Software Licensing: Microsoft Deal with NYC Sign of More Flexible Future?

Ann All

Earlier today I touched upon the ongoing debate over "open" vs. "closed" software, an always-smoldering topic re-ignited by Steve Jobs' remarks over what he calls the "fragmented" approach of Google. Many influential developers are weighing in with their opinions. An influential developer I am not, so I stuck to noting how Apple and Oracle are the main proponents of an integrated and closely-held approach to development. It's all about stability, quality and ease of use, say Jobs and Oracle's Larry Ellison.


Jobs and Ellison don't exactly seem like altruistic guys. Sure, throwing in with a single vendor removes many integration and maintenance hassles, but it also takes away a bargaining chip at the negotiation table and can mean paying higher prices. (Jobs and Ellison are rarely disingenuous about wanting to sell stuff and make money, something you can't always say about Google.)


Maybe not always, however. I was intrigued to see the city of New York just cut a deal with Microsoft in which it will pay only for software actually used by city employees. Microsoft and other vendors have made lots of money by bundling their applications. I, like many knowledge workers, have Microsoft Office installed on my PC. Yet I rarely use some of the applications. I use Outlook all the time, Word occasionally and PowerPoint and Excel almost never.


I guess you can thank Google. Fragmented or not, its software is seen as a competitor to expensive suites like Office. It's a little like the Southwest effect, in which competitors of the discount air carrier tend to lower their fares when Southwest enters a new market. Microsoft's flagship Office suite is facing competition on many fronts, notably from Google with its cloud-based Apps suite, but from Zoho and other companies as well. Offering more flexible pricing models may help it hang on to customers who might otherwise consider products from these competitors.


The vice president of IT for Cultural Care, a global provider of au pair services and one of the folks I interviewed for a story on Google Apps last year, told me his company liked the idea of using less-expensive cloud-based services whenever possible instead of automatically buying Windows licenses for every employee. In that same article, I quoted Mark Koenig, a vice president of Saugatuck Technology:

It's the whole concept of providing "good enough" applications vs. the "everything but the kitchen sink" you get with (Microsoft's) Office and other productivity suites. Why pay for all those features if 80 or 90 percent of them aren't used? That's a real value proposition: Why are you paying for the other stuff, or why are you paying for stuff for everybody in the organization when there are only a few power users that need it?

In New York, 100,000 workers will be put into three different categories based on how many different applications they use, and Microsoft will charge for the software accordingly, reports The New York Times.The city expects to save $50 million over five years. The city also will save money by using cloud-based versions of some Microsoft software, according to the article.


There's no question companies want more choice in software licensing. A survey on software licensing and pricing trends conducted by Flexera Software and IDC's Software Pricing and Licensing Research division found growing interest in usage-based pricing. Twenty-two percent of publishers offer usage-based pricing, up from 15 percent in 2009. Over the next two years, that number is expected to rise to 41 percent, according to a SandHill.com report about the survey. If usage-based models are to take off, however, software publishers and users will need better tools to monitor and track use.


The survey also found more software publishers considering how cloud computing will affect their licensing models. Sixty percent of publishers said their licensing will need to adapt to the cloud over the next two years, and 30 percent expect the change will be significant. Hang on, it sounds like it's going to be a bumpy ride-but one that will ultimately be good for software consumers.

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Add Comment      Leave a comment on this blog post
Oct 27, 2010 3:50 PM JD JD  says:

It's going to be a very bumpy ride, but if you know anything about revenue recognition problems that software publishers bump against, you will also realize that large public software publishers can't flip their revenue rec models to pay for usuage without changes to the financial auditors requirements.   Pay for usuage models is good for the consumer but not the publisher. Without the revenues the publisher can't continue technology development.  it's the chicken or egg scenario, yet again.


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