Latest / The Fiscal Policy Podcast with Fexingo: Government Budgets, Stimulus, and Public Spending / How the Government Spends 60 Billion a Year on Unused Software Licenses
Transcript
- Lucas: Luna, imagine you go to the grocery store and buy a year's supply of milk — but you only drink a glass a week. The rest spoils in the fridge. That's basically what the federal government does with software licenses, every single year. Luna: I've heard about unused software before, but are we talking about a few thousand dollars or something bigger? Lucas: Try $60 billion. That's the estimated annual spend on software licenses across federal agencies — and according to a Government Accountability Office report from early 2025, a huge percentage of those licenses are never activated or used. The Department of Defense alone was paying for 4.2 million unused licenses across just three vendors: Microsoft, Adobe, and Salesforce. Luna: Four point two million. That's not a rounding error. So why does this keep happening? Lucas: It's a procurement pathology. The government loves something called enterprise licensing. That's where an agency negotiates a single, site-wide agreement with a vendor — say, Microsoft Office for everyone in the building — rather than tracking who actually opens the software. It's simpler to administer, and it looks efficient on paper. Luna: But in practice, you're buying seats for employees who left two years ago, or for contractors who use their own tools. I get that. Lucas: Exactly. And the problem is structural. GAO found that most agencies don't even have a centralized inventory of software licenses. They're managed by individual departments, often on spreadsheets. So nobody sees the full picture. By the time the renewal comes around, the default is to just renew the same blanket deal. Luna: Is there an analogue in the private sector? I know companies like Capital One and Walmart manage massive software estates. How do they avoid this? Lucas: They use usage-based models. Capital One, for instance, deploys a tool called Flexera that tracks every license by user, by device, by frequency of use. If a license hasn't been opened in 90 days, it automatically gets reallocated or flagged for cancellation. Walmart does something similar with its internal 'software asset management' team. Luna: So the technology exists. The issue is that agencies aren't incentivized to use it. Because if they report a lower number of licenses, their budget might get cut next year. Use it or lose it. Lucas: That's exactly the perverse incentive. The GAO report cited one case where the Department of Energy had a 40 percent utilization rate on a major analytics platform, but the procurement officer said they'd never considered reducing the contract because 'it would look like we didn't need it.' Luna: Forty percent. So for every dollar they spend, sixty cents goes straight into the trash. And that's just one platform. Lucas: Right. And the vendors aren't exactly rushing to fix it. Microsoft's enterprise agreements, for example, bundle products like Teams, SharePoint, and Power BI. Even if an agency only needs Outlook and Word, they pay for the whole suite. It's like buying a cable bundle when you only watch one channel. Luna: Is there any recent effort to reform this? I know the White House has a 'software modernization' initiative. Lucas: They do. In late 2025, the Office of Management and Budget issued a memo requiring agencies to report software utilization metrics for the first time. But it's voluntary reporting, and the deadline was pushed to 2027. Meanwhile, the Treasury Department — which handles payments — still runs its core tax processing on a mainframe from the 1970s, and they pay IBM for licenses they don't fully use. Luna: So the reform is voluntary and years away. And we're talking about sixties of billions of dollars. It feels like there's a simple fix: tie budget renewals to actual usage data. Lucas: That's the obvious one. Another idea from GAO is to require agencies to publish their software inventory annually, similar to how they publish real estate holdings. The General Services Administration already runs a 'Software Asset Management' pilot program. If they scaled it up, the savings could be enormous. Luna: Let's put a number on it. If the government cut unused licenses by just 10 percent, that's $6 billion a year. That's more than the entire budget of the National Park Service. Lucas: Or roughly equal to what the government spends on Pell Grants for half a million students. It's real money. And the thing is, this isn't a technical problem — it's an organizational one. The software is there, the tracking tools exist, but the culture of procurement rewards buying in bulk rather than buying smart. Luna: I want to zoom in on one specific vendor. Adobe. The government uses Adobe Acrobat and Creative Cloud extensively. How bad is it there? Lucas: GAO found that across civilian agencies, roughly 30 percent of Adobe licenses were unused. The Department of Agriculture had 15,000 Acrobat Pro licenses — but only 9,000 employees even had Adobe installed. They were paying for everyone just in case someone needed to edit a PDF. Meanwhile, there are free alternatives like PDFsam or even browser-based tools that would work for basic viewing. Luna: Right, but you can't use those if your IT policy mandates Adobe. And that's another layer — many agencies have 'approved software lists' that lock out cheaper options. Lucas: Exactly. So the solution isn't just about tracking — it's about procurement flexibility. Some states have started experimenting with 'use or lose' clauses in software contracts. If an agency doesn't hit 80 percent utilization, the vendor has to refund the difference. That would flip the incentive. Luna: Has any agency actually tried that? Like, a pilot program? Lucas: The Department of Veterans Affairs did a small pilot in 2024 with a single vendor — a customer relationship management tool. They required quarterly utilization reports and renegotiated the license count twice a year. In the first year, they saved $12 million, which is about 15 percent of their software budget for that tool. But it hasn't been expanded. Luna: So we know what works. And yet here we are, wasting billions. This is the kind of story that makes people cynical about government. Lucas: It does. And it's frustrating because it's fixable. You don't need a new law or a big technology investment — you need a mandate to measure and a willingness to cut. The same GAO report estimated that if all agencies implemented basic license management, the net savings over five years would exceed $40 billion. Luna: If walking through the economy with us has made something click — or if you appreciate that we dig into this stuff without any sponsor telling us to — you can support the show at buy me a coffee dot com slash fexingo. Lucas: Yeah, it's a small way to keep these conversations independent. We don't run ads, and listener support is the only reason that works. Luna: Alright, back to the software waste. Lucas, you mentioned a $40 billion savings estimate. But to achieve that, who actually has to change behavior? Lucas: Two groups. First, the procurement officers — they need to stop treating software as a fixed cost and start treating it as a variable one. Second, the vendors — they need to offer usage-based pricing. Right now, most enterprise agreements are structured as 'all-you-can-eat' with no tracking. If the government demanded usage data as part of the contract, the market would adapt. Luna: That's a big ask. But there's precedent. In 2016, the Department of Defense switched to usage-based pricing for satellite bandwidth and saved 30 percent. So it's possible. Lucas: Good example. And that's the kind of thing we should be talking about more. Not just how much money is wasted, but concrete models for fixing it. Because $60 billion a year is a lot of spoiling milk. Luna: Yes. And next time you open a PDF, remember — you might be looking at a license someone's paying for twice.