Software licensing just hasn’t caught up with the realities of the modern IT Operation. Software vendors rightly need to monetize the customers valid use of their intellectual property, however it is in neither parties long term interests to increase operational costs by doing this.

Many software licensing terms focus on an actual link between the application or infrastructure software and the physical hardware. In the cloud, the objective is to break that link and completely isolate the licensed code from any connection to the underlying hardware. This gives the modern IT operation great flexibility to scale up and down, better resilience and higher asset utilization.

Licensing rules that limit the flexibility of the customer to move software from one physical platform to another or measure valid use as being the number of cores or sockets that the code can possibly run on (rather than the cores or sockets it actually runs on) get in the way of virtualization and operational flexibility thereby increasing costs for the end-user.

In the end licensing agreements are between the supplier and customer, and poor licensing practices will be seen as part of the Total Cost Ownership and impact the customers’ willingness to deploy that software or deal with that vendor. The problem arises when the customer is in a weak position with strong dependencies on the licensed software and the licensing terms are obstructive.

The whole thing is a mess and no vendor seems to have got it completely right. The key issue is to strike a fair balance between the intellectual property rights of the vendor to be rewarded for their investment in development and support of the code and the customers need to operate in a flexible way that minimizes their operational costs. In the end market forces will prevail and we will see much more flexible approaches like server farm licensing for large scale applications like SharePoint, Oracle Databases, and SQL Server.

Part of the problem is fair licensing is hard for the vendor to implement in the cloud. The great flexibility of the modern hypervisor where applications can scale out horizontally completely transparently is simultaneously it’s greatest weakness as we have limited capability to set hard or soft limits on use or to report on actual licensed application usage.

Microsoft has made a good start with their new volume license agreement that provides the flexibility to move systems between different hardware platforms and deploy within a server farm. This does not help the Small and Medium Enterprise who want to leverage the flexibility of virtualization nor will it address the many small point solution application vendors leveraging Microsoft code, who will find it difficult to construct a fair model.

In the longer term, functionality needs to be built into the hypervisor to report on and set limits for the use of licensed code. In the short term vendors and consumers of licensed software must work together to minimize the impact of the worst licensing terms.