Enterprise Software Licensing Gets Cloudy

Michael Vizard

Software licensing has always been something more akin to an approximation rather than an exact science. The price companies usually paid for software was tied to the number of processors used. More recently, we've seen more interest in pricing based on the number of users or actual use of the software based on metering technology.

But by and large, most software vendors have been slow to evolve their pricing models, and with the advent of virtualization, multicore processors and cloud computing licensing negotiations are getting even more complex.

The result is that there is no standard approach to enterprise software licensing, which has resulted in a model where the cost of the software basically comes down to the negotiating skills of the customer. Wayne Federico, CIO and vice president of technical services for the IT consulting firm Miro Consulting, says that while companies such as Oracle may have worked out some terms for running their software on a specific cloud computing platform such as Amazon, the vast majority of the industry is taking an educated guess when it comes to licensing software the runs in virtual environments in the cloud.

Miro, which has developed an entire practice dedicated to handling software licensing in the cloud for clients, is not seeing a lot more interest in moving more mission-critical applications that usually involve complex licensing agreements into the cloud. But Federico says it's still early in the transition to the cloud. One of the things holding up that transition besides the maturity of cloud computing platforms, is that no one is sure what they are paying for just yet.

In the meantime, software vendors have been trying to require customers to prove they are compliant with the terms of their license when the customer moves the software from their premise to the cloud provider. That results in a lot of very granular negotiations between the customer, the software vendors and the cloud computing providers.

Unfortunately, Federico says he doesn't expect any progress any time soon when it comes to creating standard sets of terms and conditions for cloud computing. The important thing to note right now is that the power definitely resides with the buyer and -- just as in the rest of life -- it's not so much about what the price is as what you're willing to pay.

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Mar 13, 2010 6:19 PM Cris Wendt Cris Wendt  says:

Interesting comments.  I wrote a blog this week at blogs.flexerasoftware.com in a similar vein. 

I think enterprise software will be undergoing some license model transformations to more closely align with value, especially as cloud computing and virtualization emerge,  and market competition heats up the competitive landscape.

Cloud computing will have its place in the IT datacenter, but I don't think that it will "take over" as predicted - I see more of a mosaic of different technologies (and therefore, a blend of license models).

Anyways-keep up the great blogs.

Apr 22, 2010 2:20 PM Dominic Haigh Dominic Haigh  says:

We at Agilis Software supply software licensing solutions to software vendors, so we see a different perspective.Lately usage-based and metered licensing have moved from general interest to implementation, as illustrated by this FICO case study.

An even clearer trend has been the concern from software vendors, who were used to protecting their products with some form of node-locking, about what to do if they allow their customers to deploy onto virtual systems. Many older licensing systems, and those that rely on hardware tricks such as bypassing the operating system, have no way to secure licenses in a virtual environment so just turn off protection entirely. Our solutions do allow software vendors to protect their products in a virtual environment, and are being used to so now.

Dominic Haigh

Agilis Software



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