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Virtualization and the slow strangling of proprietary license models

Virtualization is a customer's best friend, or one of them. It's not so kind to proprietary licensing models, however, for reasons seen here.

A friend sent me his thoughts on virtualization and its effects on the software industry. As he sees it, virtualization may well play a role far beyond the operating system vendors, a group I had focused a post on. It could have a deleterious effect on a wide range of business models.

Why do enterprises buy into virtualization? Primarily to make more efficient use of their existing servers. Most proprietary vendors license their products on a per-CPU basis, and have increasingly shifted to maintenance contracts as a way to boost revenue as upfront licensing costs dwindle in a market that favors spreading out payments via SaaS and open source.

My friend's insight?

Long-term revenue is a function of the number of CPUs running their products at their customers' IT shops.

So, as more and more enterprises embrace virtualization to increase the efficiency of the servers they've already licensed, maintenance revenue may well plunge with new license revenue.

This isn't a pretty thought for proprietary software vendors. It's not much better for those open-source vendors who tie their maintenance contracts to CPUs, either, though they have more leeway to shift the calculus for support revenues to something besides a per-CPU model.

All of this may well accelerate a move away from the traditional, proprietary license model to something more friendly to customers, and to something that more fairly measures value to that customer than a simple license. License costs and the actual value derived from them are out of whack, which is one reason Red Hat's model continues to earn it accolades for the value it delivers.