February 13, 2001, 10:19 AM — With a topic as complex as software licensing, it's tempting to shift to autopilot and rubber-stamp contract renewals. But a few factors make re-examining software purchases a strategic concern for enterprises going forward.
For starters, the economic situation will put pressure on IT executives to cut costs. As the above story details, despite last week's interest rate cut by the Federal Reserve, businesses will still be under the gun to streamline operations and to spot savings opportunities where they can.
Secondly, a broad industry shift toward power-and usage-based licensing models is creeping into the picture.
The software industry is struggling to find an adequate model as they continue operations. This uncertainty poses potential danger in the form of higher overall costs. But it also means the opportunity for enterprises to help define the next generation of software pricing.
As companies deploy applications on the Web that can be accessed both by employees and external partners or consumers, the old per-user model is quickly going out the window. Independent software vendors are also scratching their heads trying to devise models that allow them to offer both a shrink-wrapped and a hosted version of their applications.
Companies such as Oracle are pushing for hosted applications and have begun to sort out the internal problems that this shift creates -- particularly with internal sales forces. But customers should realize that new models are still under development.
Our Page One story by Tom Sullivan and Ephraim Schwartz takes the subject one step further, exploring the various pricing models currently in development. In general, enterprises favor flexibility, which means that a number of different methods will be used to buy or "rent" software in the coming years.
But flexibility also brings in complexity and the need for strong negotiating skills.
Are you paying more or less for software with a per-processor or per-usage licensing scheme?