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.
This was first published in September 2005