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Among the most unloved quirks of the enterprise IT market is that software is licensed, not sold. Its a business model that dates back to when software was an accessory to a mainframe that was itself leased rather than owned. But buyers are beginning to question the practice of licensing software and in some cases, theyre demanding other terms.
Buyers have long felt that licensing was a game stacked in IT sellers favor. The odds are becoming more even, however, as free and open-source software creates alternatives. Were pleased to note, for example, that Novell officials concede the need for broader definitions of “user” and “server.”
We think its high time that these terms became decoupled from the 1960s model of users at mainframe terminals, or the 1980s model of one user, one desktop, one personal computer, one department, one server, one CPU. Licenses should acknowledge client diversity and server virtualization.
Microsoft has acknowledged the growing importance of virtual processing nodes in enterprise IT constellations. It is now letting licensees of Windows Server System products pay for what they use, dynamically, instead of paying for keeping copies of code on hand.
The next generation of Microsoft licensing will permit concurrent virtual instances without incremental costs. “Weve evolved our policies … as customers strive to achieve self-managing dynamic systems,” said Microsoft Vice President for Worldwide Licensing and Pricing Brent Callinicos in a statement this month. We commend that stance.
It seems likely that one of the pressures impelling these reforms is the option of choosing FOSS (free and open-source software), bypassing license fees altogether. Payment, instead, is to distributors, who, like lawyers and doctors, dont know anything that others cant also learn and apply. One pays for the investment that a FOSS distributor has made in acquiring expertise and for the acumen brought to bear in turning that knowledge into competitive advantage.
Commercial IT providers are likewise starting to make their money from the engagement of their expertise rather than the renting, in effect, of their intellectual property. The services components of IT vendors portfolios are becoming their most important engines of differentiation and growth.
Full-service shops such as IBM and Sun can work both sides of the street: They can sell premium services to FOSS users with complex needs and sell more hardware to other FOSS users with commodity requirements and with budgets less encumbered by licensing fees.
Software-only providers are challenged to find new ways of maintaining profitability for mature product lines whose customers may no longer see value in incremental upgrades. For them, software as a service, as in Salesforce.com, and software by subscription, which can offload maintenance tasks from in-house IT staff, are avenues that must be explored.
Enterprises want what they have always wanted: cost-effective capability. Alternatives to licensing, as well as improved licensing models, are part of that proposition.
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