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Putting a price on a virtual computer

Microsoft, software industry grapple with how to charge businesses for programs when one computer behaves like many.

Ina Fried Former Staff writer, CNET News
During her years at CNET News, Ina Fried changed beats several times, changed genders once, and covered both of the Pirates of Silicon Valley.
Ina Fried
5 min read
The software industry is learning that virtual machines can cause real headaches when it comes to figuring out how to charge for their programs.

Right now, the computing world is clearly moving into a realm in which a single PC can be running many operating systems at the same time, and businesses want the opportunity to get the benefits of that flexibility, without having to pay over and over again for the same software.

In a major shift for Microsoft, the company decided last week to allow business customers to run up to four instances of Windows on the same PC. It's part of a sea change that has the Redmond, Wash.-based software maker and the rest of the industry headed into unfamiliar waters.

"We see virtualization as becoming a hot topic, and we want to make sure we are preparing our customers, so they can do better planning for their IT infrastructure," said Mike Oldham, a general manager in Microsoft's licensing group. As first reported by CNET News.com, Microsoft is also allowing businesses running the datacenter version of its server operating system to run an unlimited number of virtual Windows machines on that single server.

Virtualization, or technology that allows one physical PC or server to act like many separate computers, is just one of many strains on traditional software licensing. In the old days, things were simple: Each program ran once on a computer that had a single user and a single processor. Now, it is not uncommon for a program or operating system to be running multiple times on the same piece of hardware, which may be powered by multiple processors, or a single chip with multiple processing cores.

Pricing pressure

Several factors are challenging traditional software pricing, which relies on charging for a license for one user, on one computer, and with a specific number of processors.

Virtualization: Operating systems and other software can run in multiple virtual machines on the same physical computer. Plus, a specific virtual machine can be moved from one computer to another without shutting down the software.

Dual-core/multicore PCs: Multiple processing cores are now being put on a single chip, complicating the calculations of per-processor license fees.

Hosted software: Software traditionally runs on a company's own server. But many companies are choosing to run programs hosted by the software vendor or by a third party.

On top of this, the machine in question may not even live in the company's own data center. The company may not even run the software itself, instead buying it or renting it from a third-party hosting service.

Microsoft, for one, has been ahead of the curve when it comes to virtual machines and dual-core chip licensing practices, but somewhat behind when it comes to hosted software, said Ovum Summit analyst Dwight Davis. The company just this week finally committed to offering a hosted version of its CRM (customer relationship management) software, for example.

"Microsoft is finally starting to bite that bullet," Davis said. "It has to be a player, but it does so with some trepidation about what the impact will be on its bottom line."

Software makers are also trying to figure out how many new licensing options to introduce and when. Although some leading-edge customers are using virtualization as a mainstay throughout their company, many have yet to even try out the technology.

"How does a vendor respond when 3 percent of its customers are screaming 'bloody murder,' and 97 percent don't even know its an issue?" asked IDC analyst Al Gillen.

As tough as today's set of challenges are, there is another wave of licensing quagmires ahead.

"The next wave--and it's not going to come in a big way for a couple of years--is this idea of a dynamic IT environment, in which you scale up and scale down based on demand," Gillen said. In addition to the technological issues, companies are just now grappling with the related business question "How do you license for that?" he said.

More challenges
For example, while Microsoft's move this week allows companies to run unlimited virtual machines on a single server, the same businesses still face a hurdle if they want to bring in an additional server to handle a temporary or permanent spike in workload.

"A lot of server software is licensed to particular machines," said Ovum Summit analyst Davis. "Those licenses can undercut your ability to create the fluidity that people are talking about creating in their data center."

IBM is one of the companies that probably has the most first-hand experience of alternative pricing mechanisms. It has been billing for mainframe use this way for decades, with charges based on computing cycles used rather than on how many processors or physical machines are used to accomplish the task.

"We have had a virtualized, shared infrastructure on our mainframe for 40 years now," said Rich Lechner, vice president of virtualization at IBM.

The key to bringing that approach to the Linux and Windows world, he said, is to have a mechanism in place to track and monitor usage as well as to enforce limits.

In January, Big Blue bought a company, CIMS labs, to help with that task. IBM recently released Usage and Accounting Monitor software that tries to track and monitor usage, not just on mainframes, but also on Windows and Linux PCs, and on Unix machines.

Another issue is the need to set limits on a server, so it can allocate only a certain amount of its abilities to a particular piece of software. For instance, a database that is licensed for up to 4 processors should be able to use up to four processors, but there needs to be a mechanism to prevent it from using more than that amount of horsepower.

"You need to be able to isolate a partition and to cap the amount of resources that are allocated to that virtual server," IBM's Lechner said.

Think of the cell phone, he added. "No one wants to open the bill at the end of the month and know their charges are 100 times what they thought they would be," Lechner said.

But it's still going to be a challenge for the industry, IDC analyst Gillen said. For one thing, there is no agreed-upon standard measure of computing work outside the mainframe business, though Sun and HP have pursued the idea to some extent.

"Some kind of meter-based pricing is something that is complex and is frightening to a lot of vendors," he said.

And the big issue is whether charging for software in new ways will add up to the same revenue for an industry that has traditionally enjoyed wide profit margins.

"That's the million-dollar question," Gillen said.