Software licensing is getting more complex as new
business models and technologies emerge. Danny Bradbury ventures
into the licensing maze
Even in the old days, software licensing was complicated. You
could choose from a per-user licence, a site licence or in some
cases concurrent licensing. Don't forget per-CPU pricing, too. Now,
suppliers are opening up even more options. Microsoft, for example,
launched a subscription-based model in 2002. And the introduction
of new technologies promises to increase the complexity.
In the public sector, people such as Colin Shand have been
contending with such developments for a while. Shand, head of
revenues and IT at East Lothian Council, says he regularly pays for
his software under a maintenance contract in which he receives
annual software updates, rather than buying the software outright
from the start.
Shand is particularly interested in the software-as-service
model, which enables him to rent software that is not located on
his premises. The Scottish Executive is providing a hosted
procurement system, which carries additional benefits for
Shand.
"You are back to fixed costs, you are paying fixed amounts for a
service. You do not have any of the ongoing maintenance overhead,"
he says. "You do not need the staff, the training, or any of that
kind of stuff. Operating a system, recovery and protecting against
crashes - everything is handed over to the provider."
As technology options increase, software-as-service and
subscription-based licensing are only the beginning for suppliers,
who are being forced to explore new ways of structuring their
software licensing policies. One technology development causing
particular headaches for suppliers has been the multi-core
processor. Faced with increasing limitations on processor speeds
and transistor sizes, chip manufacturers such as Intel have been
forced to put multiple processing cores on the same piece of
silicon, essentially creating two chips in one.
Given the tradition of charging for some server-based software
on a per-CPU basis, this has put suppliers in a quandary, says Ray
Titcombe, an IT manager in the education sector who heads user
group consortium the Strategic Supplier Relationships Group.
"Suppliers appear torn - they can see that one server with
multiple CPUs could replace a number of servers," he says. "Where
they had five licences yesterday, because someone replaces their
old servers with a single new one, they have to be aware that they
could have a shrinking market," he says.
This has created rifts in the market, particularly with Oracle.
Earlier in the year, the company had steadfastly refused to switch
its licensing policy from a per-core model, in which a dual-core
processor would incur twice the cost of a single-core chip. In
July, it finally capitulated - kind of.ÊIt now multiplies the
number of cores in a processor by .75, effectively treating each
core as three quarters of a chip.
This is still a long way from Microsoft's more customer-friendly
policy, in which it prices on a per-CPU, rather than a per-core,
basis. As companies such as Intel continue to push multi-core
development, we can expect to see even more cores on a processor,
which could exacerbate the difference between Oracle and Microsoft
in this respect.
Grid computing offers suppliers a similar dilemma. Grid
computing uses the power of many PCs to carry out computing tasks.
Traditionally used in technical computing, where tasks are complex,
it slices up calculations into individual chunks and then sends
them across the network to desktop PCs, which can process them when
they are idle.
If software is licensed on a per-CPU basis, a company that
previously paid for an individual server to process tasks could
theoretically find its costs increasing dramatically, says Gary
Tyreman, director of product management at grid computing software
supplier Platform Computing.
"The suppliers that we work with do not have a good answer for
that. The answer is that if you have 100 CPUs and you want to run
the software on all of them, technically you would have to go and
buy 100 licences," he says. "They are further down the path taken
by SAP or Siebel because distributed computing has grown up in the
technical market."
Software suppliers selling technical products such as microchip
design verification software are accustomed to licensing for large
compute nodes. Often, technical software will be run in a clustered
environment, spanning many different CPUs. Many technical software
suppliers will use a licensing system such as Macrovision's Flex,
which focuses on how many instances of a given software package are
running concurrently on the network, rather than which CPUs they
are running on. Think of it as a management system for a pool of
licences, says Tyreman.
This leads into the third area causing problems for suppliers.
Virtualisation technology essentially detaches the operating system
and application software from the underlying processor hardware.
Suddenly it becomes possible to run multiple operating systems on
the same processor, and also to partition multi-processor boxes so
that different operating systems can run on different chips within
the same server.
This also raises the possibility of moving operating systems and
applications around dynamically within computing infrastructures,
so that a server that is being used too heavily could unload
operating systems and applications, sending them across a
high-speed backplane or network to an underused server, which could
then pick up the slack.
EMC subsidiary VMWare has traditionally been the dominant player
in this area, but other systems are appearing. It is shaking up the
licensing world, says Peter Hindle, enterprise solutions program
manager at Hewlett-Packard. New technologies will continue to
introduce new challenges in licensing terms, he says. "But the
first ridge is this idea of virtualisation within organisations,
where they are shifting resources around internally and there is an
opportunity to reduce licence cost."
Microsoft, which sells its own virtualisation technology in the
form of Virtual Server, charges for logical instances of operating
systems on a per-processor basis. This ostensibly protects the
supplier's revenue, but customers have a potential advantage when
dynamically allocating the Windows operating system and
applications around the computing infrastructure, because it
enables them to maximise their resources and potentially buy fewer
operating system licences.
The future developments that Hindle hints at are actually
already here, but the uptake is likely to be slower than that for
virtualisation software.
Utility computing, in which companies pay only for the computing
power they use, is a key concept for Hewlett-Packard. The company
provides software that monitors an application's use of processors
within a server. An e-commerce company, for example, may want extra
processing power to cover its commitments during an unexpected
spike in demand on its web server. But if it only uses the extra
processors 10% of the time, it will not want to pay for them all of
the time. Utility computing is supposed to serve this need.
But, as with grid computing, not all suppliers are playing ball.
For example, Microsoft, which has proven progressive on multi-core
licensing issues, has been slower to move on utility computing.
"The idea of a pay-as-you-go licence has merit, but we have
found that most of the industry and our customers are not set up to
do pay-as-you-go at the desktop level, so we are not moving in that
direction quickly," says Sunny Charlebois, product manager for
Microsoft's Worldwide Licensing and Pricing Group.
Computer Associates may have found a solution to this gradual
separation of software from hardware. The company offers
Flexselect, a flexible software licensing scheme that enables
customers to work with the supplier to configure their own
licensing metrics. The idea, says Tony Martin, Computer Associates'
manager for UK and Ireland manager, is to charge in a way that is
meaningful to a company's business.
"If you are using a lot of our products within a big complex,
why should we make you stick to a standard licensing model?" he
asks.
In one recent example, Martin says an airline arranged with
Computer Associates to pay for its software according to the number
of passenger kilometres that it flew in a year. In another, rather
than paying for software on a per-user basis, a company offering
outsourced helpdesk services paid according to the number of calls
it dealt with.
Such initiatives are encouraging, but as Martin points out, it
is relatively easy to do this with Computer Associates' IBM
mainframe customer base, which numbers no more than 10,000
worldwide. Adopting closer licensing partnerships with medium-sized
companies may be more difficult, and there seems no immediate
solution to the complexity of licensing options currently
available.
The best thing for users to do is to make use of the array of
different licensing models, says the Titcombe. "If I had two ERP
players in front of me and one was offering a site licence and the
other was insisting on a per-seat licence, I would certainly try to
play one off against the other," he says.
Case study: Insurer goes for Linux
subscription
One way of avoiding licensing problems is to cut through the
whole tangled mess and use open source software that lets you pay
for services under a subscription model.
Matthias Strelow, project leader for Unix and PC infrastructure
at German insurance firm LVM Versicherungen, has a mixture of
operating systems including Microsoft Windows, commercial Unix and
Linux.
Strelow signed a deal with Red Hat to use the Enterprise Server
version of its Linux operating system. There are no licence
payments, just a subscription for the Red Hat network, which
enables Strelow to automatically update his Linux software with new
features and packages.
"The business model is completely different. If I go to
Microsoft I have to buy a licence. We come to the date where no
fixes are available any more, and Microsoft says Windows NT is not
supported any longer," he says, adding that this then requires him
to upgrade his software with a new licence. "Microsoft is the only
one I can get support from, because it has the source code. I am
forced to go the way the supplier takes me."
Conversely, if Strelow falls out with Red Hat, he can find
another company to support his distribution with updates and
maintenance, he points out.
Strelow runs Red Hat Linux on 50 servers, and pays a separate
subscription fee to the Red Hat network for each of them. He is
shortly to begin rolling it out across 8,500 desktops, but just as
licences for proprietary software are often negotiable for large
customers, so Red Hat cut him a deal on subscriptions to its
maintenance network.
"We said we had 8,500 desktops and invited them to make us an
offer. It has a list price and if you buy 8,500 of them then the
price is negotiable," Strelow says.