Software Licensing: New Options, New Headaches

For decades, software buyers have been engaged in an "arranged marriage" type of relationship with software vendors: too much tradition, too little choice and a partnership of unequals from a deal's beginning. Typically, these deals had two key variables: the number of seat licenses (volume) a company purchased and the amount that the software publisher was willing to discount the purchase price, which was linked back to the volume.

Both sides haggled over those figures during the forced courtship that is the RFP process, but the outcome between the partners was usually predetermined. There wasn't much bliss; just some angst on the buyer side because she knew that a legacy of fixed costs and bloated shelfware lurked, and a future divorce would be unpleasant and costly.

The rules of the game were far from perfect, but at least-more or less-everyone knew the rules. As one of the mainstays in businesses' software-purchasing decisions, CIOs have long recognized the dearth of options and been asking for more choice, more flexibility from their vendors. The global recession was an accelerator of the demands.

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For decades, software buyers have been engaged in an "arranged marriage" type of relationship with software vendors: too much tradition, too little choice and a partnership of unequals from a deal's beginning. Typically, these deals had two key variables: the number of seat licenses (volume) a company purchased and the amount that the software publisher was willing to discount the purchase price, which was linked back to the volume.

Both sides haggled over those figures during the forced courtship that is the RFP process, but the outcome between the partners was usually predetermined. There wasn't much bliss; just some angst on the buyer side because she knew that a legacy of fixed costs and bloated shelfware lurked, and a future divorce would be unpleasant and costly.

The rules of the game were far from perfect, but at least-more or less-everyone knew the rules. As one of the mainstays in businesses' software-purchasing decisions, CIOs have long recognized the dearth of options and been asking for more choice, more flexibility from their vendors. The global recession was an accelerator of the demands.

Well, CIOs, you finally got what you asked for: new software-delivery models ( SaaS and on-demand as well as cloud-based and virtualized computing options) have created new licensing options for software buyers today, says Amy Konary, IDC's research director of software pricing, licensing and delivery. (IDC and CIO.com share the same parent company, IDG.) New options include such offerings as pay-per-use and subscription pricing means-what's commonly referred to as utility computing.

Choice can be a good thing, of course. But when it comes to enterprise software, more licensing choices necessitate a new role and responsibility for CIOs, Konary says: The Economist CIO who can crunch the financials of these metric-laden agreements.

In addition, before CIOs sign on to, say, a pay-per-use software license, CIOs actually have to understand what their organizations' actual application use is, which is no easy task, Konary points out.

CIO.com Senior Editor Thomas Wailgum recently spoke with Konary about the trade-offs between traditional and new licensing, what's worrying software vendors right now, and why CIOs and their companies will likely have to pay more for that flexibility.

CIO.com: With so many new choices coming onto the market, what's the big picture for CIOs and IT staffs?

Amy Konary: What CIOs are going to have to do is look at their overall needs, at different workloads, at how those are used, and seasonality associated with those, and figure out: Where does the pay-per-use cloud approach make sense? Or where does running the traditional in-house deployment work better? Or where does a subscription-licensing agreement, but one with more of a more traditional per-user metric rather than pay-per-use, make the most sense?

I was talking to the Microsoft Azure folks about their pricing. They started to talk about peak and off-peak pricing, and three different options: peer consumption-based, and a subscription based and then different types of workloads you could have-say, unpredictable spikes or seasonality spikes. Things like that.