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The next wave of software licensing arrives

Users are fed up with the way vendors sell them software. How upset are they? A recent survey by software management provider Macrovision found that only 28% of organisations surveyed were satisfied with their vendor’s pricing and licensing strategy.

That means the door is open to a number of alternative, emerging models, notably subscription and per-use schemes. Meanwhile, changes in where and how software runs — including SaaS (software as a service), virtualisation and multicore processors — are accelerating the rate of change.

Take SaaS, for example. Typically, SaaS has a per-seat, per-month scheme that averts the up-front costs incurred by conventional licensing. That low cost of entry — reduced even further by the lack of hardware and installation costs — is clearly a key reason why, according to a recent Aberdeen Group study, more than half of companies surveyed were either using SaaS or actively exploring its use.

Other areas, such as virtualisation, have yet to decide on a consistent licensing model. The main purpose of virtualisation is to run multiple sessions — and/or multiple operating systems — on one machine, so as to vastly increase server utilisation. But most of that advantage could be blown if traditional per-machine or per-processor licensing were applied, which is why both vendors and users are struggling to find a sensible answer.

Adding to the complexity is that big customers are enjoying the fruits of new licensing models that are favourable to them before anyone else. Many vendors are dragging their feet in introducing such schemes to the wider world for fear of disrupting predictable licensing revenue streams, which themselves have been shaken by a tough enterprise software market.

“Software companies can’t afford to change their licensing models too quickly for fear of them affecting revenues,” says Alvin Park, research vice president at Gartner. “They know they’ll eventually have to go to utility pricing, but they don’t want to cannibalise revenues from other models.”

But change they must if they want to retain their increasingly cranky customers.

Organisations are under the gun to improve productivity as IT budgets shrink, and that means they need to cut costs or squeeze more out of their IT dollars. These emerging models, even with some details still to be worked out, offer an opportunity to do just that.

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Virtualisation dead-ahead

Amy Konary, programme director of software licensing at IDC, thinks IBM and other vendors are also using these first runs at multicore licensing to position themselves for virtualisation — and perhaps even to tie them together somehow.

“Vendors want to avoid doing things with virtualisation that they will have to undo once multicore comes into play,” Konary says, although how or even if that will happen will take time to work out.

And virtualisation will become an issue soon, as it moves out of the test and development phase and into production environments. Lechner says 54% of IBM’s customers plan to start applying virtualisation this year.

Forrester Research believes new licensing models based around virtualisation will be introduced by vendors — and will be accepted by large enterprises — by the end of 2008.

Tim Grieser, vice president of system management software at IDC, sees two approaches as the favourites for how virtualisation licensing will eventually be decided: either a base licence price based on some average of virtual machine images a user decides to employ, or a tiered per-server hardware price that doesn’t take virtualisation into account.

Whichever way this goes, Grieser says, users are adamant they don’t want to be charged more for virtualised versus non-virtualised environments.

That’s certainly the view of Nicholas Tang, director of operations at Community Connect, which builds community websites for ethnic audiences. He’s using virtualisation to build out a cost-effective infrastructure to handle the demands of the company’s 22 million users.

“Software vendors are telling us we will have to pay a licence for every single virtual machine, but, if I am still using the same [physical] machine as before why should I do that?” Tang asks. “Vendors are trying to take a free ride with virtualisation, and they can’t do that.”

In the end, all virtualisation does is give users a cleaner interface and a standard, segmented way to do what people have done before. “That’s why we pay for the virtualisation software,” Tang says. “But I don’t see why we should also pay more for other software.”

Some software companies are trying to bridge the differences. Microsoft, for example, announced a scheme late last year based on licensing for virtual machines, but which it claims more closely matches the actual demand of its customers.

It uses what Microsoft calls a “running instance”, where an instance refers to a virtual image, installation, and/or copy of the original software. Instead of users having to pay for a licence for every stored instance of a software product, they can create and store an unlimited number of instances but only pay for those they use at any given time.

“Our customers tell us that what they want [with licensing] is predictability and no surprises,” says Sunny Jensen Charlebois, senior product manager of worldwide licensing and pricing at Microsoft. “They also want an idea of how these emerging trends might affect their business. It’s hard to find customers currently using virtualisation, frankly, but we felt we had to come out with this now.”

There should be areas for a reasonable compromise between what vendors and users are looking for, Community Connect’s Tang says. He would pay more for the support and features that helped him get more out of his virtualised environment, for example, “But I can’t see us paying for every virtual machine,” he says.

“It will take a while to sort this out, maybe as long as a year or two, and I’m sure some people will end up paying for licences that way,” Tang says. “But they’ll have to worry about someone like me who won’t.”

Read the entire article, here.

Published Monday, October 30, 2006 6:25 AM by David Marshall
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