March 25, 2011, 4:07 PM — Software licensing and pricing models are generally not lauded as intuitive, simple, or user-friendly. The challenges-- most which center on complexity and terms that seem to smell of bait-and-switch--are not limited to on-premise software licensed in the perpetual sense, but there seems to be a higher concentration of issues here.
Moving to the cloud does not necessarily make all of this easier. I recently moderated a discussion on software licensing challenges with two CIOs who have built out hybrid cloud environments. The replay of that discussion is available here (access is free, but registration is required). Their experience is indicative of what this analyst has been hearing from CIOs who are digging into software licensing issues as they carry out their cloud strategies-- the licensing is a nightmare.
To clarify, we are talking mainly about software that runs on-premise in a private cloud where internal IT is acting as a service provider for a single enterprise (or extended enterprise). Public cloud services, which are subscribed to and paid for on a consumption basis and delivered by an external service provider, do not have the same issues. However, these offerings raise other red flags for CIOs, such as cost predictability and long-term total cost of ownership (TCO), but that's another discussion.
IT executives generally expect that working through software licensing issues will require a lot of upfront planning, and this is certainly the case. Negotiating with software vendors that have varying degrees of interest in cooperating with you (depending on your company's monetary and strategic value to that software firm) can be excruciating, especially given the number of companies that must be negotiated with-- hardly any software vendors have cloud-friendly licensing today. As one CIO put it, "our experience (with software licensing) was a lot of it was vendors writing policy on the fly."
As CIOs start to put together their cloud platforms, the licensing model can also become a nightmare to manage- even if the cloud platform consists of infrastructure only (OS, backup/recovery, anti-virus) and doesn't extend to middleware (challenging) or database/applications (super challenging). The software licensing negotiations that IT executives have with vendors focus on a few key elements:
- Scalability
- Cost, with a focus on long-term
- Support for charge-backs
- A way to manage and monitor licenses
The last point is critical. Today, in the absence of cloud-ready software licensing models, a negotiated approach with a true-up model is generally preferred, with an annual true-up preferable (from an IT perspective) to quarterly or monthly comparisons of license use from one period to another. In addition, tools that help monitor license use to make the true-up process less onerous are also desired.
In order to help prioritize their negotiation efforts, CIOs are first determining which software products are being installed or used the most. Then, negotiation teams are working with the vendors to determine how to get into agreements that are cloud-friendly and that automate software license management and true-up.
How Cooperative are the Vendors?
According to CIOs and my own observations working with enterprises and vendors, the software industry is coming around. This space is in flux, and CIOs will find that vendors are shifting their thinking- especially if customers have an alternative. Getting to the cloud or being "all-in" with cloud is a key strategic driver for most software vendors. Those that already have enterprise agreements and true-up concepts in place have shown to be the easiest for enterprises to work with so far. Some vendors won't even entertain a cloud-friendly approach, and in some cases the enterprise will migrate away from this software. Unfortunately, there are some vendors that don't play nice in the cloud, but that enterprises feel are too critical to move away from. The solution? Leave it out of the cloud, for now.
All in all, CIOs looking at software deployment in private clouds will need to plan for:
- Lots of negotiation
- Varying levels of cooperation
- And software licensing done on the fly
