Sidebar: Software Licensing Falls Apart

Computerworld - It's 2010. ERP software has disaggregated into a set of distributed components, exposed as Web services, that users quickly assemble and reassemble to adapt to changing business needs. Customers no longer buy entire packages or even modules, but select only the components required. On the back end, ERP systems run on distributed systems that provide processing resources on demand, rather than on dedicated servers. And the composite applications organizations use are constructed both from components the user owns and others they access as Web services from business partners.
How do you license that?
That's the challenge enterprise software vendors face as they move into a new, more virtual world. The transition could be difficult. More than 95% of ERP software licenses are based on "fixed-license, fixed scenarios" today, says Bill McFadden, an analyst at Plant-Wide Research Group in North Billerica, Mass. "They're not based on performance."
The first step in this direction -- decoupling of licensing from the hardware -- is already under way. The move toward multicore processors and virtualized, on-demand models for computing resources is undermining the ability of software vendors to charge per CPU. Current processor-based licensing models force users to buy excess capacity because dedicated systems and processors aren't fully utilized, says Michael Curry, product marketing manager at data integration software vendor Ascential Software Corp. in Westboro, Mass. If ERP software is running across a grid of 100 Linux servers instead of on two 32-way Sun boxes and users can account for how much time is allocated to a processing task, then buyers will start asking, "Why am I paying for excess capacity? That's happening now," Curry says.
With the move toward component-based software, vendors will not extract the same revenue because "they're not providing the same value," says Curry. Usage-based pricing could become the norm.
Moving to a utility-based pricing model has some merit, but "the industry is quite a ways away from moving in that direction," says Cory Eaves, chief technology officer at SSA Global Technologies Inc.
As for composite applications, he says he expects customers will tend to buy most components from a single vendor. "If they start doing this mix-and-match approach, all of these issues become a lot more complicated," he says.
"Eventually you'll pay on a usage basis for a specific component," Curry predicts. But, he adds, "you're talking five to 10 years out at the earliest before this comes into play."

Read more about ERP in Computerworld's ERP Topic Center.