COVER

Licenced to simplify

The costs and complexities associated with 'software licencing' must be addressed. CIOs feel that a flexible, pay-per-use licencing model is sorely needed, says Venkatesh Ganesh

One of the CIO’s pressing concerns which has been annoying the community for quite some time is software licencing. Generally, a licence is structured in such a manner that even a top-notch lawyer has his work cut out its implications. When a user buys a licence, he gets to use the software and can avail of upgrades and technical support.

If all that seems all right, then consider this. Indian IT head honchos considered forming a ‘CIO club’ that could be a platform for them to get together and voice their grievances to address issues pertaining to licencing. Increasingly, CIOs are putting pressure on software vendors to provide software solutions in a manner that matches the way they use the said software.

Mani Mulki, VP, Information Systems, Godrej Industries, is candid enough to admit that the licencing model, as it exists today, needs to be re-looked at urgently. To get an idea of where things went wrong, let us rewind to the beginning.

Early days

There was a time when software was licenced based on the number of CPUs or servers that it was used to run. Everything was smooth until businesses started adopting IT in a big way whereupon there were dozens or even hundreds of servers. This increased complexity was further complicated by the mix and match of gear from several vendors. Despite the diversity of the enterprise IT environment, vendors have and continue to treat their customers in a homogeneous manner failing to understand that their users may have different business requirements and usage patterns.

IT needs are constantly evolving, and to estimate them for such a long span of time is not feasible S R Balasubramaniam Vice-president - Information Systems Hero Honda

The situation was compounded further when in mid-2002, a security giant announced a new software-licencing structure that required large enterprises to estimate their software needs upfront for two years. While that appeared to be a good option to put some method in the licencing madness, organisations were (and are) unable to estimate their software needs as they transform continuously. According to S R Balasubramaniam, Hero Honda, “IT needs are constantly evolving, and estimating them for such a long span of time is not feasible.”

Is there an ideal licencing model?

The top-most demand made by CIOs is that licencing should be based on use. Comments Mani Mulki, “We strongly feel that a licencing policy must be based on usage. In most cases, we have to pay the licence fee regardless of the features used.” Mulki’s thoughts are shared by E R Batliwala, DGM, IT, Tata Power Company. “There is an urgent need to review licencing policies.” In the last couple of years, CIOs have realised that IT has to be a business-enabler and just because a vendor has a slew of products does not mean that vendor markets will be of use to them.

Customers have been primarily reacting to paying for excess capacity. This is caused by several things, including situations where metrics and licence periods do not match actual usage E R Batliwala DGM, IT Tata Power Company

Then there are issues related to additional (and many a time unused) licences. Explains C N Ram, Head of IT, HDFC Bank, “In an office suite, you may have a hundred different utilities. The licence should be such that you pay for only what you use. Your usage may be only 2 percent. The onus is on the vendor to sell features and not products.”

CIOs suggest that vendors should look at feature selling. “Assurance of effective usage should be a part of licencing, so that when we are buying a product, the licence should be structured towards incremental adoption,” Mulki says. Often, several utilities—whether ERP, Office or RDBMS products—are not relevant to an enterprise.

In addition, when you throw in the cost of upgrades, then the situation gets murkier. Believes Mulki, “The way software is licenced today is too complicated, and it requires too much administration. In a subscription model, the cost of upgrades can be spread over a period of time.”

Microsoft launched ‘Enterprise Agreement’ in 2001, a software volume licencing programme designed for corporate customers with 250 or more desktops. Enterprise Agreement customers licence Microsoft software to standardise on your choice of the Microsoft enterprise products (Office Professional, Windows Professional upgrade, and Core Client Access Licence) at discounted prices for three years.

This is in addition to Select Licences and Open Licence agreements (for small and mid-sized companies). The company claims that EA subscription lets organisations licence standard desktop software (Windows Professional Upgrade and Office Professional) for all PCs in their organisation with non-perpetual usage rights that expire at the end of their agreement.

“The subscription option is easy to administer, because it only requires that companies do a simple year-over-year PC count,” opines Bala.

Impact of open source

The licence should be such that you pay for only what you use. The onus is on the vendor to sell features and not products C N Ram Head of IT HDFC Bank

The other side of the software licencing coin is open source. Most enterprises that Express Computer spoke to were less than enthusiastic about the manner in which commercial packagers of open source software (Red Hat, SUSE and the likes) structured their licencing policies.

Explains Ram, “Support is something that one has to pay for even if the licence is free. The other issue is growth of the software, and we need to be sure that our fortunes are tied to something that is constantly enhanced, and does not leave us high and dry if funding dries up. At present we may not have that kind of luxury with regard to open source.”

Having a software product’s source code does not necessarily entitle a user to tamper with it.
Hence, multiple open-source licences exist. According to Rajendra Erande, Corporate Advisor – Information Technology, Thermax, "Each has its own advantages and disadvantages, depending on whether you’re an individual, an enterprise user or a developer.”

While open source has been touted as the next big thing to have an impact on licencing (in the form of subscriptions), it has not changed the way enterprises buy their licences. Many organisations still do not understand the licencing nuances and stick with the traditional ones.

However, there are multiple licences that fall under the ambit of open source. Having said that,
there are companies such as Tata Power that have gone for a ‘open source’ deployment. Avers Batliwala, “We are using OpenOffice.org and are shortly planning to upgrade to version 2.”

“As users, we need to have some kind of influence on how a product shapes up and feel that we can do this with open source,” feels Ram.

Not yet licenced to thrill

The driving force behind the changes in software metrics is the pressure exerted by customers on vendors to have their expenditure correspond to actual use. However, on closer examination, the driving force is exactly the opposite. Comments Batliwala, “Customers have been primarily reacting to paying for excess capacity. This is caused by several things, including situations where metrics and licence periods do not match actual usage, purchase for peak use leads to idle assets, and over purchase.”

Some customers have begun to realise that when purchasing a floating licence, they are actually purchasing the right to use an application for 24 hours. This again gives rise to capacity concerns. In some cases, customers want to float licences across the world for 24 hours or pay less for the licences they have for use in a specific location. Unfortunately, the business assumptions underlying software providers’ pricing decisions assume an 8-10 hour workday.

For instance, some software providers have sold their software based on the number of concurrent users without administrative tools. With neither the customer nor the software provider knowing the actual use, adversarial relationships develop.

The bottom line for software development firms is that at some level of revenue loss or excess costs, the unwillingness to suffer this loss drives the adoption of new delivery methods and appropriate licence management.

“Software metrics and licence periods that approximate use along with appropriate licence management decisions can bring the business transaction equation back into the picture,” says Sistla Krishna, Head – Software Sales, Sun Microsystems.

Krishna sees a situation in the near future where customers can choose both a subscription as well as a pay-per-use model, and vendors are working towards this end.

There are suggestions that ‘stripped-down’ versions of software can address licencing issues. Batliwala elucidates this with an example. “When we buy a car, we have the option of a stripped-down or a deluxe version. The same should be applicable to software.”

He even suggests a model along the lines of the ASP model and feels that as bandwidth availability increases, it makes sense for applications to be hosted and paid according to the usage.

Whether it’s upgrading ERP or an OS, or even moving to the latest version of a popular database, the writing on the wall is clear. The software industry has been about innovation, and enterprise users could do with some flexibility and clearer licencing policies.

With inputs from Vertika Yadav

venkatesh@expresscomputeronline.com