Licensed to bill

Software licensing: nobody in IT likes it; everybody has to deal with it. As models change it's becoming one of the most important decisions an IT manager can make. Eliot Beer finds out what's stirring in the licensing world today.

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By  Eliot Beer Published  June 1, 2006

|~|woods-oracle-licencing200.gif|~|Woods: Oracle offers hosted versions of all its products.|~|Software vendors are busy looking at how they license their products, in the face of several important factors. Increasing piracy rates, shifting patterns of usage, and increasingly mature markets worldwide are all starting to affect licence models. The result is a shift from traditional perpetual licensing to subscription-based licences and the slow (but, some would say, inexorable) rise of software as a service (SaaS).

Microsoft is at the forefront of the evolution of licence agreements, although some of its approaches are not always welcomed by customers. As part of the firm's ongoing vision to move its products to online services, MS has developed its Live services, aimed primarily at small businesses and individuals, and continues to push its Software Assurance programme.

"Software Assurance also allows your organisation to acquire the right to use tomorrow's technology at today's prices, and allows you to spread payments annually instead of paying up front in one lump sum," Sunny Jensen Charlebois, senior product manager in the Worldwide Licensing and Pricing group at Microsoft wrote to ACN’s questions.

"Organisations with Software Assurance coverage are eligible to use new versions of the covered software that are made available during their term of coverage."

Unfortunately for many organisations, new versions of much of Microsoft's product range have been slow to come since the programme's launch in 2001. By the time Windows Vista is launched, it will be almost six years since the launch of XP - the Vista edition of Office has also suffered delays. And since these products are the victims of delays, rather than deliberate timing by MS, customers might be excused for feeling hard done by.

Charlebois admits subscription licence models, such as Software Assurance, are no guarantee for IT managers: "Subscription licensing has both risks and benefits for our customers, which will ultimately depend on how they plan to use their software, and if they want to own their software at the end of their licensing agreement.

“For example, under a subscription based licensing model customers will now need to make regular payments in order to continue using the software. However, they will have some added flexibility as they can also switch between vendors should they want to buy out of their licence agreement."

The key advantage of subscription models for vendors is a more-or-less guaranteed flow of income from what might otherwise be mature markets, as well as reduced levels of piracy, which may simply be the result of inadvertent installations by IT managers of common programs such as office suites.

The key advantage for end users is the flexibility to bring in or discard licences according to need, rather than invest heavily in perpetual licences. It also shifts software spending from capital to current expenditure, with the inherent tax and accounting benefits this can often bring - although this is not always a major consideration in some Middle Eastern countries.

Jacqueline Woods, vice president for global pricing and licensing strategy at Oracle, explains how she sees the subscription versus perpetual debate: "Subscription licences can often be appropriate for companies that may be piloting something; they haven't necessarily decided that the project is 100% go, and they want to minimise some of the risk associated with that kind of cash outlay.

"If you're in a capital intensive environment such as what I would consider more industrial brick and mortar companies that have highly capital-intensive infrastructures, they tend to want to buy perpetual licences because the software licence is again part of their capital base and they tend to be able to incorporate that as part of their depreciation and their finance process.

"I think you also see a lot of smaller companies, more SMB companies, who don't have the flexibility from a cash standpoint to do those kind of cash outlays that those perpetual licences require, again this is another opportunity for someone to buy a subscription or term licence."

Oracle is also moving into the hosting arena, offering the service across its whole product range; Woods sees this as the most flexible of the vendor's licensing models, certainly a step further than its 'term' licences, priced at 20% of a perpetual licence for one year. But while hosting is becoming more popular - with Microsoft recently making its Exchange service available in hosted form - some IT managers express doubts as to how far they would want to take it.
||**|||~|bliss200.gif|~|Bliss: The natural progression for Solaris was to give it to the market.|~|"The hosting model requires users to be connected via the internet to license such facilities and as a financial institution this presents too high a risk to even consider," says Musabbah Mohammed Ali Al Qaizi, vice president of Information Technology at Dubai Islamic Bank. "Using an in-house system is much more secure."

At the moment, then, SaaS and hosting of mission-critical software services is still greeted with some scepticism, and the hype around Web 2.0 - which takes the service model to an extreme, with even word processing packages offered as online applications - does not appear to be under serious consideration in the region.

One recent evolution in software has made a significant impact for IT managers around the world is the growing open source movement. For many back-end applications, Linux is becoming a standard feature, particularly in situations where organisations are running a large number of servers.

But for enterprises running mission-critical applications, the idea that they would use unsupported open source systems is of course farcical. The reality of enterprise Linux implementations, then, is that they still effectively rely on a licence in all but name; indeed, not even that stands with some vendors.

"With Linux, it's still called licensing, even though there's no licence," says Vinay Akhil, country manager for Novell. "It's based on maintenance and upgrade protection. You don't have a licence fee per product; what you pay for is a set time period of one year, two, three, to ensure you get up to date versions of the product, patches, and you can also get that bundled together with support."

The other drive in terms of open source is the conversion of previously proprietary applications into open, or at least free, projects. Vendors from IBM with its Cloudscape database offering, to MySQL with its hybrid open source model, have experimented with this, but the market leader in giving things away at the moment is Sun. Not only has it made its Solaris operating system open and free (if you ignore the service charges) in the face of fierce competition from Linux vendors, it has committed itself to making Java open source, albeit at some unspecified point in the future.

"Since we've made Solaris available on other platforms, such as x86, the natural progression from there was to release it onto the marketplace as well," says Jamie Bliss, software sales manager for Sun. "Solaris, like Java, has an awful lot of coverage around the world, and there are an awful lot of people that can, if given the chance, develop it further and take it into areas of their own choosing."

Bliss maintains that Sun is "all about sharing", but as some observers have commented, by releasing Solaris' code, and indeed a lot of the low-level information for its SPARC CPU architecture, Sun has made its products attractive as educational tools for colleges and universities.

The upshot of this is that Sun has ensured that future generations of programmers and developers will have an intimate knowledge of its platforms, handy when they are likely to become IT decision makers, given time.

Between fully supported open source and the increasing range and sophistication of subscription-based licensing models, the days of perpetual licences may be numbered.
What further complicates the issue is how licenses are structured in terms of numbers; the traditional models of users, employees, processor cores is starting to break down with the rise of web-enabled services and multi-core processors - Sun's roadmap has it delivering 32 cores per processor in the not-too-distant future, and its eight-core Niagara processors are already on the market, with AMD, Intel and IBM also planning to up core counts.

One company which has had to restructure its licensing in response to Sun's Niagara is Oracle. Where before it licensed strictly per processor (when customers opted for the CPU pricing model), it now offers a range of 'factors' to apply to each processor, depending on the number of cores and Oracle's assessment of the processor's power - the factor for an eight-core Niagara is 0.25, meaning it would be priced as
two cores.

Woods says this is to allow pricing parity between processors of equivalent power, and says that the firm will continue applying factors to future multicore CPUs: "I think now we've embarked on this course, we will continue to evolve our pricing structure this way in the future; Sun has chosen this path for its roadmap - a large number of relatively low-powered cores, as opposed to other CPU vendors offering fewer, higher powered cores - so we will adjust our pricing to take account of this."||**||

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