News

Analysis: Licensing Terms Too Light on Carrot, Too Heavy on Stick

• By Joe McKendrick
• September 23, 2003

For many Microsoft sites, licensing seems to be endless trials and tribulations. Microsoft took a hail of bullets over Licensing 6.0, which many in the industry perceived as a heavy-handed approach to squeeze more revenues from budget-strapped end-users. The customer pushback to Licensing 6.0 was unprecedented in the industry, and Microsoft did actually give way on some points by adding more flexibility to some of its terms.

Microsoft may have driven away many customers before it contained the damage. But licensing can be a carrot as well as a stick. For example, Microsoft now also wields licensing as a club against the advance of Linux into the enterprise, offering favorable enterprise coverage through its Volume Licensing Program, and thereby locking in Windows at many organizations over the next few years.

Unfortunately, most of the time, licensing is a stick. And there’s nothing remarkable about Microsoft’s heavy-handedness. Many vendors are pushy with their licensing terms. IBM has a long history of locking customers into upgrade paths. Oracle’s licensing is just as heavy-handed, and even more expensive, than Microsoft's. Even in the carefree Linux world, coercion seems to be the rule. On another front, The SCO Group is apparently planning to simply send out bills to major Linux users for $700 per CPU (or $1,400 per CPU after a grace period) to buy the SCO Intellectual Property License for Linux.

“I’m not convinced that Microsoft’s approach is any worse than any other software,” says Scott Testa, CEO of Mindbridge Software, a provider of intranet management software, as well as customer itself of major software products. “They’re just the biggest target.”

Most telling, however, are reports of customers making the leap to Linux on the licensing issue alone. “Our customers are moving to Linux big time,” says Testa. “Linux is now our fastest-growing operating system.”

In the Windows world, keeping up with and managing licensing has become a full-time job. It’s simply too much for an IT manager with many other projects on his or her plate to have to sit down and try to negotiate favorable terms. Keeping up with version tracking and software compliance – let alone dealing with the service providers – is almost a full-time job. Large corporations have dedicated managers, or even entire departments, that do nothing but deal with vendors and suppliers. The recent down economy has made this an optimum time to renegotiate with vendors for better terms, but in depleted IT staffs, who has the time? Most IT managers, who aren’t trained for contract negotiations, come up against savvy vendor representatives and their lawyers.

Stan LePeak, senior director of content and research for eLance, puts it this way: “It’s not a job that the IT professional really relishes doing.” LePeak observes that license and contract negotiations is “where IT is put upon more than other parts of the organization. You take IT professionals with backgrounds in application development, systems management, data center management, and they’re thrust into the role of procurement professional, but without the time or resources.”

Even vendors themselves agree that the process needs to be brought under control. “Most customers are unable to accurately predict and count their existing product usage given the arcane vagaries and mind-numbing details of volume licensing programs and widely disparate definitions for the basic unit of measurement – ‘What am I counting and paying for?’” said Christopher Howden, director of licensing and programs at Novell. “For example, there are not industry-wide consistently used definitions, such as devices, workstations, servers, CPUs, or named users. Each vendor has its own peculiar legal definition. Customers spend significant resources on compliance issues. These scarce resources could be better used elsewhere.”

Simplifying the licensing process would go a long way to making the process less onerous. There are several ways this can happen:

First, bring pressure to bear on the vendor community to bring more simplification and standardization to their licensing processes. The Business Software Alliance, considered the ultimate enforcer of licensing for large vendors, says vendors have actually been working to make the licensing process more palatable to end users. “Licensing policies have become more flexible over time and the software industry is focusing on making it easier, not more difficult, to achieve compliance with licensing requirements,” says Debbi Bauman, communications manager for the Business Software Alliance. “Having proper authorization to support all of the software your company is running is more of a legal compliance issue and asset management issue, rather than a cost issue.”

Second, keep introducing tools that help organizations automate and manage the licensing and compliance process. An entire industry has sprung up around IT asset management, much of which involves license tracking and compliance. Amazingly, few IT managers have automated their own processes. “IT groups have spent their entire history automating every other part of the organization – the front office, the back office, receiving, shipping, CRM, SLA, and more,” says LePeak. “But IT is the one part of the organization that is largely unautomated.”

Third, pay-as-you-go, subscription-based software plans may ease some of the headaches associated with large-scale contracts with upfront payments. While the ASP or hosting model has had its fits and starts, today’s broadband technology – combined with emerging approaches such as Web services and grid computing – make subscription software both technically and economically viable. End-users don’t even have to worry about what operating system platform is supporting the applications they use.

The bottom line is that it takes time for professionals to develop intellectual property such as software. When companies buy software, they’re paying for a piece of that time. But there’s got to a better way of fulfilling that transaction. When licensing programs have to be versionized the same way application releases are (Licensing 5.0, 6.0), perhaps it’s a sign that we need more relief from this onerous, lawyer-infested process.