InformationWeek

September 14, 1998

TechView:
License To Bill Is About To Expire

By Sean Gallagher

magine the following scenario: You go to buy a car, but when it comes time to set a price, the dealer tells you that your payments will vary depending on how much you drive it, the terrain you drive over, the number of passengers you carry, and where you choose to garage the car at night. If you want to keep your payments down, you'll have to leave it parked at the curb.

Then you stop by the grocery store to pick up a steak. As the cashier rings you up, he asks, "Will you be grilling your steak outside or broiling it in the oven? There's a 20% surcharge for grilling."

We'd never put up with those kinds of conditions on our daily personal transactions, yet we accept them as part of doing business with enterprise software companies. What gives?

It's amazing how much of the energy dedicated to major software projects gets sunk into managing enterprise software licenses. I frequently hear friends in the business gripe about cryptic and confusing pricing structures that have them buying and selling licenses on a quarterly or even monthly basis in order to "stay legal" with their enterprise applications while controlling their costs.

With some software products, it's as if the vendor wanted to get its licenses traded on a commodities exchange. Savvy IT managers could make a killing in the Computer Associates Power Points Futures market.

CA's licensing scheme is one of the most cryptic and maddening. Since CA charges based on the cumulative performance of the systems that its software will run on, it's as if the company is trying to encourage customers not to upgrade their server hardware. The cost of 300-MHz servers may be dropping, but the hardware savings are quickly canceled out if you have to buy additional power points to be able to move your Unicenter software to one.

OLAP and data warehousing vendors are no better. Per-seat licensing makes sense, but licenses that dynamically change price based upon how much data the software processes or how many calculations it performs make it almost impossible for IT managers to effectively manage the costs of key applications.

It's no wonder Microsoft sees opportunities in the enterprise software market. Even if Microsoft can match only 80% of the functionality of products established in the market, it could easily capture market share with a simplified pricing structure. Because consultants see there's money to be made off the Microsoft "some assembly required" approach, they'll undoubtedly be happy to aid and abet Microsoft's conquest of market share.

That can mean only one thing for enterprise software vendors: It's time for a price check.