Software License Costs to Soar in 2005

By | November 24, 2004

New evidence from Gartner Group suggests that software licensing costs could see an overall increase of roughly 50% in the next year.

The projection is based on innovative new hardware features which aren’t specifically covered under software licensing. For instance, Oracle licensing could triple on a standard dual-processor server versus a dual-processor multicore server, due to Oracle not having a multicore license.

Other vendors such as Microsoft suffer from the same conundrum. On the one hand, a multicore chip is only one chip, on the other hand it is able to do the job of 2 or more – how do you license a technology that isn’t easy to define?

Andy Butler, a research director at Gartner, said the software industry is failing to reflect the hardware changes in its licensing policies.

“There is some movement on the part of vendors such as BEA and Microsoft to address multicore architectures, but generally there is no word from the software vendors on how to restructure their software licensing,” he said.

Butler said that conversations with the likes of IBM and Oracle about licensing for virtual machines–where an individual server is partitioned into “virtual” machines–are met with “intransigence and inflexibility.”

The harsh reality is that the extra 50% in CPU power may translate into a doubling of licensing costs. In effect, a high-stakes game of chicken is going on, with hardware makers not wanting to see multicore CPU’s die by the wayside, and large vendors like Microsoft and Oracle not wanting to see their profits shrink.

“The big organizations will be less exposed, but the ones really exposed are the small and medium businesses,” said Butler.

The other two main hardware trends that will force software prices up are “capacity on demand” and “rapid provisioning” tools, which move software between servers with more or less capacity based on workload requirements.

In the long term, software companies will need to be more flexible in realizing that increasingly enterprises will not be willing to license based on capacity, but based on actual usage. This is where licensing agreements such as Sun Microsystems “per-employee pricing” plan work wonders – companies pay for what they are using, not for the capacity of their hardware.

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