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Don't like the way software is priced? Do something about it

SAP and VMware show users have power

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Growing up in the Northeastern United States, where complaining about the weather (or complaining about people who complain about the weather) is practically sport, one often hears the phrase, "if you don't like the weather, just wait". In other words, it will pass.

I've been thinking about this old adage in the context of what's been going on in the software pricing universe lately. The only difference between the weather, and software pricing, is that waiting is the only thing you can do if you don't like the weather. In the case of software pricing, you may actually be able to do something about it.

For example, take the case of SAP's attempt in 2008 to eliminate a lower priced support option while migrating customers to a higher priced option. A year and a half after announcing that they would eliminate Basic Maintenance, SAP brought it back.

More recently, there is the case of VMware. The company and many of its customers are cloud pioneers. However, VMware is a software company with many of the same challenges as every other software company. This includes finding a pricing model that accurately accounts for value and is perceived as fair and manageable by customers.

With the launch of a new version of its vSphere product, VMware determined that it would change the product's pricing model in order to simplify the approach, remove restrictive hardware-based entitlements and make it easier for customers to do chargebacks.

The model introduced a new metric, virtual RAM (vRAM), with pricing tied to the amount of vRAM configured to a virtual machine (VM), and tiered according to a "high-watermark" vRAM limit.

Since vRAM is a new metric, VMware developed a tool to assist customers in determining the total amount of vRAM allocated in VMs. Also, they provided a video explaining how to use the tool and produced a short white paper designed to help customers understand the approach.

Despite VMware's efforts, the immediate feedback on the change from some of its customers and other interested parties all over the blogosphere was negative. The primary debate was focused on the vRAM limits that were set, and perceived change in TCO as a result.

It is interesting to note that VMware stated that only 5% of customers would be affected by the change. The minority was certainly vocal!

The response was so negative, in fact, that three weeks after announcing the new pricing, VMware was compelled to make changes to it, most notably increasing vRAM limits. As far as I know, in the history of the software pricing, no publisher has ever reacted to customer feedback and modified an approach as rapidly as VMware.

The company deserves kudos for that. VMware has addressed many of their customers' initial concerns with the new approach, and introduced a new metric that may prove in time to be the best way to license software in the virtualisation space. And, if it isn’t, you can be sure that customers will let them know.

Expect to see more changes in software licensing and pricing strategies from the software vendors that you buy from, primarily due to the nature of Cloud infrastructures and a resulting incompatibility with traditional models. Challenges include the:

  • Difficulty in determining which specific physical resources software is tapping when running in virtualised cloud environments
  • Incompatibility of models tied to physical resources given the dynamic nature of virtualised cloud environments
  • Demand for consumption-based models that allow customers to pay only for what they are using as well as support chargeback models.

These challenges are not easy to address. The reality is that the vast majority of software vendors do not have the policies, processes or tools in place needed to support true cloud pricing models today, and neither do their customers. In addition, customer concerns about predictability put a gating factor on the amount of pricing flexibility and dynamicism that can be achieved.

The fact that customers are now successfully playing an active role in shaping software pricing strategy should help the industry move forwarded into uncharted territory.

Posted by Amy Konary


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