In 
As the cloud buzz envelops the IT industry in its different manifestations, the challenges for IT managers have increased multifold. Most IT heads and their teams have been battling with software license management issues, in particular, the licensing models which could drive down costs.
Both software vendors and customers are concerned, for different reasons, about how software licensing in the cloud will evolve, especially in an age where software pricing is heavily dependent on the class of processor. As providers are shifting from product to a service or mixed model, here we try to provide insights into varied nuances of the software licensing model in the cloud framework, which is around procurement challenges, RoI, cost-efficiency, benefits and so on.
With software applications forming major share of the IT infrastructure and spend for customers, vendors have tried to evolve an array of licensing options.
Licensing framework gets more complicated as cloud is projected in different forms spreading across infrastructure as a service (IaaS), platform as a service (PaaS) and software as a service (SaaS). To substantiate further, in an IaaS model, the user pays for the data storage on the cloud and licensing fee is transparent. In a PaaS environment, the revenues come from the data storage, besides the developer cost is involved on top of the infrastructure, says Bala Variyam, VP Head, Collabera Labs, a customer of Salesforce.com. In a SaaS model, where most of the innovation is happening, every day newer licences are evolving but it is nowhere near maturity right now, adds Variyam.
P K Mishra, an independent cloud consultant, observes, As people start moving their applications to the cloud, there will be lesser demand to buy local copies of the software for in-premise deployment.
Mishra finds that it is difficult to predict the movement to cloud and its impact on individual product streams. However, the fact remains that the end-users will pay for the software usage in a fairer manner based on the actual quantum of use, as frills and unwanted features that customers are forced to buy in the existing scenario, will be a thing of past.
Working of the Cloud Licensing Model
There are also costs to consider with on-premise solutions, such as costs for hardware, software, power, physical space, IT staff and continual upgrades. Therefore, buy service as a product instead of outsourcing, because if you own it, you are the one responsible.
Software licensing works on two models: one is the pay-per-use and the other is the traditional perpetual licence. Many cloud ready software vendors provide pay-per-use software licensing model in a virtualised on monthly-payout basis.
According to Gaurav Agarwal, Product Head, VAS, Sify Technologies, Leading companies like Microsoft, VMware provide pay-per-use software licensing. On the other hand, companies like Oracle still provide traditional perpetual licences where the cloud vendors need to procure the licence as per the customer request. The pay-per-use model can be monthly-payout-based on usage, flexibility to reuse licences, flexibility to scale up or down as well as bundled support and assurance.
Instead of paying a onetime fee for a perpetual licence, a customer has to pay depending upon his usage, which varies from solution to solution. This could be based on the number of users, duration of usage, features used, even number of transactions and the licence is not perpetually owned by the customer, says Vikash K Agarwal, President, Tally Solutions Ltd.
Three factors should be considered when multiple licensing models are available in the cloud:
a) No. of users accessing the software
b) No. of processors on the device hosting the application
c) Product use rights tied to virtualisation or specific vendor rules for cloud computing environments
Procurement Challenges in Cloud
Three factors would determine the procurement patterns and associated challenges, which would be around end user, cloud service provider and software vendor.
The end customer is normally required to procure various licences by making upfront investments. For example, he procures licences for various Microsoft products, SAP products, etc., and has an option of making payment per month over say a three-year period by taking help of financing and leasing companies. However, its more of a financial lease wherein only the financial arrangement is made to spread the payments over three-four years period. There is no exit possible midway. When for the same services they avail of cloud option, they can pay-as-they-use, they can increase or decrease licenses on need basis and exit if required. This will provide not only convenient payment method but also good amount of de-risking.
Satish Pendse, President, Highbar Technologies Ltd, opines, Cloud services provider will get aggregator benefit while dealing with software licences provider. He will have multiple customers using multiple licenses that he an aggregate while procuring them, and hence is more likely to get better prices.
Elaborating on it, Pendse observes that customers are going to pay him as they use. The service provider, therefore, attempts to get similar terms from his suppliers, i.e., software licence providers. Many of the application vendors are today in a position to offer that convenience to the cloud services provider.
Typically, the SMB sector or the organizations, such as project specific JVs having limited life span, may fall into the category, due to low ability or willingness to make upfront investments or are risk averse in terms of IT investments. Thus, cloud-based pricing model allows software providers to expand their reach. It is normally the players who generally settle for low products for the above-mentioned reasons, who will be more open to exploring high-end products when the payment and operations are de-risked using the cloud.
However, the silver lining in the cloud is, as Agarwal of Sify remarks, The procurement pattern would change the cost saving. As mentioned, the virtual software licence procurement model proves to be cost-effective as against the traditional procurement model. The cost of usage of software on a cloud infrastructure is certainly quite economical when compared to that of owned software. Depending upon the volumes and licence requirements, in some cases a cloud OS instance will be six times more affordable than a similar enterprise licence, he says.
Cost and RoI
Costs and ROI calculations may differ based on the size of the project. For large organisations, the cloud model may turn out to be more expensive in terms of TCO extending over a five-year period. However for smaller companies, the cloud model will be cheaper compared to on-premise model. The RoI or cost evaluation is done based on certain parameters such as de-risking, faster implementation, etc. Hybrid model usage is also recommended for a start before moving to full-fledged cloud. The benefit that is driven out of cloud is to create an agile IT environment to enable the team to the core business.
Arun Gupta, the CTO of Shoppers Stop indicates that the cloud is still in early days of evolution but depending on the size of the enterprise and deal size, pricing does come down as observed in the conventional world too.
A typical acquisition of application software on the cloud would involve two types of costs: the subscription fee on the agreed frequency and the one-time enablement fee to help users configure the application for the user organisation and the associated training, remarks Sundara Raman, Chief Architect, Ramco OnDemand ERP. In case of large organisations, this could include consulting and configuration related activities.
Variyam admits that the fee would vary with the complexity of the service and the underlying infrastructure required. This could also depend on various SLAs such as availability that the service offers. While the initial cost of building the service may be high, subsequent subscriptions and volume of usage help it to be recovered quickly.
Cloud Advantage
Software licensing models based on criteria such as number of CPUs, users, duration of usage, update, upgrade, etc., have been popular.
In a cloud-based infrastructure everything morphs into service. The user pays for the service he uses rather than the products he uses. This makes pay-per-use or consumption-based pricing the most obvious choice. The cloud provides cost benefit for following reasons:
- Enterprise gets the flexibility to consume more during the peak and downgrade whenever he doesnt need
- No worry about software assurance, update and upgrades and flexibility to change within products and platforms
Cost benefit of 50-60 per cent for low to medium infrastructure needs on cloud model, says Sifys Agarwal.
However, it is almost self-defeating in case of low-cost solutions with little variance in usage patterns. Most SMEs will not find it sensible if the upfront cost of the solution is negligible. Take the case of Tally itself. With an upfront cost of about Rs 13,000 and an annual cost of Rs 27,000, there is little reason for the buyer to try and make the payment of lets say Rs 1,000 per month, remarks Agarwal of Tally.
Sundara Raman says, Flexible subscription-based on the application scope used by the user; flexible frequency like monthly, quarterly, annually and transaction-based pricing (for large corporates) and storage size-based pricing.
Licensing Available on Cloud
As of now, not all the products are available on the cloud. The cloud as a concept is still maturing. Pendse says it has become a catch-22 game and possibly the customers are waiting for a wider choice of cloud service providers before they take a plunge and the potential cloud services providers are waiting for customer readiness for cloud to increase their service portfolio . The scenario has certainly changed over last three-four years, since the time cloud as a concept started being seriously discussed. A few providers now offer ERP, CRM, email, and virus-protection, kinds of services on the cloud.
Ramco claims they are the pioneers and the leaders in this market with their flagship product Ramco OnDemand ERP.
Agarwal of Sify says that leading companies like VMware, SAP, Microsoft, Redhat provide licensing products available on cloud. Mailing software like Microsoft Exchange, VMware and Zimbra are also available on the cloud now.
In fact, Salesforce has been offering CRM platform in a cloud-based SAS model for quite some time and has a large client base. The licensing offers a flexible and scalable option on top of features like secure access, ability to customise to organisational needs: a brilliant SAS-based offering where we dont need any extra investments in infrastructure or technical support, claims Jayanth, VP, Marketing of Collabera.
Add new comment