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INDUSTRY WATCH: Licensed to Bill
By David Rubinstein
 May 1, 2004 — Better late than never” isn’t always true. In some cases, because you’re late, the result could be “never again.”
Microsoft customers who have been led down a primrose path with promises of “Yukon,” “Whidbey” and “Longhorn,” and whose software licenses with the company are due to expire, face a difficult decision. So do those businesses that might be considering a move to the Microsoft platform.
If you’re already a Microsoft customer, do you lock into a new three-year license, knowing that delivery of these tools already has been pushed back once and that Microsoft is notorious for announcing products in one decade and delivering them in the next? On the other side, do you lock into a long-term deal with IBM or Oracle, taking the risk that soon the Microsoft database will be better—but you’ll be unable to take advantage of it?
This all-or-nothing scenario is good neither for the vendors nor the customers. If you’re the vendor, and a customer chooses to go in a different direction, you’re left with nothing. If you’re the customer and lock in to one company but really need to use the technology of another, you’re forced to pay twice, or lose a potential competitive advantage by not making the software switch.
One solution, which customers are pushing upon large vendors with increasing frequency and vendors seem to be responding to, is pay-as-you-go licensing instead of long-term contracts. Companies don’t want to pay for product licenses simply because the product is installed in their system someplace. Maybe they use it only once or twice a month. Why should they have to pay the same price as another company that might have that same software installed on 200 machines and uses it heavily every day?
By the same token, if the vendors don’t become more flexible in how they license their software, they could wind up with nothing at all if companies decide they can live without that software once or twice a month, or find an alternative that costs less money.
“Large companies spend hundreds of millions of dollars per year on software,” said Mark Horler, director of global consulting services for software licensing vendor Macrovision. “They said, ‘We need to manage our assets and go beyond which software we’ve installed. We want to understand our usage versus the base we’re paying to our vendors.’ The infrastructure is now in place for them to do it on a quarterly, or monthly or even a weekly basis.”
Flexible licensing helps both sides, according to Steve Dunton, chief technology officer at activAeon, which provides statistical analysis of enterprise application usage. The vendors will get more revenue from customers trying out more products than they might otherwise, and the customers pay only for what they use. “It creates an honest situation in licensing,” he said.
Dunton noted that keeping track of Microsoft licenses, especially under its Service Providers License Agreement program, is very complex, despite the company’s multiple revisions to the program since its inception in 2000. “It’s like filling out a tax return,” Dunton commented, noting that the program requires service providers to report such things as terminal server usage and the number of users logged into a system so they can report their activity to Microsoft for proper billing.
ISVs, he added, traditionally charge on a per-user or per-concurrency basis. But software is being created that now allows them to charge the end user per hour for a hosted solution, or to create other models that better suit the needs of the customer. Getting a better handle on software licenses helps companies better manage their software assets, and gives them greater flexibility.
“Most corporate environments have 2,000 PCs, and some might sit in a reception area and never be used, but because software is installed on it, it’ll cost that company,” Dunton said.
Macrovision is working with Motorola to create a certification program. “It’s designed to give end users confidence that the software licenses are easy to manage and report on, and in the event of something going wrong from a licensing perspective, such as a license expiring or a server going down, the application will behave in a predictable manner that’s customer-friendly,” Horler said.
Motorola, for example, keeps its license servers in a warehouse in Tempe, Ariz., but they can be accessed by an end user in, say, Malaysia. This will raise issues of taxation and import or export tariffs as governments and vendors try to determine the value of the license if it’s used on a global basis.
It would seem the large software customers are in the driver’s seat here. Vendors naturally fear a big drop-off in revenue if they can’t charge for their software under the old model, but it’s inevitable. If one vendor is willing to offer a product that provides greater visibility into usage patterns than another, soon they all will have to. And so long as Macrovision isn’t trying to mandate a business model for software vendors, but is creating a certification program that gives flexibility to the vendors, it should be embraced.
David Rubinstein is editor of SD Times. |
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