The License to drive to an adaptive organization

As IT organizations strive to become more adaptable to fluctuating business requirements, a key obstacle exists for software licensing in this new flexible model. Several key defining factors that are influencing the licensing environment must be taken into account before adopting any new licensing metric.

The macroeconomic environment (e.g., regulatory changes, accounting scandals, Linux) has driven vendors toward a more conservative treatment of customers and financial reporting. This has been offset by a slow but steady evolution from a perpetual licensing methodology to a subscription (or lease) type of licensing. Another trend is a general upward pressure on maintenance rates, based on an absolute percentage basis, as well as moving the basis from the discounted price to the full list price. Finally, the appealing concept of variable pricing (e.g., on demand, Adaptive Enterprise) is in the introductory stages, moving costs from high fixed to variable, aligned with a readily identified business metric.

We believe these new licensing methodologies will require three to five years to fully mature (including associated management tools). When customers consider new paradigms, they enter a world without the experience (or the vendor`s experience) needed to manage the new licensing paradigms. Customers should first examine existing, known cost models, leveraging the existing licensing models with all the known perils against new vendor offerings (flat-growth model, maintenance-stream only). We urge customers to review new models with skepticism, because most models are built to maintain or improve the vendor`s maintenance stream.

Bottom Line: Customers that pro-actively manage software license models will be positioned to exploit newer models and save money during the next three years.