Software licensing: Does going to the cloud always make sense?

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Moving to the cloud has many potential advantages such as scalability, reliability and lower cost access to applications. However, software licensing is one area where the market is still evolving and savings are much more difficult to calculate.

The main problem is most organisations don't really know just how much they're paying for software at any given time, according to Dale Vile, managing director of analyst firm Freeform Dynamics.

“When there is a recession, firms often look at reducing software maintenance fees but it’s often a one-off exercise which is not kept up," he said.

Firms looking at the cloud to reduce costs often fail to correctly calculate software licensing costs, especially in elastic clouds where increased demand can quickly ramp up costs.

"It’s going to be cheaper, say for a medium-sized business, to put CRM in-house if you already have technical expertise on Windows servers," Vile added. "But people don’t go for a Salesforce.com to save money… they know they might well pay more for it [in the long term]."

A lack of capital expenditure and ability to scale are the driving factors behind such moves, according to Vile.

"When vendors sell cloud [computing solutions] they compare the total cost of running everything in-house," he said, "It is as if you could wave a magic wand and everything in-house goes away. The calculation is quite hard to do, the motivation typically isn’t cost."

Vile believes that the emerging utility class of services like email are no-brainers. It's with the more complex applications that things start to get tricky. "Run Oracle on a fixed server and you’re not badly off," he said. "but as soon as you move to an elastic server that shrinks and grows? Oracle licensing struggles with that. What [hardware] do they hang the licensing on?"

In such instances, larger companies are negotiating licensing on a case-by-case basis with account managers or through savvy service providers.

Even the mature SPLA licensing like Microsoft is not immune to the issues. Vile believes there is a competitive structure for operating systems and services but in areas like Microsoft Dynamics it gets more problematic if firms try to reuse existing on-premise licensing deals within a cloud.

“Some [vendors] will let you do it, some won't and others will have limitation on support,” he added. “Just don’t assume it’s the same application licensing if you stick it on another server that might be a different class [and] subject [you] to a new licence fee.“

Many larger hosting and cloud service providers are privately grumbling about annoying anomalies such as the VMware service provider licensing agreemen, which charges per hour of use, compared to a traditional end user licence which is effectively unlimited.

This makes it much more expensive for a service provider to sell service-based licensing compared with getting a customer to use its own VMware licensing on "rented" hardware. "It’s all a bit of a moving target at the moment. A lot of what they are doing is undefined,” Vile warns.

"Removing the reliance on in-house resources and keeping up to date" was the primary reason for Safetynet Solutions to move to the cloud, according to Lisa Alderson-Scott, the company's sales director.

Her firm, a supplier of site ID and visitor management systems, worked with cloud provider Outsourcery to move its Microsoft SharePoint and Exchange applications to coincide with a planned refresh of its aging hardware.

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