While IT continues to innovate and advance at a dizzying rate, the dark corner of technology licensing remains, for some, a haven of inertia.
Andrew Brinded, vice-president and sales chief operating officer: EMEA at Nutanix
But even here there is activity and creativity as we see increasing demand to create a licensing model free of lock-in and representative of true value and transparency.
Today, we live in a world where artificial intelligence, cloud computing, the Internet of Things and other phenomena are creating vast swathes of opportunity, but enterprise software licensing retains vestiges of the ancient business world. I’m thinking specifically of the perpetual licensing model where the buyer pays once in acquisition cost and again with an annual maintenance tax.
Perpetual licensing is a relic, but it has stuck around in big-ticket software items such as databases and enterprise resource planning systems because buyers have little choice in the matter, and the model suits the vendor nicely. The tendrils of huge software packages bind a company and the short answer as to why some companies stay with perpetual licensing is “because they can”. Customers are so locked into the package that there is little practical alternative to staying within its confines. Also, despite attempts to ‘de-fang’ licensing, the old joke that the contract is more complex than the binary code still has some truth.
Changing terms
But licensing is far from being an innovation-free zone and there is a fairly long history of attempts to make it fairer and readily understandable.
Understanding software licensing requires an understanding of how IT has evolved. Many years ago at IBM, I sold AS/400 integrated combinations of hardware and software with leasing options that were popular as an alternative to the traditional capital expenditure model. IBM even developed an offer called Capacity on Demand that let customers add compute power for peak periods; a toy retailer might add processors in the Christmas period, for example. But the fact that the vendor was effectively sponsoring a maximum capacity that could be switched on and off made this an imperfect approach.
Fast-forward to recent times and subscription licensing has grown hand in hand with cloud computing. The subscription approach provides utility-like tariffs and has the benefit that capacity can be very easily switched on and off, depending on the needs of the customer and with no penalty for the service provider. This is becoming the model demanded by progressive enterprise IT buyers although, for companies stuck with legacy three-tier architectures, those savings can be mitigated by the administrative burden in operating IT.
What’s needed, and is just becoming available, is for vendors to take their lessons from the consumer sector to deliver highly usable licensing that’s as simple as changing settings on an iPhone or making an App Store purchase. Ultimately, CIOs and CTOs want to be able to drag and drop workloads so that the right workload is matched to the right environment, whether that’s a private cloud, an AWS or an Azure. They want the nimbleness to run software on a choice of hardware, be able to quit a platform without penalty and not to tolerate a tonne of upfront costs or gotchas.
It staggers me that perpetual licences are still the norm in 2020. They are expensive, unwieldy and they often mean piles of unused shelfware, aggressive auditing and legal threats that are anathema to an economy where NPS scores are crucial KPIs and where the customer experience is constantly calibrated. In a world where the savvy consumer can take their pick of options, packages and deals from companies such as Netflix, Spotify and Google, they underline that enterprise software is stuck in an old world.
Vendors need to do more to decouple hardware from software and provide tariffs that are clear and rooted in value. Those that don’t get that won’t see their kingdoms taken away overnight, for reasons already explained, but the vendors shouldn’t be surprised if their estates are chipped away at, as customers plotting new projects look to new partners that have treated them as valuable customers.
Business-to-business technology is complicated, but there’s no need for licensing to be so opaque or for shortcuts and tricks to be deployed in order to keep customers onside. Instead, vendors need to do a better job throughout the commercial process, providing sound economics, backed up by expertise to demonstrate costs and value. Now more than ever, customers need flexibility rather than hardball tactics from vendors. Stickiness isn’t a fly trap but a reward that is earned: vendors that do a good job and focus on what customers need will keep the vast majority of them, even as they make it easier for them to exit.