Strategic changes could end the software licensing nightmare

Software licensing has traditionally been one of the biggest headaches that IT managers face. But are recent strategic changes by...

Software licensing has traditionally been one of the biggest headaches that IT managers face. But are recent strategic changes by IBM and Microsoft likely to ease the pain?

Every IT department has its own personal software licensing nightmare: client access, concurrent users, processor or capacity based; rented or subscription, across multiple platforms.

But the advent of the Internet is making the question of who actually uses software ever more complicated to figure out. So a major change in the way software is sold is on the horizon, the first steps of which come in recent moves from the two biggest software companies in the world.

Both IBM's move towards Workload Licence Charge (WLC) on its z900 servers, and Microsoft's trial of a subscription model for Office 10, are attempts to meet this user need for more transparent software pricing. Indeed, Big Blue maintains that by running WLC on z900 and its z/OS, users pay only for the software capacity they need, as opposed to the current approach, which is based on system capacity.

For IT managers, identifying individual software costs is fast becoming akin to the Holy Grail. "The real problem these days is how the software manufacturers are defining the way they price, whether it is by seat, processor or active user," said IBM CUA mid-range controller Stephen Way. "For example, it is often very difficult to tell who the active user is."

Evidently, there is a pressing need for both hardware and software suppliers to tie software pricing into users' realistic requirements.

This is why the potential user implications of WLC are enormous. With businesses hankering after a more representative pricing structure for some time, IBM argues that WLC will let businesses deal more effectively with fluctuating demands in usage. Indeed, Gartner suggests that users moving to the new mainframe and operating system could potentially save more than £168,000 a year in software licensing charges. But what about existing software contracts?

Roy Hunt from IBM's software business recently guaranteed that existing IBM contracts would not need to be renegotiated if a customer implements the new z/OS operating system on z900 architecture processors.

He also gave a commitment that users moving to the new WLC pricing structure would be charged no more for their S/390 software than if they were running the same software on equal capacity IBM G6 processors under currently available pricing.

In addition, if an IBM contract prevented the benefits from WLC pricing to flow as quickly as the customer would prefer, IBM would consider requests from customers to re-price their existing contracts, Hunt said.

This may sound like a win-win situation for all concerned, but Phil Payne, analyst at Isham Research, is more cautious.

"At the very best this is a neutral-neutral situation, it is a tacit admission that prices will be higher," he said. "I've not yet heard of a z900 software model that is cheaper than the corresponding S/390 one, most analyses show an increase of between 5% and 13% for the same size of system. IBM has had to introduce an artificial 'cap' because so many individual prices have gone up."

Although IBM announced its strategy last month the actual WLC is dependent on running z/OS and a Licence Manager product, with the latter not available until late in 2001. With the full benefits of the new pricing model at least a year away, users have plenty of time to work out where they stand with regard to both IBM and their thirdparty software suppliers. This, however, is not an excuse for users to stick their heads in the sand.

The fact that only a handful of software companies recently questioned by Computer Weekly could clearly state their position with regard to users moving from S/390 to z900 suggests that there is still a degree of confusion over the whole issue of WLC.

On one level, this is potentially worrying for users. After all, surely you need to know what stance your software suppliers will take. Mike Chuba, analyst at Gartner, said, "There were about 15 suppliers that originally pledged their support to WLC, but support is a very nebulous thing, a lot of this is about wait and see."

Payne, however, argues instead that there is plenty of time for the suppliers to get their acts together. He said, "The environment for variable WLC works only with z/OS and the Licence Manager and that isn't here yet. Even IBM states that this is not going to happen before the fourth quarter of next year and some of us are pretty sceptical about them hitting that date."

As far as Payne is concerned, the z900 is an impressive piece of equipment, but he is reserving judgement on the timeframe for z/OS and WLC.

He said, "My advice to users is to take the hardware box by all means, but I would suggest waiting for the z/OS migration and some authoritative evidence that this will work."

With IBM eventually hoping to extend the WLC model to its other server ranges, the message appears to be that caution could be the best way policy for users.

From Freeway to z900

On 3 October IBM announced the successor to the S/390 in the shape of its z900, which had previously been known by the codename Freeway. As part of the announcement IBM also unveiled a new software pricing model called Workload Licence Charge (WLC) which is based on workload, not total hardware capacity. To qualify for the full benefits of WLC, customers must meet three requirements:

  • They must be running on a 64-bit processor (effectively the z900).

  • They must be running the new z/OS, (which is available 30 March 2001) in production in 64-bit z/Architecture mode.

  • They must be using the new IBM Licence Manager (Gartner Group estimates that this will be available no later than the third quarter of 2001).

    Microsoft and the subscription model

    Another technology giant that has recently been active in the area of software pricing is Microsoft. The company announced last week that it would be trying the subscription model for its Office suite when the next version, currently in beta as Office 10, is released in 2001.

    When the software is purchased for the cost of the first annual fee, it has software keys for each licence required. These licences last for a year. Unlike the new IBM software pricing model, Microsoft's strategy is aimed at small enterprises and branch offices with up to 30 computers.

    Graham Fisher, IT analyst at Bloor Research, believes that Microsoft's announcement is a step in the right direction but he believes that the Gates empire should build on this pricing model. He said, "From an IT manager's point of view, it is important to have a consistent approach and one that provides the right level of granularity. For example, Microsoft is now using subscription rates for Office but in an ideal world you would be able to 'pick and mix' with the likes of Word, Excel and Access."

    This is where changes in software pricing policy often give users a lot more clout than they realise. Fisher said, "Microsoft will need to offer a lot more but it depends on the success of this offering. If users really take to it they might be able to go to Microsoft and get this subscription model on other products."

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