SYSTEMS MANAGEMENT Tivoli Systems Inc. earlier this month unveiled a pricing program called value-based pricing, which covers the company's more than 100 software-management products, ranging from the desktop to S/390 servers. Under the plan, pricing and licensing for all software, regardless of operating platform, is based on a common unit of value called a Tivoli management point.

The points are based on what a given product is managing; for example, a desktop would have one point and a small server 50 points, says Dean Verhaeghe, director of corporate strategy at Tivoli. Customers are free to make changes in configuration without new licensing as long as it stays within the points of the original setup.

Triactive Inc., an ASP in Austin, Texas, that licenses a variety of applications from Tivoli using the new pricing model, says one benefit is the ability to order "generic licenses" without incurring higher costs. "It's likely that our customers will want a different mix of services from us than they originally wanted, so we needed a way to source licenses generically rather than specifying particular applications," says Todd Clayton, VP of marketing at Triactive. With the new plan, "we can order so many points of software and then turn on the particular services we need."

HARDWARE While perhaps not as dramatic as changes in the software market, pricing of IT hardware is also undergoing significant change. Some hardware vendors offer a plan for "pay-as-you-go" processing power, under which customers pay for system capacity as they need it. HP and Sun, for example, are allowing customers to buy a 32-processor system, but pay for use of only four of them. As customers turn on additional processors, the system reminds them to get the license updated for the additional charges.

Under its Capacity On Demand service, Sun charges $400,000 for the use of eight processors on a 20-processor system that costs more than $1 million. The plan is available only for Sun's Starfire platform, but beginning in the first half of the year it will be extended through Sun's server product line.

Sun also plans to introduce new financing plans to meet customer demand for "on-the-floor" capacity and scalability. New financing programs will let customers implement a Sun platform, including services and access to incremental processing capacity, for a single monthly payment. The customer pays only for capacity that's activated. As full system capacity is reached, customers are notified to update the license and pay Sun the extra fee.

"Our customers are asking us for utility-like financing models. They don't necessarily want to own equipment," says Jack Letourneau, director of Sun Microsystems Finance. "They want platforms in which the capacity is always available, and they pay only for what they use."

HP has a service similar to Sun's Capacity on Demand for users of its V-class server. IBM declined to give specifics on most of its hardware pricing plans, but says it offers capacity-on-demand pricing models on products such as the S/390 mainframe.

For desktops, some hardware vendors, including IBM and Dell, offer what Benner of Fluor calls "bulldozing," where an entire base of leased desktop devices in a company is replaced every three years or so with new equipment. "That seems to be where hardware pricing is evolving, and we're evaluating whether to do it," says Benner. "When you look at the cost difference, you could see savings of 20% over the traditional approach of leasing equipment and then replacing it a little at a time when you want to refresh."

NETWORK SERVICES Pricing structures for private lines and public network services such as frame relay have essentially remained the same for years. But Internet access is one area in which there's been dramatic change. The flat fee of $19.95 a month for unlimited usage is being challenged by Internet service providers' offer of free access, with their revenue coming from advertising.

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Illustration by Catherine Parr