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Software: new licences, more complexity

The shift towards subscription-based software licences by IBM and Computer Associates could mean all corporate IT users will have more opportunities, but also more complexity to deal with

While the promise that the internet will revolutionise everything related to IT has spewed from the mouths of computer sales staff for years, very little has changed in the purchasing of business computing.

Microsoft, Oracle and other mainstream suppliers have clung tenaciously to the software licensing model on which they made their fortunes.

However, this is beginning to change. Software giants IBM and Computer Associates have recently announced the introduction of subscription-based software licences. In IBM's case, companies will pay for software and hardware on a per-seat subscription basis that will even include software from suppliers other than IBM.

In a similar move, Computer Associates, a supplier of systems management software, will also offer subscription-based licensing. The company said it will allow users to determine the length and value of their software licence and vary the software mix as business and technology needs change.

Many IT managers will welcome the demise of the rigid client access licence, which makes companies buy software based on the number of users that could access the software, no matter how infrequently they use it.

Robin Bloor, CEO of Bloor Research, believes that subscription or rented software will have a huge impact on IT purchasing in the coming years. “Most IT directors now realise that IT financing brings benefits that go beyond cash management. Particularly important is its contribution to reducing the risk of technology obsolescence and improving the flexibility to increase or even reduce IT capacity,” he said.

Senior IT professionals are likely to see rapid growth in the variety of software licensing models. Even Microsoft, which once clung resolutely to PC-based client access licences, now allows users to rent software.

Although not yet applicable to business users, Microsoft is currently offering customers in EasyEverything Internet café’s access to its latest applications on a pay-as-you-go basis. If applied to business users, this could amount to a radical shake-up of software purchasing.

However, although new licensing models could offer more flexibility in the short term, there may be dangers lurking in these new licensing contracts.

Many software suppliers are not getting the financial results their shareholders expect, so they are anxious to increase revenue wherever they can. Analysts fear these increases could be hidden in new licensing systems.

Ovum senior analyst Graham Titterington said: “Suppliers are getting keener on the renting or subscription model because it gives them more secure revenue streams. They also believe it will make them more competitive and win them new customers. But undoubtedly there is a motivation to entice customers into paying more.”

According to Titterington, software licensing is shaking out into three main systems. “There is the ‘buy once and pay an annual maintenance fee’; the rental model, which is growing in popularity; and a shared-revenue model, which is largely targeted at application service providers,” he said.

But if maintenance fees are high, the difference between the models may not be great. “One-off purchase plus maintenance may not end up being that different from renting,” said Titterington.

Before jumping into a new agreement with a software supplier, Titterington advises companies to take a close look at their own overall business plans. “Users should look at each individual situation. For cheaper applications, rental is not likely to be attractive. The bureaucracy involved would be too much,” he said.

“On the other hand, for expensive software it may be worth it, particularly in e-business, where there may be a better product coming onto the market in a year or so. It also depends on the financial style of your organisation – whether you are asset-rich or like to lease a lot of items generally.”

Whatever happens, Titterington does not believe there will be an end to the complexity of managing enterprise software licences as new models become available. “If anything, the situation will get worse,” he said.

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