Software Licensing Is Sticking Point for Cloud Adoption

Ask folks about barriers to the cloud and you’ll get a very familiar list: security concerns, performance issues and a niggling fear of giving up control. What you don’t often hear about is licensing costs, which could prove to be a pretty big hurdle.

IT Business Edge contributor Mike Vizard wrote about it last spring, noting that software licensing dicussions are getting more complex with the advent of virtualization, multicore processors and cloud computing. (And let’s face it, it’s not like they were simple before.)

To get an idea of just how complex, Mike’s source for the post was the CIO of Miro Consulting, a company that created an entire practice dedicated to handling software licensing in the cloud for clients. Where there’s complexity, there’s a good consulting business.

Mike wrote:

… While companies such as Oracle may have worked out some terms for running their software on a specific cloud computing platform such as Amazon, the vast majority of the industry is taking an educated guess when it comes to licensing software the runs in virtual environments in the cloud.

He also said software vendors want to require customers to prove they are compliant with the terms of their license when the customer moves the software from their premise to the cloud provider, which "results in a lot of very granular negotiations between the customer, the software vendors and the cloud computing providers."

And Mike wrapped his post on a less-than-hopeful note, saying the Miro Consulting CIO "doesn’t expect any progress any time soon when it comes to creating standard sets of terms and conditions for cloud computing."

Fast forward a year and it doesn’t seem much has changed.

Writing on ComputerWeekly.com, Bryan Glick says confusing licensing terms and conditions are "the biggest commercial impediment" for large organizations considering the cloud. Organizations attending a recent ComputerWeekly roundtable discussion said they want more clarity and don’t want to pay a license fee for every employee that might use cloud-based software.

Vendors aren’t exactly eager to provide this, however. Writes Glick:

… For many of the biggest IT suppliers, the combination of those two factors is anathema to their business models, built as they are around big up-front product or licensing costs followed by ongoing support and maintenance fees. Turn those off, and replace them overnight with a flexible pay-as-you-go fee, and bang goes the P&L.

Paul Turner, senior director of product marketing for NetSuite, touched on this when I interviewed him in December. He said:

… [On-premise software companies] definitely enter with one hand behind their back. If you look at SAP, they’ve got some horrible positioning diagrams where they put their different products. They’ve got this weird cloud offering sandwiched between two on-premise offerings. It’s almost like they are disincented to make Business ByDesign scale. If they do, it will bite into their on-premise offering.

Glick says this kind of tension creates an ‘Inflexion point, where CIOs understand what they want from the cloud and are asking their strategic suppliers to provide it – but those suppliers cannot commercially do so unless enough of their customers come together to give a financially viable critical mass to switch from the legacy form of licensing to a new, flexible cloud model."