Blog Entry

Mar 24
2010 

IT Expects Virtualization to Save Money for Licensing

Recently, we ran a survey in Europe and in North America and asked IT directors and other technology decision makers some questions about virtualization. One was “Virtual Machines – do you have it or plan to get/use it soon?” The reply was overwhelmingly (80%) yes.

Another question (to the 80%) was “What is your #1 driver for Virtual Machines?” Nearly 50% of the responses were in the category of “reducing licensing expense”. This perception is evident because the types of license agreements companies are dealing with simply do not reflect the modern age.   Licenses describe installations per site/server/location, and when in a high speed networked and virtualized environment, these are increasingly meaningless concepts.

Here is one example.  Ten years ago, a software company sells a site based server license instead of a concurrent user license.  The company argues that for performance reasons, customers will buy more servers, put them closer to their users and put a copy of the software on each one.

Fast forward to ten years later.  The license agreement has not changed, but networks and servers have become much much faster and cheaper, and VM has upset the logic. Now the customer says “I can run one copy of the software, somewhere in a cloud, and get the exact same performance I need for all my users.  This will cut my licensing cost.” Now – on average – the software company sees his software being worth only 1/4 of the initial value per concurrent user.

What happened? The software company put out a model that made sense 10 years ago – but never got around to updating it. The customer (very diligently) is tracking and monitoring and thinking about his license agreement and sees a genuine way to lower his costs. The pain point is going to come to the  software company when he has to go back and change the licensing model, and the customer is going to cry foul.