CIOs grapple with new complexity

As software suppliers look to maximise revenue from existing customers, choosing the right licensing model for your business is more important than ever

As software suppliers look to maximise revenue from existing customers, choosing the right licensing model for your business is more important than ever

As IT organisations strive to reduce complexity, one area where they are still falling short is software licensing.

Six years after Computer Weekly's "Stamp Out Stiffing" campaign addressed sharp practices among some software suppliers, businesses are facing up to a potentially greater challenge: weighing up the pros and cons of the various licence models being pushed on them by suppliers.

As enterprise software markets mature, many suppliers are generating more of their revenue from existing customers than from new sales. "This fundamentally affects how they look at licences," said Andrew Pooley, a director at research firm OTR.

"To maintain their growth, suppliers need to maximise revenues from existing business rather than chase new contracts. It is up to IT directors to ensure that they select and manage the most appropriate licence model for their business, rather than adopt an unsuitable and costly alternative."

David Roberts, chairman of blue-chip IT user group the Corporate IT Forum, said many more user organisations than in the past were tied into annual licences, and some of these contracts were proving cumbersome to administer because they were insufficiently flexible.

"What users really want is a transparent and fair fixed-price arrangement," but there are not enough signs that suppliers are prepared to make that offer, he said.

Jane Kimberlin, IT director at fast-food chain Domino's Pizza, said suppliers were pushing annual licences at the expense of traditional perpetual licences, but the benefits were unproven.

"Perpetual licences are the only secure way of ensuring you are licensed at a known cost. Although an annual licence may seem a more flexible model with greater customer choice, how flexible is it really?" she said.

In the enterprise resource planning market, Forrester analyst Ray Wang said software suppliers were being challenged by users to deliver simplified licence metrics - particularly by offering enterprise-wide licences.

Wang said that, as far as possible, companies wanted suppliers to model usage around business processes or actual amounts of usage, but the reality was that many existing licences did not accommodate these metrics.

However, rather than taking steps to meet user needs, suppliers have been accused in some quarters of heavy-handed tactics, as they put increased pressure on organisations to ensure they are not in breach of licensing arrangements.

Bill Monk, director at compliance consultancy LOCS, said, "Recently there has been lot more pressure from suppliers to conduct software audits or ensure that the customer is paying what they are supposed to be paying."

Owen Williams, head of IT at estate agency Knight Frank, also expressed concern. "Suppliers are interested in pursuing revenue. They are taking a tougher line to the point where it becomes unreasonable," he said.

As part of this supplier push to make firms meet their obligations, anti-piracy software industry groups such as the Federation Against Software Theft and the Business Software Alliance have been promoting the use of software asset management tools.

But Monk said this was not necessarily the answer. "In my experience, there are not that many tools out there that will do the job," he said. "The output generated by asset management software generally needs a lot of filtering and massaging before it can be put to use."

Monk said a potentially more useful development was the release of the first part of the ISO 19970-1 standard for software asset management. "It has its shortcomings, mainly because so few software suppliers have signed up for it, but once it goes through several iterations it should plug a gap," he said.

"For small and medium-sized enterprises in particular, what is really good is that it sets out the processes and procedures firms need in place to do things properly. In other words, it tells you how to buy, approve, install and manage software - and a lot of firms need that kind of guidance."

Have you got a licence for that?

Desktop software is usually licensed per user or via a site-wide agreement, with subscription-based annual licences, rather than perpetual licences, becoming more widespread.

Server-based software is often priced per-processor, though the advent of multicore chips has changed the way some server software is licensed.

Oracle traditionally charged per core, but with multicore processors becoming more widespread, it has moved to charging slightly less per core on multicore chips. Microsoft and others have retained the practice of pricing per-processor.

For both server and desktop software, an emerging and arguably fairer model is pay-per-use, but this has generally been targeted at small and medium-sized enterprises.

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