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Study: Enterprises Moving Toward Flexibility in Software Licensing

Posted by iTech - 2005-10-14

Businesses unhappy with software licensing agreements are making changes to their policies that reflect a desire for more flexibility from vendors, according to a recent survey involving 500 software industry executives.
The report also suggested that a majority of enterprises are lax when it comes to monitoring license compliance.

The study, conducted by the Software and Information Industry Association (SIIA), the Centralized Electronic Licensing User Group (CELUG) and Macrovision, indicated that independent software vendors (ISVs) need to do a better job of working with their customers on compliance issues.

Subscription Models Get the Nod

Software vendors and enterprises continue to move toward subscription-based business models, the study showed, with the number of ISVs offering subscription models as their primary pricing method rising to 40 percent this year from 33 percent in 2004. By 2007, that number should reach 60 percent, the study predicts.

Similarly, the number of enterprises that purchase software through subscriptions jumped 7 percent to 43 percent, showing increased interest in greater flexibility with software usage among customers.

Concurrent licensing is emerging as the preferred policy for vendors and businesses, as opposed to named user licensing. The preference in enterprises for concurrent licensing has grown by 11 percent in the last year to 53 percent, while the preference for traditional per-machine and per-server licensing dropped by 7 percent. Among ISVs, there was a 16 percent decrease in the prevalence of the per-machine, per-server model.

Compliance Is Questionable

As the debate over multicore processing continues, processor-based licensing is not taking hold, according to the study. Despite some large vendors' aggressive efforts to license per processor, only 6 percent of enterprises prefer this kind of policy.

A troubling trend for ISVs is that 72 percent of enterprises manually track license compliance or don't track it at all, indicating that many organizations most likely are not complying with license terms.

"There is a huge discrepancy between the satisfaction level of vendors and that of their customers when it comes to software licensing and pricing," said Macrovision spokesperson Jason Mandell. "Only 28 percent of enterprises are satisfied with current licensing, and while vendors are making changes to their policies, they are not meeting customers' demands."

Finding Common Ground

Indeed, large vendors are responding to shifting customer expectations. For example, Microsoft (Nasdaq: MSFT - news) announced this week that it will shift from charging Windows Server users licensing fees at installation and instead use a model where users pay at the time of consumption.

Paying by running instance, rather than paying for separate licenses for each inactive or stored virtual versions of the software on a network, is a step in the right direction, said Mandell. "Vendors have to tie their fees to the value provided by their products to the business, not to an individual user or machine."

Concurrent licensing enables an organization with 1,000 licenses, for example, to allow workers in one part of the world to use software when the work day is done in another office across the globe. That can't be done with named-user policies, Mandell said.

"The market doesn't adequately understand the impact licensing has on the software industry," he said. "ISVs and their customers must work together on better licensing policies and technologies. It's particularly important for vendors who want to improve their relationships with customers."

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