a smartphone and a tablet. Is that also possible with a used licence?

This cannot be answered in general terms, as it depends on the specific right of use of a licence. We recommend that our customers analyse exactly what they need. Based on this, it is easy to calculate whether it makes sense to buy used Office 2016 licences or whether it has to be 2021 after all. Perhaps a hybrid solution makes sense. For heavy users who are on the road and use a laptop and tablet, Office 2021 might make sense. For other employees, a used licence is sufficient for installation on only one device. It’s like buying a big car. Do you really need it if you only drive it a few kilometres a week? Not necessarily. But if you want it because you simply have fun with it, then buy it.

What about the after-sales service, the support or the maintenance patches? Are these also included in the used licences?

If I buy a used licence, I also get the support and maintenance for as long as it was agreed in the licence. If such support contracts expire in the short term, buying the used licences also involves risks. For example, if there are no more security patches, this can be a gateway for hackers. But Office 2019, for example, still includes support until 2026. That is a period that can still be interesting for some companies. Upgrades, however, are not included. Otherwise, you could buy an ancient version and simply upgrade it to the latest version. Of course, that is not possible.

Some customers also deliberately look for the possibility of downgrading licences. What is meant by this?

There are companies that, for various reasons, only use a certain older version of a software. If they want to buy this version for new employees, they only get 2019 versions, which they then downgrade. Or they only need a very specific functionality, for example a data bang. Why should I buy the expensive, latest version if the service also runs with the old version? Why should I run everything just because Microsoft tells me to?

Why doesn’t Microsoft just put everything on the cloud? This would prevent the sale of old licences.

There is a lot of money at stake. Microsoft still makes 60 per cent of its revenue from perpetual licences. They are trying to bring their customers to the cloud and they are doing better and better. But there are still many companies that think it’s too expensive and don’t want to commit to Microsoft forever. Among other things, because they fear that Microsoft could raise prices at any time. If a company with 10,000 employees has to pay 25 per cent more for the cloud licence, that is very, very much money. What can a company do then? Little, because every company needs Office licences.

Are there companies that regret the move to the cloud in terms of Microsoft licences?

We do experience that some companies say: “I want to get out. How do I get out? How do I get back to my old licensing?” That’s why we built the hybrid model. This makes it possible to combine licences and save around 50 per cent of the costs that companies had with the pure cloud solution. We have a white paper that explains the concept in detail.

Why does the deal work with Microsoft licences, but apparently hardly with other software providers?

The law of the European Court of Justice applies to all software providers, so also to SAP, for example. We have customers who would like to sell such licences. But nobody really wants to buy them. That’s why this software business has never taken off, although we get many requests from sellers. Microsoft products are very horizontal products that are used in many industries. Other types of software are more specialised and require a lot of customisation, which makes it difficult to pass on to another customer.

But other software vendors have that too?

Many customers are also afraid of the power of Microsoft. Just as they are afraid of Google or Facebook or other IT companies that dominate the market. They fear that if they buy used licences, they will get into trouble with Microsoft. This is usually the first question potential customers ask us: What will Microsoft do if I sell my software. Our answer is: The European Court of Justice allows software to be sold. Nevertheless, about half of the customers say they don’t want to do that because they are afraid of Microsoft.

Who buys the used licences from you? The IT?

We appeal less to the IT of our customers. They’re more likely to want the latest, to talk about blockchain and artificial intelligence. We talk more to procurement and finance people because they are the ones who look at the money and say. They are more likely to question whether an expenditure makes sense and save the money for other important investments. Interest also depends on the sectors. Where money is not quite so loose, we are more likely to meet with interest with second-hand licences, for example in manufacturing, retail, healthcare or the public sector. In banks, insurance companies or in the pharmaceutical industry, money often does not play such a big role. Here people often just want the latest thing because it looks good.

More information about the advantages of used software can be found in this whitepaper