Computer Associates has decided to tear up its existing licensing strategy in a bid to win more e-business work.
The company realised that in order to sell more products and services to companies setting up Internet-based systems, it needed to offer flexible, risk-sharing or "outcome-based" pricing, where its licensing income is linked to how well the customer's e-business project does.
A recent example of this approach is an e-commerce site that CA developed and now hosts for shirt manufacturer Charles Tyrwhitt. CA charged a small fee up-front, but also takes a percentage of the shirt maker's Web-based turnover.
"Tyrwhitt have saved hundreds of thousands of dollars on traditional licence fees, but over the next few years, if they do well, CA will make more money than it would have done with a straightforward licence agreement," said Sean Larner, CA's senior vice president and general manager for strategic accounts.
Larner said he had spoken to a number of dotcom start-ups and blue chip companies in the UK that were interested in adopting a shared-risk licensing model for their e-business systems.
CA risks losing money on clients whose e-business systems flop, but Larner said that CA has a substantial revenue base to help it cope with customers that fail. He compared the new licensing model to venture capitalists who back a number of companies and only need a small proportion to do well in order to cover their losses and make a profit.
Larner said that CA would soon be able to meet customer demand for true Internet usage-based licensing, where a customer is charged for their software according to how many hits a Web site receives, or how many Internet-based transactions are processed.
"We are waiting for the hardware manufacturers to come up with the usage measurement capability," he said.
Larner said that IBM is poised to deliver this capability on its S/390 mainframes within three to six months.
Larner added that CA's innovative new "Millennium" licensing strategy, launched last year, had been a flop in the UK. The licensing model gave users of CA's mainframe software the opportunity to pay a large fee up-front to purchase software outright and thus avoid yearly maintenance charges, but it did not appeal to UK customers.