Circling around software licensing

Software vendors may be all for it, but that doesn’t mean users are ready to move to a flat-fee licensing scenario.

In the coming months, enterprises will be hearing a lot of software licensing terms bandied about. Vendors, including Hewlett Packard Co., Microsoft Corp., Sun Microsystems Inc. and Oracle Corp. are investing heavily into concepts such as utility computing and “software-as-a-service.”

But in the way stands the old enterprise pricing model, which typically means arranging licensing on a per-processor basis. Complicating matters are future chips with multiple processor cores and the grid-computing model, which reallocates applications around a network.

“Where I think we’ll go is toward enterprise licensing,” Oracle chief executive Larry Ellison said. “You pay an annual recurring fee and use as much software as you want, and I think that’s a much more sensible model to use.”

Craig Read, president of the Toronto Oracle Users Group and IT director at Toronto-based MTrilogix Inc., noted that enterprises naturally prefer flat fees, “but from a vendor standpoint, this is problematic since the number of clients accessing the application is not controlled.”

Client and server licences are still the best way to price from both the client and vendor standpoints, Read added.

Read also noted that the application service provider market is a small but growing percentage of software usage. “The issues are connectivity, speed, lack of customization and reporting. Utility software is a current buzzword, and has value, but the model is different than client/server applications.”

The cost of licensing is one of the reasons for the push to migrate applications from the mainframe platform on to servers. Tracking licensing arrangements has become increasingly more complex for both vendors and enterprises alike.

“The old per-processor basis model,” said Derrick Walsh, consultant for Fujitsu Consulting, “gets fuzzy when a customer starts using partitioning to segregate applications running on a single multiprocessor server.”

Companies such as Microsoft and Oracle are already moving toward a subscription based licensing model. For example, under some of Microsoft’s old arrangements, customers would have pay a licence fee for each processor on their server even though the software may not actually be running on all of those processors, Walsh noted.

According to Brent Rogers, a Toronto-based IT professional, flat fees aren’t advantageous to smaller firms unless the annual fee is low. The price should also be somewhat proportional to how often the application is used, Rogers noted, adding that a better model would be based on the number of users and/or processors.

Unless heavy restrictions were placed on the number of clients, the flat-fee concept might not work, Read said.