SW licensing in the age of cloud: measurement and reporting

The Important

  • In the age of cloud, agility, efficiency, and flexibility need to be the focus of operations
  • Approaches to SW licensing that halt operations, cause manual intervention, or cause time consuming activities do not meet these goals
  • There are multiple stakeholders involved in software licensing, complicating software licensing

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Software licensing involves so many stakeholders, it is no wonder that customers are rarely happy with the approach provided by software suppliers, though some approaches are better than others.

On the customer side, there is the CFO who does not want any nasty budget surprises because the company’s usage of a software offering is more than expected. Operations people have the opposite motivation, they want as little interruption to operations as possible, translating to unrestricted usage. In our opinion, this conflict should not be resolved with licensing technology, this should be resolved with supplier pricing strategies. In the age of cloud, every enterprise, every cloud provider, every network provider needs to be agile, efficient and flexible, because if you are not, then you are falling behind the rest of the world.

On the supplier side, there are sales people who do not want customers using more than they have paid for, because it might impact the sales persons’ compensation. This can also be true for service organizations who get a percentage of product sales as service revenue attach. These feelings can be particularly strong in companies that do not have a long history of software product revenues. Product people tend to see licensing technology as a necessary evil, yes, something has to be done, but if the customer experience leads to lower sales, then probably not worth it. Supplier finance people tend to have considerable concern about capturing accurate usage and maximizing revenue. Finance can sometimes be the loudest voices when it comes to restrictive uses of software. Legal is also a stakeholder. In a narrow definition of Legal, the major concern is whether the licensing of software has been accurately defined and can be determined, so it can stand up to examination during legal action. A broader definition of Legal may align to other functional stakeholders, for example operations, where the rubber sometimes hits the road with respect to what can actually be done / what will actually be done.

All this assumes that software should be licensed by feature, by tier, or at all. Not everyone agrees that is the case. Probably the optimal situation is when software is licensed by software image, but that depends on software architecture / design, etc. We believe that in the age of cloud, there should be a desire to reach customer demand that is beyond what “everyone” wants, there should be the ability to pursue pricing paradigms like good, better, best, and there should be some relationship between revenue and cost. Therefore, approaches to licensing / service tier make sense.

There are three major phases in the lifecycle of licensing software: activation, enforcement, renewal. Activation is what happens when an instance first goes live and learns what are the usage metrics allowed by that instance. Enforcement is about preventing the increased usage of software when the licensed metric is exceeded. Renewal is the process of reactivating / renewing the licensing of software when a license term ends.

Some kind of activation may be a good idea, to provide a barrier to anyone using the software image without being legally licensed. Whether an activation process makes sense may vary by how large / small the customer is and whether or not there is a dedicated sales team on the account. Enforcement is increasingly seen as being out of step with the age of cloud, being detrimental to agility, efficiency, and flexibility. A renewal process that could disable operations is also seen as being potentially out of step with the age of cloud, especially in the case of critical infrastructure.

An alternative to activation, enforcement, and renewal, is a simpler measurement and reporting approach. Measure what is used, report on it, and bill where necessary. This approach can be taken with any number of pricing/licensing approaches including perpetual, subscription, pay-per-use, pooling, enterprise license agreement, and volume license agreement. Some customers may be uncomfortable with usage information being collected, and there may also be challenges with transferring information from one side of the corporate firewall to the other. These are legitimate concerns and reasonable discussions to have. However, in the case of cloud services, this is going to happen regardless. So in a world of licensing continuity between on-prem software and cloud services, having a common approach to pricing/licensing software and services makes sense.


In the age of cloud, there is nothing more fundamental to an operations environment than agility, efficiency, and flexibility. This is especially true for dynamic workloads. Old approaches to software licensing, and consumer-oriented approaches to software licensing, are not optimal for B2B, especially for cloud environments. Usage measurement and reporting provides an approach that does not hinder operations agility, efficiency, and flexibility, while supporting multiple approaches to pricing and licensing

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