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3/22/2011
03:30 PM
John McGreavy
John McGreavy
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Secret CIO: Software Licensing: There's Gotta Be A Better Way

I've been in this industry for many years and understand that pricing models must evolve with the times, but the current situation is utter nonsense

Can software licensing get any more ridiculous? My company recently concluded a $900,000 software purchase, after reviewing the products of three major vendors. Let's call them Tweedle Dee, Tweedle Doh, and Tweedle Dum.

Tweedle Dee worked hard for our business, though none of the vendors took the time to really understand our needs. As for Tweedle Dum, it was our apparent honor to have this vendor grace us with a proposal. At one point in the review process, Tweedle Dum's technical expert made his presentation to us via cell phone, in the wind, while walking to another client presentation scheduled for the same time. The one sales executive in the room with us seemed unfazed.

Tweedle Doh was somewhere in the middle. Its reps cared about the opportunity. They asked a few questions. We went so far as to hold a separate presentation with each vendor, to tell each one what we needed--to answer the questions the vendors should have been asking us. Tweedle Doh's rep attended this meeting, but failed to share any of the information with the rest of his team.

After getting through the review process, we turned to pricing. I've been in this industry for many years, and with the changes in platforms, virtualization, hosted solutions, accounting treatments, and remote usage options, I understand that pricing models must evolve. But the current situation is utter nonsense.

For each vendor, we were looking at an 80 percent to 90 percent discount from the list price. In what other market is an 80 percent discount the norm? "This new Lexus lists for $70,000, but we can get you into it for $14,000!" Let me guess: We now have to hunt through the contract for future fees that are based on the list price, right? More time spent negotiating maintenance and other aspects of the contract to avoid dependence on the five-times-higher list price.

But wait, we're licensing a number of different software modules from the same vendor, so one licensing model should apply to all, right? Not so fast. Some parts of the suite are licensed by a named user--straightforward enough. But we're running a browser interface, and one user will access the system from many different browser-enabled devices. Does such usage require more than one named user license?

Meantime, some software modules require a different level of named user license. And we need multiple levels of named user licenses, depending on the function of the user. Other modules within the same platform are licensed by company size--number of employees. Another module is licensed by CPU sizing. And yet another's licensing differs if you already own certain of the vendor's products, or if this is a new installation throughout the enterprise.

This was one of the few times when I sympathized with the vendor reps closing this deal. It was difficult for them to communicate the licensing options and keep a straight face.

Tweedle Dee indicated that while it had floated some pricing, it would work through the details only once we showed it we were serious. A published RFQ, four presentations, and an evaluation team of eight weren't sufficient evidence that we were serious?

Why did I get so involved in the licensing details? I felt sorry for my manager who was handling the discussions. And once I dug in, I watched our vendor rep have to call home for help on several occasions. Nonetheless, we ended up selecting Tweedle Dee.

Software pricing can and should be far simpler. Instead, the software industry is chasing the cellular carriers for the MLPMOTP award: Most Ludicrous Pricing Model On The Planet.

I understand that our software vendors must earn returns that support continued investment and innovation. But how much time and effort would be saved by both parties with simpler, more transparent licensing methods? It's time for a change.

The author, the real-life CIO of a billion-dollar-plus company, shares his experiences under the pseudonym John McGreavy. Got a Secret CIO story of your own to share? Contact jmcgreavy@techweb.com.

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