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Processor-based pricing ripe for change

By James Niccolai and Ashlee Vance, IDG News Service
December 19, 2002 06:26 PM ET

IDG News Service - New hardware designs including server chips that combine multiple CPUs on a single processor will challenge the way enterprise software vendors price their products and could eventually force them to adopt new pricing schemes altogether, according to analysts.

Most large businesses pay for their databases and enterprise applications on a per-processor basis, coughing up an annual license fee based on how many chips they use to run their software. The model is simpler than pricing on a per-user basis because vendors and customers don't have to constantly keep track of how many employees, partners and customers are using their software.

Server chips that combine two or more cores on a single processor could throw a wrench in the works, making it hard for vendors to price their products in a uniform manner. Further out, nascent technologies like grid computing pose even greater challenges and eventually could force vendors to adopt "utility-based" pricing schemes that charge customers based on how much use they get out of their software.

"The CPU-based licensing approach has got its limitations and it's only a matter of time before some fundamental changes are going to take place," said Albert Pang, a research manager with IDC.

IBM already sells Power4 chips with two cores, which can offer better performance for customers while helping IBM keep production costs lower. In the case of IBM its pricing is fairly straightforward: It charges customers as if they were buying two separate processors, and software vendors price their products accordingly.

But Sun, in a move aimed partly at making its chips more competitive, has said it will price dual-core UltraSPARC IV chips planned for release next year as if they were single processors, and it hopes that software vendors will follow suit. Further out, Sun has said it hopes to combine as many as eight CPUs on a single chip, raising questions about what constitutes a single processor from a licensing perspective.

"It's safe to say that not just Sun but also Intel and IBM have this challenge of defining what is a processor," said Andy Ingram, vice president of marketing with Sun's processor and network products group. "Chip dies can have multiple cores and multiple threads, so what constitutes one processor?"

Intel is adding to the mix with a technology called hyperthreading, which allows a single chip to act somewhat like two processors when running specially written software. Analysts have said that hyperthreading can boost the performance of software applications by around 30% compared to Intel's standard server chips, further muddying the issue of how much use customers with different chip architectures get out of their software.

To date, software vendors have made little effort to differentiate among processor types. Customers who run applications on Intel's 32-bit Xeon processors, for example, typically pay the same price per processor for their software as customers using 64-bit RISC chips from the likes of Sun, IBM and Hewlett-Packard, even though those chips can offer greater performance.

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