A version of this article first appeared in Computers & Finance, a magazine published 10 times a year in London by TBC Research. Through its comprehensive portfolio of magazines, events and research, TBC Research is dedicated to helping senior business professionals make more informed technology decisions.
Most companies have no idea whether they are fully licensed for the myriad of software they own and to compensate, many are overspending up to £4 million per year ($6 million US) to ensure they are fully licensed, according to one estimate. With companies such as SAP set to change their e-business products licensing strategy, ASP (application service provision) models prevailing and the threat of value-based licensing hanging in the air, the situation can only get worse.
Licensing in the Web world is a thorny issue. According to analyst firm Gartner, 60 percent of vendors providing ASP solutions today will be providing different services by 2001. But if this is the case, many ASP customers might find that their provider no longer exists or that their licensing contract has changed.
Clearly, the ASP model is in a transition period and even hotmail.com can be construed as an ASP service, as the standard Citrix thin client model is slowly being replaced by the Web. However, if usage is Web-based all kinds of licensing issues will be raised.
Lawrence Westwood, head of copyright protection and legal services at the Federation Against Software Theft (Fast), an anti-piracy software organization, realizes the difficulty of licensing software through the Web. "Users won't know if the ASP provider is using the software correctly or even if they are getting value for money," says Westwood.
Westwood says the responsibility is shifting to the customer to verify through the software's publisher that the ASP provider holds the appropriate licenses. And there is risk involved. "[Customers] must make sure they understand the liabilities before signing a contract and have a clause saying what will happen if a system does go down or a connection doesn't work," cautions Westwood.
Data is also very important from a legal point of view and must be secured reasonably. If a ASP in Europe exports data out of the European Union they could be in breach of the data protection law, according to Fast.
Westwood believes that ASP will move towards a similar model to that which operates in the mobile phone market, and ASPs will provide a free try before you buy concept. Users will have a fixed rental per month and charges will be based on usage like a mobile phone. However, he adds that it needs to be metered as there can be discrepancies between how an ASP rents and charges for the use of the software and the customer's actual usage.
Companies are springing up to plug this gap. Software metering specialists such as ABC Systems & Development can ensure that companies only pay for what they use, while software asset management companies claim that if a company looks after its PCs, it can reduce costs by as much as 30 percent in the new environment.
The likelihood of errors is also high in the business intelligence arena as enterprise wide BI provides the opportunity for thousands of users across a company to have access to the software rather than a limited number of power users. This is creating a requirement for a new kind of licensing arrangement.
At BI vendor Cognos' UK user conference last year, a straw poll was taken on value-based licensing and whether to pay a supplier according to the value a company gets from the system. Customers voted overwhelmingly against this practice.
Ron Zambonini, CEO of Cognos, said: "You would think that with extranets in place, there would have been a universal requirement for that. But the only place it works is with ASPs. Enterprises don't like the idea. They take the view that it's their proprietary information, that's what's valuable, and we get paid just for providing the tools to analyze it."
Cognos has signed enterprise licenses with some of its large clients, including Daimler Chrysler, but Zambonini said there were only about a dozen of these contracts worldwide. "We negotiate the license and sometimes it is based on expected application usage. They don't want a 10,000 user license, because they are ethical and want to ensure they only have the number of users they've paid for."
ERP vendors, meanwhile, have in some cases met with opposition from existing customers after accusations that they stealthily changed their pricing models for the e-business environment. For mySAP.com, as well as introducing a roles-based charging structure, the vendor has scrapped its old transaction-based pricing model for a twin-style alternative, one for sales and service orders, the other for purchase orders.
All usage of transactions will be monitored; customers will only pay for transactions on the SAP system and can prepay for a certain number of transactions per year. The pricing is effective immediately.