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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.

There Are 10 Responses So Far. »

  1. As an industry I agree – Licensing generally has not caught up with this aspect. The only people that have been worried about it are those that develop Operating Systems (e.g. Microsoft and others).

    Our company has been on top of this before Virtualization went main-stream, and we have been advising our customers of this risk for some time. Here is a blog entry on this very subject:

    The only way to deal with this is to move licensing outside of the dependencies of the VM. Nitro-LM is a perfect example of this – 'cloud' based licensing service.

  2. I agree.

    As always we will see the necessary flexibility from small vendors while big vendors like Microsoft will act like they are unaware of the problem and will keep licensing per VM.

    There are still tons of things to handle before cloud computing will be mainstream and licensing is surely one of those issues.

  3. David,

    Given that this licensing solution is online – how does one deal with the following:

    Working in an airplane – no Internet
    Working inside a firewall or secure area – no Internet
    Internet connection failure

    Interested in more details.


  4. Really good point David, and the vendors need to get on with it whilst procurement departments and buyers should be voting with their feet.


  5. Really good comment. Now the vendors must get on with working this out plus we should be voting with our feet and refusing stupid licensing terms.


  6. David,

    Had a look at the the blog and see that there is a requirement for on-line connections – how does this work when the Internet is not available or possible?


  7. A lot has happened since that article was written over two years ago. So I will try to put some context around the original blog entry and also add additional context that is more relevant to todays environments.

    We have always maintained a strong view of virtualized environments as primarily being on a non-moving piece of equipment for the most part like a server application – or test environments for software development companies. Today, laptops are more powerful and even I run 2-3 virtualized environments on my own laptop for various business, development and testing purposes. This trend will continue.

    Given those historical assumptions of 'use', and keep in mind we have not had any customers gripe about our policy yet, we have decided never let software be 'checked-out' or 'node-locked' to a virtual environment. It basically makes 'no sense' to do that for software running in a virtualized environment – software companies lose control of the licensing immediately if it is permitted.

    So it is not just in our interest as a licensing company, but also in the interest of our customers to -not- allow licensing to be completely delivered in that scenario. The customer's software -must- call home, and since Nitro-LM is effectively 1-time zone and 1-point of accountability, there is only 1 answer as to whether a license is available or not. This applies for server applications, as well as standardly installed client applications.

    When you remove licensing from the control of your customers – you can actually manage it. Otherwise the likely hood of 'theft' or use beyond the terms and conditions skyrockets – especially outside of the USA and EU.

    ALSO – One of the biggest problems that I see is that the existing software business models (with exception of Software as a Service – SaaS) are not keeping up with the technology. This is especially true with regards to virtualization. The End User License Agreement (EULA) can 'threaten' or outline a 'policy' – but in the end, the software developer has no control over the end user when the approach to actually licensing the product does not actually 'enforce' the EULA. This costs companies Billions (yes, with a “B”) in revenue.

  8. Interesting Hot Aisle discussion on SW licensing and how it will work in the cloud – or will it?

  9. […] Read the entire blog entry here >> […]

  10. As an IaaS provider we are restricted by the licensing models of software vendors. The attitude and sophistication of different paid-for software vendors varies wildly without particular logic.

    Many strange licensing quirks persist even from major vendors (such as calendar month licensing!) whilst other vendors still have no on-demand or short subscription others are moving towards more innovative licensing models.

    Ultimately we believe that the accelerating growth of the cloud will deliver users to software vendors that embrace new business models at the expense of those that persist with traditional models and ignore the new opportunities that the cloud presents. To give an example, the cloud reduces friction and makes adoption significantly easier, this alone has the ability to allow innovative software vendors to expand their market share significantly.

    Kind regards,


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