Microsoft takes stand on 'virtual' licensing

The software giant revamps its software licensing to tackle "virtualization" technology, which could shake up the industry.

Microsoft is taking a stand on an emerging technology that threatens to reshape software pricing models.

The company on Monday is expected to detail changes to its server product licensing to better accommodate virtualization software, an emerging technology that big companies are eyeing as a way to consolidate servers and cut costs.

Advocates argue that virtualization lets companies reduce the number of servers they need by letting jobs run more efficiency on a smaller number of machines. Virtualization software such as Microsoft's Virtual Server, EMC's VMware and XenSource's Xen lets a server simultaneously run multiple operating systems, or multiple instances of the same operating system. Each instance essentially behaves as a self-contained computer.


What's new:
Microsoft will change its licensing practices to address emerging technology called virtualization. Rather than charge per physical processor, server products will be priced based on the number of instances that are running.

Bottom line:
Microsoft executives said the new pricing scheme is meant to encourage use of virtualization, where a single server runs multiple operating systems. Analysts said other software vendors will likely alter their policies for virtualization as well.

More stories on virtualization

However, much like multicore processor-based server technology, virtualization software throws the widely used per-processor licensing model out of whack. Currently, most server software is licensed based on a per-processor basis. Virtualization skews that formula, since many "virtualized" instances of an operating system, each running applications like a database or e-mail server, can exist on any given physical server. That scenario can lead to sticker shock for customers, and an unmanageable mess for software makers.

Microsoft's new policy seeks to reconcile new technology and old licensing models. Starting in December, the company will calculate the cost of server software products by the number of running instances of that product on any given server, rather than the number of physical processors contained in that server.

The shift will benefit customers, Microsoft says, by allowing them to parse up the processing power of a machine in a cost-effective manner. The company is looking to expand the use of virtualization with its own products, within partner programs and through its pricing policies, said Andy Lees, Microsoft's corporate vice president of servers and tools marketing.

"Things like pricing and licensing get in the way of the adoption of technology," Lees said. "And customers want to know they're not heading down a cul de sac."

Virtual processor licensing

Before: the price of SQL Server is the license fee multiplied by the number of processors in a server. For example, $2500 x 4 processors, or $10,000.

After: Using virtualization software, customers can choose dedicate two "virtual processors" to SQL Server, rather than the four physical processors, to cut the price in half.

Source: Microsoft

Analysts were quick to note that the new policy also helps Microsoft stay one step ahead of competitors by staking out a policy that others will eventually be forced to respond to.

Any significant changes to license policies from virtualization and other emerging technologies pose potential risks for software vendors, said Gartner analyst Tom Bittman.

"Software vendors are scared--the whole paradigm is forcing them to change how they price and they don't want to reduce revenue in the whole picture," he said.

With the current policy, a company that runs a virtualized server application would have to pay for a full four-processor license even though only some fraction of the server is dedicated to running that application. Under the new policy, a company could choose to dedicate only two virtual machines to a server application on a four-processor machine, and pay accordingly.

The new policy is meant to set an example of how software vendors should cope with virtualization as it becomes more widespread, Lees said.

"The licensing scheme enables customers to utilize virtualization technology. Today that is not the case," Lees said.

More broadly, Microsoft's decision will likely cause other software makers to reassess their policies, said Gartner analyst Alvin Park.

"It will force other vendor to rethink their licensing strategies and over time will cause them to make changes to stay competitive with Microsoft," Park said.

Some of those companies, such as Oracle, SAP and BEA Systems weren't immediately available to comment on Microsoft's policy. A few

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