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Summary:

You’re ready to launch your cloud service to the rest of the enterprise and migrate applications at a rapid clip. Unfortunately, your enterprise software vendor has a gun pointed at your head and is threatening to derail the whole initiative. This could get ugly.

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Good job, Mr. IT Director! You developed a great cloud computing strategy and executed brilliantly. You created a hybrid cloud architecture and incorporated contestability at multiple points in your technology stack to help you achieve the best service levels at the lowest cost. You’re ready to launch your cloud service to the rest of the enterprise and migrate applications at a rapid clip. Unfortunately, your enterprise software vendor has a gun pointed at your head and is threatening to derail the whole initiative. This could get ugly.

No software = No cloud

The cloud promises to help enterprises become more agile and reduce cost (at least for individual applications, if not in aggregate). But not everybody is happy about this.

Fundamentally, cloud computing threatens the existing IT status quo. Today’s current market share leaders may not be tomorrow’s cloud market share leaders. Incumbent vendors have spent years creating leverage with proprietary lock-in strategies, and they fear that they will lose revenue to younger upstarts once cloud-base contestability is the norm.

So, they’re fighting back. One weapon in the arsenal is software licensing restrictions that thwart cloud deployments.

Over the years, enterprise software licensing systems have come to adopt a few repeating characteristics such as perpetual licences that involve ongoing maintenance fees, paying more for CPU sockets or cores and limiting the hardware the software can run on.

Almost every aspect of cloud computing is in conflict the traditional enterprise software licensing model. Cloud computing relies heavily on virtual machines so a physical system with 12 CPU cores might host numerous VMs with a single virtual CPU core. If a traditional software licensing model is based on the number of CPU sockets or cores, which number should be used? Plus, the cloud is transitory. You only pay for what you use, so how does one justify a perpetual software license fee? Finally, workloads are mobile, so how can you tie a software license to a piece of physical hardware?

Hostage taking

Threatened with a disruption of the status quo, some software vendors are using the licensing conflicts to hold enterprise applications and even cloud projects hostage, trying to leverage their dominant power in the old world to extract new concessions moving forward. For instance:

  • A large software and system vendor might try to force application deployments using a software package into its own cloud.
  • The vendor might require that the enterprise pay a license fee for every processor or core in a private cloud. This artificially raises costs based on the possibility that a given computation might be run on a given processor and allows the vendor to “tax” the whole private cloud.
  • The vendor might not offer any form of usage-based pricing.

And many more variations bounded only by a vendor’s creativity.

If enterprises aren’t careful, these issues can become a major stumbling block for cloud computing initiatives, increasing migration costs and disruption, and even causing a cloud to be unusable for major business critical applications until they can be replaced or rewritten using different technology.

Bring in the hostage negotiator

Fortunately, there are things enterprises can do to minimize the hostage taking or even sidestep it altogether. The good news is, the cloud is here to stay, and ultimately any vendor who doesn’t conform to the new world will be put out of business. This gives you more leverage than you might expect and it’s increasing in your favor.

Maximize your chances of success by developing a formal hostage negotiation strategy:

  • Identify relevant software packages. First and foremost, you need to know what software runs your business. This includes not just large commercial, off-the-shelf systems but also middleware and libraries that might be used in custom applications. Think about databases, application servers, message busses, etc. Don’t forget about support systems, too, such as management, monitoring, backup, high-availability, and disaster recovery packages. Create a catalog of all the software that’s in production today as well as is being targeted for new systems in development.
  • Review your target end-state. What is your cloud environment going to look like? Don’t just think about what you have planned for the immediate future, but think ahead a few years. Are you going to be using internal clouds, external clouds, or a combination of both?
  • Review your existing licenses. Given your software portfolio and your target end-state, go back and review your licenses to determine which ones will cause you problems. More recent licenses might already have cloud-compatible clauses worked into them.
  • Negotiate hard. While vendors might think that they have power over you, remember that the trends are moving in your direction. Cloud computing is an industry-wide inevitability. Those vendors that embrace cloud-compatible license models will prosper; those that don’t will whither and die. Your vendor has a great incentive to work through the issues with you.
  • Keep the vendor’s interests in mind. The one sensitivity vendors will have is in not seeing their overall revenue fall, but beyond that they often have great flexibility. This is a good time to remind your vendor about Jevons’ Paradox and how they are likely to see total revenue increase even as the cloud brings greater IT efficiency.
  • Establish sourcing guidelines. Finally, come up with a set of guidelines for all future licenses. Now that you’ve started the job of cleaning up older licenses, you’ll want to ensure that all future licenses conform to a set of requirements that support your desired future state. If the public cloud is going to figure prominently in your cloud strategy, you’ll want to ensure that all future software choices can be delivered in the public cloud without a hiccup.

Traditional software licensing systems are not suitable for deployment into cloud environments. Incumbent enterprise software vendors aren’t happy about a large change in the status quo and will sometimes use their existing licensing schemes to try to hold your existing applications hostage, extracting concessions from enterprises wanting to move into the cloud. Fortunately, enterprises have more power than they realize and with a little planning and aggressive hostage negotiation up front, you can sidestep most problems and make your cloud migration go smoothly.

Dave Roberts is SVP of Strategy and Evangelism at ServiceMesh. He blogs here, and tweets as @sandhillstrat.

  1. Some of these challenges exist in just virtualizing enterprise applications. I had a customer who wanted to virtualize a simple server to run a database for a free network management system. I advised them to call their sales rep to check on licensing requirements for virtualizing their database software.

    The vendor wanted to charge them $100K in additional licensing to license all 4 physical servers in their virtualization cluster. The customer ended up going with a different database that had friendlier virtualization licensing.

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  2. Reblogged this on Omniquad Security Blog and commented:
    We moved our entire Enterprise range of services to a Cloud environment years ago, rebranding our email filtering solutions to Mailwall Remote and web filtering to Surfwall Remote. The “Remote” part of the name signalled that the service was run remotely from a central server base rather than “in house”. It revolutionized how we do business, as everything became so much simpler, from deployment, to updates, upgrades and patches, but also from a technical support perspective. Bringing each new feature to market takes minutes rather than months.
    You can’t turn the clock back, the Cloud is here to stay, and rather than holding clients hostage and making problems over licensing, enterprise solution providers need to work out how they can make their solutions “cloud friendly” and look upon this as a business opportunity rather than a problem.
    Sissel Hansen

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  3. As an IT Company, we at Mosaic Technology will be interested to see to see how this battle between IT companies and companies moving towards the cloud turns out.

    Mosaic Technology
    http://www.mosaictec.com

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  4. Vivian Joseph Thomas Wednesday, July 18, 2012

    Dave these are really good insights on how you have explained your hostage negotiation strategy. If you want to gain more insights on cloud computing you can join the upcoming webinar which is being hosted by Infosys Cloud computing about “Enterprise IT: Staying Relevant in the Cloud Era”, on Tuesday, July 24, 2012. To register please go to the below link. http://bit.ly/NxWt5y

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