Virtualization licensing still a minefield

Virtualization licensing still a minefield

Summary: Licenses for virtualization remain abstract and complicated, so companies must understand how software will be used to achieve cost-effective agreements, analysts note.

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The virtualization software market is maturing with growing adoption among enterprises, but customers will need to grapple with thorny software licensing issues such as it becoming more abstract and complicated, which make compliance a headache, analysts note.

Stewart Buchanan, research vice president of IT procurement and cost management at Gartner, pointed out that virtualization uptake gained traction during the early 2000s. This, in turn, posed challenges to traditional software licensing models and most vendors had to modify existing terms or sell additional licenses specifically for virtualization software, he noted.

As a result, license rights inevitably became more abstract and complicated, which meant clients would typically have to pay extra for more comprehensive licensing rights to deploy the software to adhere to compliance, he added.

John Brand, vice president and principal analyst of the CIO group at Forrester Research, observed that there has since been a mixed response from enterprises. "There are organizations that have proactively and aggressively pursued the vendors and negotiated themselves much better deals. But there are also a great number of companies that have simply accepted the licensing demands of the vendors and are paying a much higher price than they need to," he said.

One reason for this is because the implications of virtualization on software licensing--and how vendors address them--are "extremely complex" for organizations to understand, he explained. For instance, the license for one product can be different across different customers because of the way the product is configured and used.

"Just because you purchased a license for a specific product doesn't mean you can use it in any way you wish. Some products are licensed by cores, but hardware virtualization can make a 16-core box look like a single core machine. Do you then pay for 16 or one?" Brand pointed out.

"It is still only one physical box, but the way [a company] implements the software can change the licensing structure considerably--if it requires all 16 cores in one instance or 16 instances of single core licenses."

Ray Wang, principal analyst and CEO of Constellation Research, added that the rise of the mobile workforce also complicates matters. This is because the same worker might incur double or multiple licensing charges by accessing the company's computing resources using different devices, he said.

Gain upper hand in negotiations
Analysts also pointed out that the power dynamics between vendor and enterprise customer play a role in how costly and comprehensive virtualization licensing will be.

Brand said that while some vendors would concede adjustments to their licensing programs to be more flexible and reasonable, they are also cautious in not wanting to "sacrifice" their entire revenue stream.

Conversely, customers would want "the right to run anything, anywhere, but they don't want to pay more to buy [these rights]" and may look to renegotiate for virtualization software based on existing license agreements with the vendor, Buchanan noted.

He added that where vendors might gain an edge is when companies had earlier licensed virtualization software and are hence less inclined to purchase new software and licenses from other vendors. In such situations, companies would lack the negotiating leverage.

"Vendors know that the cost of switching or migrating to an alternative can be much higher [for customers to bear]," he said. "For organizations that go ahead and virtualize anyway, this gives the software vendors even more money after compliance audits. That's like rewarding them for their licensing model."

Opportunities to be gleaned
Brand thus called on companies to understand their software usage to put themselves in a better position to be creative during contract negotiations.

By examining "what you have, what you need, how it's implemented and how it could be implemented differently", a customer will likely have enough information to push for a better licensing deal, he said.

"Never believe a vendor when they say everybody else is paying on the same basis," he emphasized.

"Your ability to achieve the outcomes you desire is totally dependent on the position of power you hold in the negotiation, and particularly your ability to present a stronger argument than the license provider. Organizations must determine what they think is reasonable and not accept license terms just as they are presented [to them]."

Buchanan agreed, stressing that companies must have full understanding of their software needs and uses.

That is why software asset management (SAM) is helpful because beyond counting licenses and ensuring compliance, implementing SAM means a continual cycle of improvement and optimization of application portfolio management to derive more value overall, he said.

Topics: SMBs, Apps, CXO, Software, Virtualization, IT Employment

Jamie Yap

About Jamie Yap

Jamie writes about technology, business and the most obvious intersection of the two that is software. Other variegated topics include--in one form or other--cloud, Web 2.0, apps, data, analytics, mobile, services, and the three Es: enterprises, executives and entrepreneurs. In a previous life, she was a writer covering a different but equally serious business called show business.

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