Seeing double in software licensing

New dual-core processors will make conventional software licensing models obsolete. What's next?

As chipmakers plunge into the world of multicore processors to increase performance, software companies are struggling to catch up.

The prevailing method of selling server software--based of the number of processors, or basic computing brains, that a computer has--is being made obsolete by changes in processor designs and server capabilities.

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What's new:
Multicore processors, all the rage with chipmakers, are going mainstream, forcing software companies to rethink long-established models used to charge customers.

Bottom line:
Software makers are likely to retool their licensing models, but so far there's no industry-wide agreement how customers should be charged.

More on software licensing

Chipmakers can now etch two-processor cores on to a single slice of silicon--and these dual-core processors are about to become mainstream. The new chips are far more powerful than current models and can efficiently handle multiple tasks. But whether a dual-core chip should count as one, two or more processors when tallying software licensing charges is the crux of the issue. Other new chip technologies could further blur the lines.

Software makers recognize the problem but so far can't agree on a single solution. "People haven't woken up to the software licensing implications of a lot of technology trends in hardware," said Jonathan Eunice, an analyst at research and consulting firm Illuminata. "It's not just technology--it affects business practices and buying patterns."

IBM began the drive to produce these dual-core chips in 2001 with its Power4-based servers. Sun Microsystems and Hewlett-Packard followed suit this year. But now, the definition of a processor will become more strained, as multicore versions of widely used x86 chips such as Intel's Xeon and Advanced Micro Devices' Opteron appear.

At its developer conference this week, chip giant Intel is expected to detail plans to bring its own multicore processors to servers and desktop PCs, starting with a dual-core server chips in the second half of next year. Rival AMD plans to release its own dual-core versions of its Operton server processor by the middle of next year.

Dual-core chips are just one problem straining definitional boundaries. Multicore chips with eight- and even 16-processor cores are under development at Sun and Intel. Another technology, called multithreading , makes a single-processor core look like at least two. And a single server can be divided into dozens of independent partitions, each with its own operating system and able to grow or shrink as computing loads change.

How multicore chips and other technological changes will ultimately affect licensing is still unclear, but industry executives and analysts say a simple, uniform system is unlikely in the short term.

Software licensing for these new technologies is not an abstract issue for buyers. "It is an extreme pain," said Gregg Siegfried, senior director of technology services at MedPlus, a maker of custom software for the health care industry. "From hyperthreaded Intel CPUs invalidating software licenses to virtualization blurring the lines for traditional licenses, I have experienced numerous issues already. There is trouble brewing on that front."

Many software products, such as e-mail servers or databases, are often priced based on the number of server processors. With dual-core processors now on the market, software companies--and their customers--need to reconsider that model.

Some software makers charge customers as though a server with a dual-core processor were a two-processor machine, effectively doubling the cost of programs priced on a per-processor basis. Other industry players are urging software companies to treat multicore processors as a single unit, even though it could cut into software companies' revenues, if customers can make do with fewer instances of their programs.

Setting the agenda
Hoping to spur software makers to take action, chipmaker AMD on Tuesday released recommendations for how software companies should charge for dual-core processors in the x86 processor market. AMD urges software companies to count processors based on the number of physical sockets used, meaning that a dual-core chip would count as a single processor. AMD argues that this method is most compatible with many of today's practices.

Beyond discussing how to count chips, AMD also recommends that companies seek alternative ways of charging for software.

"We want software companies to get fair money for fair performance, but there are different ways than just counting processors," said Margaret Lewis, software strategy manger for servers and workstations at AMD. Companies can go back to a more traditional model of charging on a per-user basis, she said.

HP and Sun also urge counting by socket. Brad Anderson, general manager of HP's Industry Standard Server business, said in a recent interview that the method gives customers more bang for their buck--at software companies' expense.

"You shouldn't be penalized for the amount of cores you put on the chip."
--Brad Anderson, Hewlett-Packard

"Oracle is very uncomfortable with the scenario. A lot of independent software vendors are," Anderson said. "But you shouldn't be penalized for the amount of cores you put on the chip."

IDC, an influential analyst firm that monitors and predicts market share, has also stopped counting cores. The firm declared in June that it will categorize servers by the number of sockets, meaning that a computer with four dual-core processors would be counted as a four-processor machine. A chip's ability to execute multiple instruction threads simultaneously also won't increase processor count, IDC said.

Intel, too, recommends that the multicore chips be considered a single unit. The company's policy is consistent with other chip-level advances it has introduced over the years, such as multithreading, or "hyperthreading," which makes the operating system view a single processor as two chips, said William Swope, general manger of Intel's software and solutions group.

"It's not that we don't have empathy, it's not that we don't understand the issues, but you have to come down one way or the other," Swope said.

Multicore processors are only one of a number of technology changes that promise to complicate pricing.

Microsoft needed to revamp its licensing policies when Intel's Xeon processors debuted in 2002. The new servers sometimes made it appear to Windows as though there were double the number of chips on a server. Microsoft decided to charge customers only for the number of physical processors present in a server.

Virtualization , another technology becoming increasingly prevalent, also complicates licensing. Virtualization enables companies to dedicate a portion of a processor's horsepower to a specific task, giving customers more control over how their servers' processing resources are allocated.

Edouard Bugnion, chief technology officer of virtualization software company VMware, now a subsidiary of EMC , said that in the next two years, a shift will begin toward pricing models that better reflect the amount of computing work done--which is the central idea of utility computing . The industry also needs to explore other pricing mechanisms that measure service levels, such as whether goals for performance or system availability are met.

"Most customers want flexibility and to pay based on a service-level agreement," Bugnion said. "Right now, there is no licensing or resource-metering model to use."

Pricing complexity is a problem that pushes some companies to purchase rights to more software licenses than they might need, Summit Strategies analyst Dwight Davis said. "Customers often overpurchase to protect against charges of piracy," he said. "Software license management is often a full-time job--and one that often generates more ill will than satisfaction with software vendors."

Software makers are split
Large software companies have been pondering license modifications to address multicore processors. But there's no universal agreement on licensing changes.

Oracle considers a dual-core server a two-processor server when charging for its server software. The company is looking at additional licensing methods to complement its current practice, according to Jacqueline Woods, vice president of global pricing and licensing strategy at Oracle.

Similarly, IBM, which has been selling dual-core servers for about three years, considers two cores as two processors for software licensing purposes, according to a company representative.

Other software sellers have staked out the opposite position.

Not only does Sun prefer the socket definition for a processor, it argues for a radical pricing structure change. When selling its server and desktop software, it charges a company a fixed annual fee based on the customer's total number of employees, letting the customer use the software as much as it likes.

Novell licenses its SuSE Linux operating system on a per-"physical CPU" basis. If a server has a multicore processor, the customer will pay as though that were a single chip.

BEA Systems, which sells infrastructure software for running business applications, has taken a slightly different tack. The company adds a 25 percent premium for every server processor that has two cores--a practice that puts BEA more in line with how hardware makers price dual-core servers.

"To argue that the cost of a license should change because of an architectural change, we made runs counter to the evolution of things."
--William Swope, Intel

"Dual core does not equal two CPUs, in terms of performance," said Kuldip Hillyer, a manager in the strategic marketing group at BEA. "Hardware vendors don't charge you double (the cost of a single-core processor); they charge a 30 (percent) to 40 percent premium."

Microsoft said it is still pondering how to tackle dual-core licensing. The company said it is committed to developing "flexible pricing models" and has already introduced some alternatives, according to Sunny Jensen Charlebois, product manager in the worldwide licensing and pricing group at Microsoft.

For example, when it released its Microsoft Operations Manager 2004 management software, it offered the option to pay based on the number of devices managed rather than on a per-processor or per-end user basis.

Intel's Swope says calling a multicore processor a single CPU helps simplify discussion around software licensing--already a complicated issue. Hardware manufacturers use an array of techniques to boost performance and will continue to do so.

"Call it a unit or a module," Swope said. "But to argue that the cost of a license should change because of an architectural change we made runs counter to the evolution of things."

Although there's no sign of what the dominant pricing model will be, the one thing people can count on is significant licensing change.

"Some licensing models are showing signs of strain, none more than the per-CPU model common to databases and application servers," Summit Strategies' Davis said. "The static per-CPU model seems destined for extinction."

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