September 2010
The Cloud Lead Lining - Get your head in the clouds
Years ago, the idea of utility based IT that could be scaled up or down in real-time to match demand seemed like a dream. But today, a very real cloud computing market is providing a greater competitive edge and customer satisfaction for those who choose to embrace it.
Cloud computing is fast becoming the territory of “shared win” outsourcing. In practice, this means that if a roll-out or project is successful and transaction levels reach or exceed expectations, the client pays more and both parties are happy.
If, for whatever reason, the project or roll-out fails, the cloud provider handles less demand and charges less. Clients are relieved that their committed costs are much less than if they had made their own provision for possible peak levels.
In the cloud model enabling technologies like virtualisation and hardware factors are no longer the biggest limit to adoption. Instead, with this new level of maturity, cloud providers are encountering a whole new set of issues and challenges.
One of the biggest issues currently is how progress is being held back by overly restrictive Enterprise Software Licensing (ESL) models.
With Gartner predicting the cloud market to triple and hit $150 billion by 2013, ironing out these final licensing niggles will be vital for the curators of private and public clouds to maximise the returns on this new tech.
Leaden Licensing
Many software providers have products that are perfectly designed and engineered for cloud adoption but they are now starting to face issues caused by an increasingly archaic ESL model.
For example, Oracle’s products are world class in terms of resilience, flexibility and security, making it perfect fit for cloud deployment - its recent Sun acquisition only strengthens this case. However, its software-licensing regime is predominantly about ‘high water marks’ and ‘perpetual right to use grants’.
While the products are a perfect fit for the cloud model their restrictive licensing regime isn’t keeping up with the new age of computing.
Support and maintenance costs are linked to net license numbers, meaning that fees paid to Oracle will typically ratchet upwards year on year irrespective of actual usage or benefit. As a cloud provider or enterprise client, whether public or private, this business model can be a showstopper.
Clouded Judgment
Oracle is a good example of why ESL licensing models are coming under scrutiny and why software providers in all such situations have to take a really close look at how they manage their licensing processes and relationships from ESL to cloud to take full advantage of what the cloud dream model can offer.
For Oracle, migrating licensing models to a regime of utility-enabling subscription will not be an easy task as it faces pressure to protect its annuity fees, satisfy shareholders and remain competitive. However, unless license and support fees are reduced with lowered consumption, a fundamental benefit of cloud computing will evaporate.
The Cloud’s Silver Lining
Licensing reform is not something that gets taken lightly at Oracle. But the longer term impact of cloud friendly licensing models able to adapt to the quick-moving standard of the cloud would give Oracle an early advantage in the fast growing market.
The real tension for Oracle is between corporate logic and market fences, its quarter on quarter recent history shows persistent growth of new license revenues, annual fees and earnings per share, all based traditional licensing. Until demand for utility orientated ESLs to support cloud becomes competitively divisive with Oracle, it will hang on to what works.
Oracle knows, in the land of the blind, the one eyed man is king, and having a deep insight into Oracle licensing, deployment and consumptions trends will provide enterprise clients with the grounding for effective renegotiations and lobbying.
The best advice for enterprises and cloud vendors at present is to get smart - understand license grants and how to measure actual usage. Only with this more mature knowledge of enterprise software asset management, will companies get everything from the cloud that it promises to offer.
