Licensing flap

As if the recession wasn't enough, network executives say they are being squeezed by major software vendors instituting licensing changes that create unwarranted financial burdens. Worse yet, these customers often see no choice but to pay up.

During the past two weeks, Oracle has come under fire from customers and industry analysts about licensing issues that could jack up costs for database users. Microsoft and IBM also have introduced licensing changes over the past year that customers criticize, saying the plans increase costs and force upgrades, and require the purchase of support and services they don't want or need.

"Vendors are herding users in the direction they want them to go instead of letting us go at our own pace," says Barry McGrady, manager of global technical services for Imerys, a mineral processing company. "I don't like being herded."

McGrady took a stand that he knows may cost him later. Instead of spending "six figures" to convert to Microsoft's new Software Assurance licensing model, which requires users to pay for the latest software whether they use it or not, McGrady decided not to upgrade his Office 97.

"It means I'll have to pay more and buy all new licenses down the road," if and when his company upgrades Office, he says.

Critics of the licensing changes characterize them as part of a general move by financially strapped vendors to create a recurring revenue stream. They also say the move is the start of efforts to figure out how to license software for forthcoming Web services.Vendors have seen current revenue models pinched as customers delay upgrades and ignore upgraded software that adds only bells and whistles.

But not every user is feeling that pressure. Carl Mercer, a research engineer for a telecom company, says the Oracle 9.x licensing changes have lowered his costs 41%. He notes that the changes benefit customers on high-end scalable processor architecture (SPARC) implementations and hurt those on Intel, but adds, "I do not believe Oracle has attempted to hit existing customers or existing products for additional money."

Oracle says its latest issue is over conflicting interpretations of a licensing clause. Microsoft and IBM, while acknowledging that some customers will experience higher costs, say many will see lower costs, better support and services and simplified licensing contracts.

Microsoft's new licensing model, which begins at the end of July, requires users to be licensed for current versions of software or pay full price for new licenses when they upgrade. Microsoft has delayed the start of the program twice because of hostile reaction.

IBM's program, launched late last year, combines maintenance and support into one package, which users say forces them to buy things they don't need. An IT executive for a midsized hospital told Network World that the licensing change increased his yearly costs by $50,000. He called the increase "outrageous," adding, "I don't know who came up with this, but they are only thinking of IBM's profits."

Imery's McGrady says he thought about dumping Office altogether, but that's a decision he and others can't make because the products are so ingrained in their networks.

"What do you change to?" asked a licensing manager for a large company in the restaurant and hospitality industry that relies on Oracle databases. "Once you're in, you're hooked. For us it is an infrastructure decision. It's like a mainframe."

Two years ago, the licensing manager gave in to Oracle and switched from named-user pricing to per-processor pricing, the same type of switch some users allege Oracle is again trying to push on customers.

"It was damn close to an eight-figure decision," says the licensing manager. "But the vendors have it figured out. You get something that works, and they know what it took for you to get to that platform. And they know you don't want to change."

Some say the licensing and pricing is returning to the mainframe days.

"My Microsoft SQL Server enterprise edition with Software Assurance is $20,000 for one processor," says Pam Peschel, business support specialist for Denver Water. "For a quad, that's $80,000; does that sound like mainframe pricing?"

However, that attitude may define the times.

"No one should be surprised that all these vendors are trying to create recurring revenue streams because product life cycles are increasing," says Laura DiDio, a principal with Information Technology Intelligence. DiDio says software development five years ago was revolutionary. But today, software is evolutionary in that advancements are mostly feature enhancements that lead companies to question the value of upgrades, she says.

That issue is reflected in the bottom line for vendors. Oracle's revenue from its database business has been down every quarter over the past year. Microsoft, which once derived more than 50% of its revenue from Office, has seen that percentage shrink into the 30s.

How to fight back Been hit by strong-arm licensing tactics? Here are a few countermeasures: • Review contracts thoroughly and clarify vague language. • Do a detailed audit of what changes will cost; negotiate more favorable terms.. • Renew existing licenses before new rules that raise costs take effect. • Blow the whistle on aggressive salespeople who emphasize expensive alternatives or threaten audits. Back

"But these licensing changes could backfire big-time because users don't have the money," DiDio says.

Peschel says she has little choice but to comply. Although signing on to Microsoft's new licensing program increased her costs up-front, doing nothing and paying the penalties to upgrade later would have cost an additional $200,000.

She says things won't change until some bigger companies challenge the vendors.

"It will take a group effort to stand up and change these software and licensing issues," she says. "We need big banks and firms like Gartner to stand up to the vendors. The little companies can't do it, so they are forced to comply."

Next week Gartner is hosting the Windows: Nothing but .Net. conference in Los Angeles where it plans to discuss alternatives to Microsoft products.

"There is a lot of discontent over licensing, and users are looking to pick some places where they don't have to deploy Microsoft," says John Enck, a Gartner analyst. He says the alternatives include standards-based Internet messaging systems that could also solve the virus issues plaguing Outlook; operating systems from Novell or Linux; and public-domain software such as Apache Web servers.

Senior Editor John Cox contributed to this story.