Wednesday, June 24, 2009

Examining Utility Software Licensing

Recently I read an article about a traditional enterprise grid computing company who is attempting to enter the nascent cloud computing market. Without naming names, I will say the technology is probably decent, what they seem to lack is any real insight into the cost advantages that cloud computing enables. What I'm getting at is the ability to scale your resources -- hardware and software alike as you need them only paying for what your need, when you need it. This is arguably one of the key advantages of cloud computing, be it a private or public cloud.

My biggest issue with enterprise software companies applying traditional software licensing to cloud infrastructure software is that by charging $1,000 per year / per node, you are in a sense applying a static costing model to a dynamic environment which basically negates any of the costs advantages that cloud computing brings. It's almost like they're saying this how we've always done it, so why change? To put it another way, on one hand they're saying "reinvent your datacenter" yet on the other hand they saying" we don't need to reinvent how we bill you".

To give a little background, for our recent Enomaly's Service Provider Edition (SPE) launch we selected a utility software licensing approach that enables service providers the ability to pay based on their actual hardware utilization in the run of a of given month. Our platform provides the capability to send a secure automated report directly to us at the beginning of every month. Basically this report sends a CPU Core count for the previous month. This enables the cloud providers a backloaded cost that scales with them as they grow their cloud offerings with little or no up front costs. By choosing this model, it effectivily allows us to grow with our customers and encourages us to send them leads as well as participate in joint marketing activities. The better they do, the better we do, it's a symbiotic relationship. It also creates a long tail revenue source which overtime will compound as we deploy more and more cloud hosting infrastructures around the globe.

Another problem that a more traditional yearly / per node pricing brings is it doesn't take into consideration the ability for hosting providers to recycle off leases servers into heterogeneous clouds. A $1,000 per node price tag is the same whether you're using brand new dual quad cores or older off lease single core machines. In contrast a monthly per core or even memory based utility pricing model allows for a uniform yet scalable cost model that doesn't penalize you for using older hardware or growth within your business. To put it another way, the traditional yearly enterprise software license is basically a success penalty -- you should be rewarded for success not penalized for it.

As cloud computing becomes more entrenched in businesses around the globe, the traditional pricing models for enterprise and data center software need to adjust for the new cloud realities. The single server doesn't matter, nor does assuming static or linear growth. Cloud computing is about adjusting for the unknown variables quickly and efficiently. What I see right now is most legacy enterprise software companies seem to have a hard time understanding the new cost centric reality a cloud infrastructure provides.

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