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EXCERPT:

Dan Griffith, software asset manager at Motorola's Freescale Semiconductor
subsidiary, said there's big business awaiting whoever comes up with the
software equivalent of an electricity meter. "As the utility model moves
forward, somebody needs to make a meter the customer accepts and the
vendor accepts," he said.

October 19, 2004

Pay-as-you-go software licensing going slow

David Becker, Staff Writer, CNET News.com

SANTA CLARA, Calif.--Pay-as-you-go software might sound like a fine idea
in principle, but it's a bear to put into practice.

That was the gist of conversation at the SoftSummit conference, as
software executives discussed the promise and reality of utility computing
and subscription pricing.

Utility computing, a tech buzzword, essentially promises that a company
will have to pay for only the computing resources it actually uses,
dramatically cutting costs and improving efficiency.

Sounds good on paper, but both software makers and customers have been
slow and inconsistent in committing to the model, for reasons ranging from
economics to privacy.

For the software industry, utility pricing poses a threat to the bottom
line, said Jason Maynard, an analyst at Merrill Lynch. It's hard to
precisely predict software needs, and under standard perpetual license
models, that usually results in drastic overbuying.

"We have an industry that's still addicted to the crack of perpetual
licensing," Maynard said. That's why utility pricing, to date, has largely
been restricted to upstarts like Salesforce.com, where the whole business
model is built around alternative pricing, he said.

"I don't think you're going to see the big vendors change out of
inspiration," Maynard said. "This is going to be a slow transition that
happens as customers demand this."

Also, usage-based pricing is new and thus inspires all sorts of novel
legal issues, said Erik Larson, director of product management for
software maker Macromedia. That means lengthy contracts that are expensive
for software makers to hash out, making them reluctant to apply utility
pricing to all but their biggest accounts.

"People don't think much about the end-user agreement that comes with a
perpetual license, even though it's a big legal contract, because the
terms are pretty familiar, at this point," he said. "With utility pricing,
by its nature, everything's different. Those contracts are 200 pages and
take a whole team of lawyers to work out."

One of the biggest areas for potential dispute is what gets measured and
how. Software usage can be volatile and hard to predict, and coming up
with a metering scheme fair to all is a fine balancing act, said David
Rowley, vice president of business development for copy protection
specialist Macrovision.

"When you go in and lease a car, the contract says so many cents per mile,
and people have a pretty good idea of how much they're going to drive in a
year," Rowley said. "Software isn't necessarily like that."

Customers may also have issues with how much information the software
maker gets to collect. Usage patterns for key applications can provide
valuable information on a company's business plans, making companies
reluctant to share such data, even with the folks who made the
application, said Rowley, likening the situation to telling Sprint, "you
can keep track of my minutes but not whom I'm calling."

Dan Griffith, software asset manager at Motorola's Freescale Semiconductor
subsidiary, said there's big business awaiting whoever comes up with the
software equivalent of an electricity meter. "As the utility model moves
forward, somebody needs to make a meter the customer accepts and the
vendor accepts," he said.

# posted by newshare @ 7:52 PM