How to license a virtual environment

Find out how to maximise savings and deal with the licensing conundrum that is the virtual world.

In a virtualised world, licensing becomes a major headache. Many vendors are still pricing their offerings based on per CPU, per core or per MIP levels -- all of which can be dynamic in a new virtualised architecture. For someone responsible for operating a virtualised data centre, there are several things to bear in mind when negotiating with software vendors on new or renewing contracts.

For many incumbent software vendors, the problem is not an inherent incapability to change their licensing models; it's how to face up to external stakeholders that is often the overriding issue.

Imagine that you are a very large software vendor with a model based on the number of cores that the software is installed upon. The move to multi-core, multi-socket servers is good news to shareholders and to the financial analysts watching the company -- license revenues should increase along with the numbers of cores being installed in the largest organisations.

You will be better placed to choose a suitable software vendor or channel, and then to carry out negotiation wherever possible.

Clive Longbottom, service director, Quocirca,

Now imagine that the software vendor says that it needs to move to a different model, one that is far harder to define, maybe based around per-user licensing. Although an organisation has to have a minimum number of CPUs and cores in order to meet the technical requirements of the software and its workloads, it can economise through having fewer users. Therefore, revenues for the software vendor may be hit, and hit hard. An alternative move to a subscription model means that there is less tie-in for the user, so long-term revenues are threatened. The financial stakeholders get worried, stock process fall, and doom is forecast for the vendor.

Also, a move towards "functional computing," where archetypal applications break down into component parts which are then brought back together as required to facilitate business processes, is creating further stresses that many existing software vendors are struggling to address adequately with their stakeholders. Many now prefer to stick with more monolithic approaches to technology "solutions."

Changes in the licensing landscape
It is likely that the licensing landscape will change dramatically in the next two to three years. That, however, is of no use to businesses trying to deal with the here and now, with how best to ensure that they get the best out of their investments in existing software, and how contracts are renegotiated to reflect the needs of organisations in a new virtualised world.

If you are big enough, the majority of software vendors will be flexible. The attitude tends to be "if you have enough money to spend on us, we'll be flexible enough to meet your needs on how to take it off you." Therefore, you can pretty much say that you want an enterprise license enabling you to install the software wherever you want for as many people as you want.

The majority of software vendors will also enable such licenses to be used for migration into the cloud, should the organisation so choose at some point in the future. Contracts can be front-loaded, levelled or even financed as the customer requires. The vendor just wants to get that money off your balance sheet and on to their own. The high cost of negotiation and sale are dwarfed by the overall size of the deal, and a high touch approach is therefore seen as being worthwhile.

However, what can you do if you are not big enough for the software vendor to see you as a large account? High touch negotiation isn't on -- the cost just can't be covered by the overall deal size for the vendor. Cheaper means of dealing with smaller customers have to be the order of the day, but this tends to constrain the options available to the customer.

Firstly, see if per-user licensing works for you, and see if the vendor is then happy for you to install the software on any hardware (physical or virtual) to meet the individual users' needs. This may not work, however -- certain back-office systems are difficult to define on a per-user basis, with transactional volumes being far more important.

So transactional charging may be a different approach to take. However, if you want predictable costs, pure transactional charging may not be what you really want. The best approach here is to see if the software vendor will work within "bands," where charging is based on usage between lower and upper limits. In this manner, your costs should not change from month to month, unless there has been an appreciable spike in transaction volumes. Also, ensure that even if you do move in to the next band of transaction volumes, you are then able to move back down within a reasonable period of time should transaction volumes decrease again.

Consider open source and the cloud
A move to open source could also be considered. Quocirca does not believe that this should be done for reasons of cost only, but provided that the functionality that you require can be obtained in a fully supportable manner, the lack of a direct license cost makes open source a very neat fit with virtualisation. However, it remains necessary to understand any license implications arising from the use of GPL or other open source licensing models, such as any reuse of code in a commercial sense.

Maybe you just want to move away from traditional licensing models completely. As accounting rules change and there is a growing need to be able to assign an asset value to software held by the organisation, it becomes increasingly attractive to move to a subscription-based model, where the software is never owned and therefore requires far less complex management. Note that last comment, however -- "far less complex management." Subscriptions still need managing, and knowledge of the underlying software license models may well still be required.

As part of this, cloud computing can also be an option. Combined with your own virtualised data centre, cloud can enable functions to be called on a per use, a subscription or a transactional volume basis to plug holes in the functionality within your own environment.

The new virtual model is severely stressing existing license models, and Quocirca is seeing new models come through from new companies, as well as seeing existing software companies begin to address major issues in older style licensing agreements. As cloud computing becomes more of a reality, licensing will have to become less complex and more flexible. Until then, being forewarned is definitely being forearmed. With knowledge of the basic approaches above, you will be better placed to choose a suitable software vendor or channel, and then to carry out negotiation wherever possible to ensure that your organisation gains both flexibility and cost optimisation against a software asset base.

Clive Longbottom is a service director at U.K. analyst Quocirca Ltd and a contributor to

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