Users resent pricing complexity

Software pricing is too complex and too costly and has created a growing tide of resentment among end users who favour a flat annual fee over per-processor pricing models.

User groups and analysts agree pricing needs to be simplified to create more predictable cost streams.

Managing director of research firm S2 Intelligence, Bruce McCabe, said any steps vendors took towards a predictable annuity model had value.

“If you’re buying a major software installation and you go to tender for it, it becomes extremely difficult to negotiate anything if pricing schemes are complicated,” he said. “This is also causing lot of resentment among customers.”

McCabe sees growing interest by Australian enterprises in the utility or grid computing model in which applications are shifted around a network to where computing resources are available. But in order for that model to gain traction in the enterprise, vendors must make software licensing cheaper and simpler, because it is an upfront cost which companies want to incur only once a year and be done with, McCabe said.

He said vendors had been “too greedy” about the initial price of [annuity-based] licensing — Microsoft’s 6.0 scheme was a case in point.

“Frankly, the larger vendors have found it too hard to cope with that sort of [competition] in the market, so their initial price for software licensing has been too high,” he said.

IDC analyst, Albert Pang, suggested CPU-based licensing was likely to hold sway for another three years, because it had limitations and also because vendors were reluctant to switch to a model that might require them to monitor more closely the way customers are using their software.

“There’s clearly a resistance from vendors like PeopleSoft and SAP, but it’s just a matter of time for subscription pricing or a system less reliant on CPU-based pricing to take hold,” Pang said.

Other analysts have also predicted the demise of per-processor pricing.

Chipmakers such as Sun Microsystems and IBM are developing chips with multiple processor cores, making it harder to define what constitutes one processor. The grid computing model adds to the complexity.

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