Sourcing enterprise software from the Cloud may bring operational and cost benefits, but factoring-in licensing complexities can obfuscate cost-of-ownership issues.
Software licensing is described by technology writer Thomas Wailgun as 'an arranged marriage between software buyers and vendors', that comes loaded with 'too much tradition, too little choice, and a partnership of unequals from a deal's beginning'. The topic has been a contentious bone to pick over as the software industry - and the world's reliance upon it - has developed over the last 25 years; software vendors have drawn almost as much ire over licensing issues as they have for problems with the software they peddle.
Cloud Computing is enveloping the options for enterprise software specifiers as well as changing the terms and conditions by which such software can be deployed and used. But, some observers warn, these can bring banes as well as benefits.
Cloud is supposed to overturn conventional models of software licensing. For years there has been discontent on the part of IT managers who resented the burden that software license administration incurred, and that licensing models were biased toward the vendor's needs, rather than customers'.
Conventional licensing will be obtainable for the foreseeable future. Analysts reckon that enterprises that will migrate their enterprise software applications requirement - standard, operational and critical - to the Cloud environment will be unusual (even rare), and that a mixture of on-premises and off-premises software hosting will be the norm for years yet.
Cloud Computing presents an opportunity for new software providers to offer products and services with reinvented licensing models. These may, in many cases, deliver welcome respite; in others they may introduce an era of instability and administrative headaches. For instance, according to Ian Gotts, CEO of business process management firm Nimbus, opportunistic Cloud software service vendors are liable to offer untested licensing models predicated as much on winning customer contracts as legitimising a sound business partnership. 'It's something of a wild west out there,' says Gotts. 'Cloud technology is evolving faster than the licensing models needed to support it.'
Writing for TechTarget, Joseph Foran, director of IT at social-services agency FSW, agrees: 'Software licensing is the bane of thousands of IT managers, [and it] just got more complicated. Managing how many users can access PeopleSoft, or how many licences of Windows 2008 R2 you need is straightforward: add up the total and write a cheque; but managing the number of licences you need for a Cloud deployment of your custom application? Not so easy.'
To date there have been three standard types of licence model: per-device, per-user, and enterprise-wide. Sounds straightforward enough, but each comes with variations, permutations and conditions that have, over time, been added as software vendors have sought to tweak these basic models onto evolving technology and customers' differing requirements.
Per-device licences exemplify this. The one-PC/one-software installation model has been supplemented by the per-processor and per-core models based on the total number of processors or cores on a host hardware system. Even the long-established per-user licence - where a specific user is granted a specific licence to use the application or operating system, say - can now get very complicated, as Foran notes: 'This is subdivided into concurrent users and total users. A concurrent-user licence means simply that you are licensed up to X-number of users simultaneously. You can have 25 concurrent licences, and 2,500 users; but as long as only 25 people are using the system at one time, all is well. If the licence is based on total users, [then] 25,000 licenses are needed.'
For organisations with deep pockets, the enterprise-wide licence might alleviate the complexity - you pay more, but constraints are fewer, Foran explains: 'Whether you have 10 users, 10 devices, 10,000 users or a million devices, an enterprise licence can cover you. Of course, each of these licences goes deeper. To put an application out to a user population inside a company, one must license the server-operating systems, the applications, the databases and the end-users, plus any development tools and middleware.' However, financial directors may question the prudence of paying for usage rights where software is not used.
The IT sector is blitzed by claims about how Cloud Computing represents a revolutionary way of providing enterprise applications, and many Cloud software vendors and service providers have used this point to reveal how new licensing (or leasing) models lends competitive differentiation. Some of these models are inventive, some claim to be calibrated to the needs of the Cloud-driven organisations.
'Cloud newcomers are anxious to get their software out, and users will be attracted by promises of greater flexibility,' says Phil Heap, head of products and services at industry association FAST. 'The dilemma they face is that in evaluating the new licensing models with the ones they are used to, they will not be comparing like for like. Where they continue to maintain on-premises applications with conventional licensing agreements, things will probably not change much; a move into the Cloud will leave them having to manage two or more licence model types. My concern is that we are moving toward a state of flux that's causing pain all-round.'
These changes have brought new deployment practices that, while appearing liberationist, could turn disruptive. Cloud models enable 'the business' - such as end users, departmental heads, or project groups - to purchase software services directly, rather through - and with the sanction - of the IT department.
This is a massive break with traditional IT practice that would send shockwaves through the practice of IT. 'Use of Web email, or outsourcing some IT requirement is one thing - usually the IT department still controlled this,' says Gotts, 'but Cloud enables users to directly procure applications and services that they want, by-passing the IT department.'
Such a change would have ramifications for the IT function. The most obvious one is, of course, that it reduces the reliance on in-house IT department in areas. This may sound like user-power in action, but, as Gotts points out, it does mean that inexperienced personnel are now assuming key responsibilities previously handled by seasoned and experienced colleagues. Applications may not be rigorously evaluated, for instance, and prove to be unsuitable to the task. Non-IT colleagues may not ask vendors basic questions such as 'Where is out data held?', 'Is it held securely?', or 'What is your company's strategy for evolving this software?' - all things that IT professionals regard as standard due diligence.
If the end-users choose inappropriate or faulty products, they will probably not have a contingency plan to minimise the impact on the business. And they may not scrutinise licensing agreements that could lock them into additional pay-outs - clauses that experienced IT managers are accustomed to looking for. As FAST's Heap observes: 'There is still immaturity and confusion in the Cloud market, and a lot of people do not know how they will adopt it, especially when it comes to licensing. It will take years to settle down.' Organisations should not assume that they do not still need strong software asset management policies when they are licensing some of their software through the Cloud.
Inexperienced end-users will also be tempted by the prospect of freeware for some basic desktop applications, without fully understanding the risks that implicit it allowing a third-party to retain enterprise data with no legally-enforceable contractual agreement.
'Naturally, the notion of hosted applications with no usage or storage charges is appealing, but I am concerned if something is free, and there is no obvious business model,' adds Gotts. 'I would prefer to pay [for software], and to know that the supplier has a revenue stream that enables it to stay in business.'
FAST's Heap adds: 'Vendors are in the business to sell software, and it is not feasible to have a 'fits-all' model, but there could be more alignment between emerging models.'