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7/28/2006
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In Depth: Software Vendors Try New Pricing Schemes For A Virtualized World

As data centers become multicore and virtualized, software vendors are looking for new ways to charge for their products. Keep your hands on your wallets.

When you go to buy new servers to rev up the company's IT infrastructure, look carefully under the hood. The added horsepower just might change the price you pay for the software that runs on them.

Software vendors such as IBM, Microsoft, and Oracle have priced their server-based software--databases, application servers, and operating systems--according to the number of CPUs the software runs on. Software with a $10,000-per-CPU price tag costs $40,000 when installed on a four-way server. Pleasantly simple.

With the advent of dual-core and multicore processors and server virtualization, that simplicity's fading fast. Multicore processors and virtual servers let IT departments shift workloads more effectively, but they also make it difficult to track how many processors and servers the software runs on. As these technologies go mainstream, software vendors are scrambling to make sure they don't lose revenue or stifle the promising technologies with oppressive licensing.

IBM faced this reality last week when it unveiled a major change to licensing for middleware and other software products, using a complicated scale based on values IBM assigns to specific processors. IBM's goal is to move away from per-processor pricing and toward usage-based utility pricing.

Microsoft also is changing some of its pricing to jibe with virtualization. Starting in October, customers with Windows Server 2003 R2 Datacenter Edition can run an unlimited number of copies of Windows Server on virtual machines on a physical server. And users of the forthcoming Windows Vista that subscribe to Microsoft's Software Assurance program will be allowed to run up to four copies of the operating system on a PC.

The challenge of matching software prices to hardware innovations isn't new. Oracle stumbled over it back in 1999 when it experimented with "power unit" pricing, a scheme that based software prices on chip processing speeds. That approach raised prices and ticked off many customers, some of which defected to competitors. The plan was too complicated, admits Jacqueline Woods, Oracle's VP of global pricing and licensing strategy, and the company abandoned it two years later.

But multicore processing and virtualization are making server software pricing even more problematic. Intel and Advanced Micro Devices now make dual-core microprocessors and plan to introduce quad-core processors in the next year, and Sun Microsystems already sells servers with its eight-core UltraSparc T1 processor. Virtualization is being used much more widely in production systems, particularly for server consolidation. And broader adoption of grid computing, where workloads are broken up and distributed over hundreds or thousands of computers, is on the horizon.

John Matelski, deputy CIO and chief security officer for the city of Orlando, Fla., says the new technologies are making licensing options "more complex and more difficult to negotiate." Buyers like per-processor licensing better than per-user pricing because they don't have to track how many workers, partners, and customers might use a piece of software, Matelski says. Multicore chips, virtual servers, and grids may force vendors "to adopt utility-based pricing schemes that charge customers based on how much use they get out of their software," he says.

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