CIOs vexed by new licensing deals

Buying software may soon be a thing of the past, with vendors such as Oracle Corp. and Microsoft Corp. starting to move customers to subscriptions and finite-term licenses. But some CIOs said they are alarmed at what these new arrangements could cost, despite the benefits.

Some worry about the risks of not having a perpetual licence. “It’s a terrible deal, because at the end of your contract they could double the price,” said Rocco Esposito, IT director at Hunter Douglas Inc., a 14,000-employee manufacturer of window coverings in Upper Saddle River, N.J.

Analysts predict that subscription and term licences will increasingly replace the traditional perpetual software licence in the next few years. During the past few years, several vendors including Oracle have introduced licences that are limited in time, and Microsoft joined that group on Friday by offering application service providers monthly pricing options for all its software.

Software licensing is changing in other ways, too, with per-processor licensing on the rise and many new pricing models emerging.

“What vendors are looking for is more predictable licence revenue,” said Marie Reeve, an analyst at Stamford, Conn.-based Gartner Group Inc. “A lot of users skip versions [of Office]. Microsoft is not seeing revenue from those customers in that period of time.”

Subscriptions offer some benefits for users. Gregor Bailar, executive vice president and CIO at Washington-based Nasdaq Stock Market Inc., said the model may ease administration. “My whole philosophy is, I want to be counting belly buttons,” he said. “Measuring how many people are using what and when is just not productive for us.”

Rick Nolle, vice president of systems at Reinsurance Group of America Inc. in Chesterfield, Mo., said he hopes that a self-updating version of Office will ease upgrade hassles. “I’d love for my Office users to receive automatic upgrades from Microsoft and have self-maintaining systems,” Nolle said.

But some CIOs and analysts see a trade-off: cost.

Gartner estimates subscription models cost corporations more in the long run. For instance, Oracle’s new term licences cost more than the old perpetual licenses after about five years, Reeve said. An Oracle executive said his company is simply providing more choices and will offer perpetual licences, if preferred.

Microsoft’s move from concurrent licensing to per-seat licensing has rankled users. Concurrent licensing counts the number of users that access an application at the same time; per-seat licensing is per named user. When Global Marine Inc. in Houston moved to Office 2000, it was forced to accept per-seat pricing, said CIO Dick Hudson. Microsoft was “able to raise a couple hundred thousand [dollars more] from us,” he said.

Another option is a capacity-based model, such as per-processor pricing, which is used mainly for Internet applications. Per-processor licensing resembles traditional mainframe licensing schemes. Although it can ease administration, the software becomes more expensive when it’s moved to a bigger machine.

Yet the new choices do offer an opportunity to simplify software management and possibly save money.

“Negotiating skills are crucial,” said Bob Schwartz, vice president and CIO at Matsushita Electric Corporation of America in Secaucus, N.J.