Concurrent or Per Processor Licensing: Which One Is Right for You?

Corporate purchasers have many options when it comes to cutting licensing costs: concurrent and per processor licensing, and per user/per device. Choosing the right option can be a challenge, even for an experienced negotiator.

The software vendor community traditionally has viewed concurrent licensing purely in economic terms. That is, concurrent licensing models are a financial boon for customers and a potential financial bust for the software vendors ever since software non-compliance and software piracy have reached epidemic proportions.

Although the terms and conditions of concurrent licensing agreements can vary from one vendor to another, no one doubts or debates the accepted definition of concurrent licensing.

Concurrent licensing although rarely available provides businesses with one-to-multiple license connections for a single price. Most important, the concurrent connection begins the moment the user accesses the application and lasts for the duration of the connection.

The software vendor community has near universally rejected the concurrent licensing model and with good reason. Arguments arise over when the concurrent connection begins and ends. Some customers who have not sufficiently studied the terms and conditions of their licensing contracts mistakenly believe concurrency begins and ends with the actual connection click.

Numerous joint Yankee Group and Sunbelt Software surveys conducted on the Web in the last two years indicate 90 percent of all businesses are noncompliant to some degree in their traditional per user, per device software licensing. Nearly 50 percent of organizations have significant levels of software non-compliance.

Worse, the survey data shows that more than three-quarters of businesses admit to not understanding the terms and conditions of their licensing contracts. Given corporations are hard pressed to track traditional license usage, one can only imagine how difficult it would be to monitor concurrent usage. Many firms have not made software asset management and auditing a priority to ensure their company’s compliance with their license agreements.

The concurrent usage model creates significant, fundamental problems for software vendors and corporate enterprise including:

• Difficulty in pricing and licensing
• Difficulty in tracking concurrent usage
• Nearly impossible to use concurrent usage for uncountable user populations, such as unrestricted Internet usage
• Difficulty in maintaining software compliance

The potential to compromise network security arising from degree of difficulty in tracking usage and compliance

Perception can prove a powerful lure. The anticipation and assumption that a concurrent one-to-many licensing model will net a business a significant discount is a very compelling reason for customers to yearn for it-particularly in the protracted downturn. As 2003 draws to a close, the Yankee Group sees an uptick in customer spending.

Therefore, corporations will not easily abandon their pursuit of the concurrent licensing Holy Grail unless or until they find alternatives. Ironically, at least a piece of the treasure they are searching for does exist in the form of per processor licensing, which is widely used by major software vendors such as Oracle. This licensing provides many of the benefits lacking in the concurrent licensing model, such as:

• The ability to easily track usage
• The ability to easily monitor compliance
• Paying only for what you use
• Reduced security risks
• Reduced risk of a software audit

There is hardly a company that has not seen its capital expenditure budget slashed because of the ongoing economic crunch. IT departments are over-worked, under-funded and under-staffed, so it is not surprising that customers would continue to search for a Holy Grail that would deliver instant pricing relief.

Customer cynicism abounds. Corporations are still reeling from the aftereffects of the Microsoft Licensing 6.0 launch. Microsoft is now moving quickly to respond by refocusing on customers and providing more intrinsic business value with myriad free services to make its Software Assurance upgrade and maintenance program more attractive to customers. This skepticism is not confined to the Microsoft brand. In this brutal economy corporate customers are wary of all vendors-particularly software manufacturers. Why? Again, it comes back to the complex and confusing nature of the licensing agreements. As one IT manager at a midwest insurance firm told the Yankee Group, “If I don’t understand it, I don’t trust it. And unfortunately, even our corporate attorneys have difficulty in deciphering the T&Cs of our licensing deals.”

In addition to a dearth of capex funds for all but the most important items, corporations simply need a very good reason to migrate to new software platforms and packages. The performance, reliability and scalability of software and underlying hardware are vastly improved from 10 or even five years ago.

A recently released Goldman Sachs survey of the 100 largest IT buyers in the U.S., underscored the fact that organizations are content to sit on their wallets as a direct consequence of the measurable decrease in IT spending budgets. The Goldman Sachs survey data also indicated budgets will remain depressed for at least the next 12 months. According to the Goldman Sachs survey, IT spending will drop to minus 3.2 percent during calendar 2003. Additionally, 66 percent of the respondents said they do not expect their capital expenditure budgets to change for the better until at least 2004 or beyond.

Not surprisingly, the latest Yankee Group survey indicated that the severe, protracted economic downturn has forced organizations into a reactive mode. Companies upgrade when they have to; any upgrade must be cost/performance justified and exhibit a tangible return on investment (ROI) within a given timeframe.

Additionally, the survey responses and customer interviews indicated that organizations are most concerned with the daily chores associated with ongoing network operations and maintenance rather than futures, such as Web services platform migrations.

Again, the need or desire for a concurrent licensing model was not a significant factor for any of the corporate IT managers interviewed by the Yankee Group. Businesses will welcome any licensing plan that gives them more favorable terms and conditions.

Two other issues are on the minds of IT executive and figure prominently in their deployment timetables: complexity and a shortage of skilled network administrators.

Since there are no indications of a sustained economic recovery in the next 12 months, it is reasonable to assume that business constraints will persist.

This makes it imperative that all software vendors-especially industry leaders such as IBM, Microsoft, Oracle, People Soft, SAP, Siebel and Sybase et al adopt a flexible and customer-centric focus in their licensing models.

The data point voiced by all customers interviewed by the Yankee Group is this: Corporate customers want to feel that they can trust their software vendors to be honest and straightforward and give them a good deal.

This is not a unilateral concern. Vendors want to feel confident they can trust their customers not to deprive them of legal licensing fees.

Software vendors and corporate customers that build on the deceptively simple foundation of mutual trust and honesty will not grapple with any singular issue such as concurrent, per processor, per user or per device licensing as an overriding issue that can make or break a deal.