Virtualization and Cloud Computing Challenge Licensing Models

Both virtualized and cloud computing environments present challenges to suppliers. In both cases, it is very hard to tie the use of a specific instance of a software tool or application to customer value.

Both virtualized and cloud computing environments present challenges to suppliers. In both cases, it is very hard to tie the use of a specific instance of a software tool or application to customer value.  In both cases, software instances run in an abstracted environment that can grow or shrink as needed. This stresses many suppliers licensing and pricing models.

Most suppliers developed the licensing terms and conditions when software was tied to a specific system. The value of the use of that software could be estimated based upon a number of reasonable factors including:

  • the number of people it served, this could be measured in terms of named users or the number of clients allowed to access the software
  • the size of the system measured in terms of the power of its processor or the number of processors that was its host or a number of other
  • in the case of multi-tier software, the number of systems hosting specific components could be managed. It was a bit like dining at a buffet - an organization could order some number of user interface servers, some number of application servers, a few data management servers and some number of storage servers.

As virtualized environments become more important, these approaches to licensing started to fail. Organizations didn't think it was equitable if they were required to purchase a full license to a piece of software that may execute for part of one day every month. They also didn't view paying a full license fee for each system that may execute the software from time to time to meet service level objectives or deal with outage situations.

Open source software suppliers, such as Red Hat or Novell, often offered approaches allowing organizations to replicate and deploy software products as required. The pricing was based upon a number of factors including how much ran on a single physical host, how many of these software instances were supported by the suppliers support organization and the like.

As open source technology is increasingly in the hands of suppliers of proprietary software, it is likely that the terms and conditions will change to be more like those of the suppliers' other products.</p

Unfortunately, many suppliers have chosen to continue offering only restrictive licenses or conditions of use. The restrictions that made sense in a physical world, didn't work at all well in a virtual or cloud environment.

If you were asked to come up with an ideal way to license and monetize your company's software product, what would you suggest for licensing terms and conditions? How would you set the price for the product or service?