VMware Blinks On RAM-Based Licensing Costs

VMware announced Wednesday that it has revamped the vSphere 5 licensing model that it rolled out just three weeks ago along with the new product.

Historically, VMware licensing charges have been tied to the number of processor sockets in use, but with vSphere 5, the company announced that it also would put a limit on the virtual RAM (vRAM) that each license entitled a customer to use. While VMware contended that 80% of users would not be affected by the licensing changes, VMware's most aggressive adopters, and therefore loyal customers, routinely found that their licensing costs could triple under the new arrangement.

Further, many more customers looked at the next generation of servers they intended to purchase, and found that while their costs might not change with their current hardware, they'd skyrocket with new hardware. As a result, customers and analysts almost universally panned the new pricing scheme in very public forums and private conversations alike.

VMware officials have obviously been paying attention, and have now announced a scheme that softens but doesn't remove the sting of the vRAM entitlement fees. Under the new pricing system, entitlements per license are increased by as much as double. The new policy also caps the counted vRAM at 96 GB per virtual machine. With that cap, no VM requires more than one Enterprise Plus license (VMware's premiere offering) to run; previously if you had intended to create a maximum-sized "monster VM" using 1 TB of vRAM, you would have needed more than 20 Enterprise Plus licenses.

The company said in a blog post that the initial release of vCenter Server 5 will not properly count vRAM under the new scheme, but that a standalone utility would be available to do so, and that an update release would fix the problem.

Taken together, the cap per virtual machine and the increased entitlements will go a long way to assuaging the anger that was palpable as customers analyzed the effect of the new policy. However, concerns for costs haven't completely been erased. Those who aggressively adopt the latest and most capable hardware systems will likely see their fees go up immediately. And the fact remains that VMware's new pricing policy puts it on revenue path that's roughly tied to Moore's law, where memory densities double every 18 months and memory costs similarly drop by 50% every 18 months. Few companies will be willing to sign up for such a pricing policy without assurances that vRAM entitlements will also go up at a similar pace.

Without regular vRAM entitlement increases, what started out as cost tied to server system capability will eventually devolve into counting active virtual machines, as most or all VMs will eventually bump up on the 96-GB limit set out in the new policy.

Further, by changing its licensing policies in radical way, VMware may have poked a dog that it should have left sleeping. The cost for Microsoft's Hyper-V is substantially less, even under the vSphere 4 licensing model. And many organizations that license Microsoft products under its Data Center model are already paying for Hyper-V even though they don't use it. There's no doubt that VMware is fielding a more capable product, but there's also no doubt that Microsoft has a habit of destroying competitors, or at least marginalizing them, by building products that are just good enough and cheap enough to be irresistible for most customers.

VMware so far has fared well under its higher model. By producing superior products and pricing them accordingly, it managed a 40% jump in revenue in its last quarter. And it's easy to sympathize with the desire not to charge solely on processor sockets used--which comes with perverse relationship that the better its products are, the fewer processors will be needed and the less money it will make.

But the final word is with customers. While many may heave a sigh of relief now, there's also the nagging notion that they're being played. Think of the kid who comes home saying he totaled the family car and hit three others, but then fesses up that in reality, he just got a C in geometry--not so bad, right? Such senses of relief tend to be short lived. VMware will likely get a strong sense for just how its newest model is playing later this month, as the VMware faithful gather in Las Vegas for VMworld.

Art Wittmann is director of InformationWeek Analytics, a portfolio of decision-support tools and analyst reports. You can write to him at [email protected].

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