Software licences to increase by 50% – Gartner

By   |  November 25, 2004

Enterprises worldwide could see their software licensing costs increase by at least 50 percent by 2006 unless they act soon to renegotiate existing contracts, according to analysts Gartner. This is because four emerging trends in hardware threaten the traditional pricing model used by Oracle, IBM, Sybase and many other software companies based on hardware capacity or central processing unit (CPU).

The trends include:
– The move towards multi-core chip architectures.
– The move to virtualise hardware resources across physical servers.
– A growing availability of servers to support capacity on demand.
– Increased interest in rapid provisioning tools.

\”Any one of these trends would present a great challenge to software vendors to maintain a fair and acceptable pricing policy,\” said Alexa Bona, research director at Gartner. \”The fact that all four are happening at the same time is a recipe for software pricing mayhem.\”

She added, that \”software companies will generally charge for the total potential CPU capacity regardless of what is being used. They will have to change their policies, but that change will not come quickly. It is therefore crucial for enterprises to understand the risks and protect themselves by starting contract negotiations with their vendors now.\”

Multi-core chip architectures
Until recently, servers were made more powerful by increasing the execution frequency of the processor. However, when processors run faster, they also require more power and generate more heat.

Multi-core chip architectures have emerged to increase server performance without requiring more power or generating more heat. The processor chip conforms to the power profile and physical connection of a single processor chip, but includes multiple processor cores in one socket. System performance improves as a result, but Gartner warned that multi-core architectures will not double system performance. Despite this, the majority of software vendors surveyed by Gartner are intending to charge the current CPU fee for each core on the chip.

\”If an upgrade to the new dual-core design offers only a 50 percent improvement, a doubling in the licence fee becomes a tax on technology innovation with little return,\” said Bona.

Virtualised hardware resources
Virtual Machines (VMs) virtualise hardware resources so that multiple operating systems can share/partition resources and dynamically scale the amount of resources available. In the past three years, the market for VMs on Intel servers has exploded because of the large number of lightly utilised Intel servers with small applications. Although VMs do not reduce administrative costs, consolidating hardware into fewer servers can reduce costs significantly.

Bona warned, however, that any savings that enterprises foresee from hardware or reduced personnel, will be more than offset by the increase in software fees. This is because most software vendors will not recognise logical partitioning or sub-CPU partitioning in their licensing. This means enterprises will have to pay for the total potential server capacity, irrespective of what is used.

Rapid provisioning
Rapid provisioning and migration tools can be used to move or scale software between servers with more or less capacity, based on workload requirements. For example, moving from a small server to a large server for end-of-month processing, or to avoid hardware downtime during upgrades.

This kind of technology expands the realm of virtualisation from the server to a group of distributed servers. However, software vendors require their software to be licensed and priced based on every server that could be used, making these tools cost-prohibitive in many cases.

Capacity on demand hardware solutions (COD)
Major hardware vendors have become able to rapidly and permanently increase capacity on high-end servers. The ability to perform instant temporary capacity on demand — turn spare engines on and off when necessary, and only pay for the time they are active — has emerged more recently. This means enterprises no longer need to size servers for peak workloads.

Although these developments can reduce hardware costs, software licence charges have not been addressed. Again, the software vendors generally charge for the total potential capacity, irrespective of what is used. There is no recognition of the utility-based pricing approach. Moreover, no mechanism is in place for software vendors to measure when and for how long these temporary COD processors were active. Consequently, potential savings in hardware can be eliminated by rising software fees that are based on the total potential system capacity.

\”Most users we speak to are aware of one or two of the four trends individually, but not of the combined impact,\” said Bona. \”Enterprises need to address this convergence rapidly. By year-end 2006, the manufacture of single-core chips will end. If contracts or pricing policies on this issue alone are not addressed, enterprises will have no option but to pay significantly more. Single core systems will not be available.\”

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