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Five ways to negotiate software virtualization licensing terms

Experts offer tips on negotiating and managing software virtualization licensing terms and how to avoid violating software vendors' licensing policies in a virtual environment.

The good news is that many software vendors are embracing licensing terms that favor running their software in a virtual environment.

Microsoft and IBM have moved away from tying their software licenses to physical devices or processors -- which makes it difficult to move around a virtual machine without buying additional licenses -- in favor of software virtualization licensing terms based on virtual processors that, in turn, allow for VM mobility.

On the other hand, a lot of software virtualization licensing restrictions still exist as far as virtual machine (VM) mobility and virtualizing different vendors' software on the same physical box. It is up to the customer to be aware of these restrictions while attempting to negotiate the most cost-effective software virtualization licensing terms.

Here are five ways to get those favorable terms:

1. Buy the most favorable license. In Microsoft's realm, midmarket companies may want to consider choosing a Select licensing agreement when launching a server virtualization project, said Paul DeGroot, software licensing analyst for consultancy Directions on Microsoft out of Kirkland, Wash.

In the first year of a Select licensing agreement, the CIO forecasts the amount of licenses his organization is going to buy over the term of the three-year Select contract. The more licenses he commits to buying in the first year, the steeper the software licensing discount.

"The company does not have to deploy the virtualization project in the first year, but [maximizing] licensing purchases in the first year of that agreement will give you the best discount," DeGroot said. "That discount will carry over to the remaining years of the contract regardless of how many more licenses you actually buy or don't buy."

Midmarket companies can save roughly $300,000 on a $2 million virtualization project involving Windows Server, Exchange Server and Unified Communications Server, for example, if they use this method to buy software licenses under the Select program," said DeGroot, who heads up boot camps on Microsoft licensing.

2. Negotiate software licenses based on named users. Licensing software in a virtual environment based on processors can add up fast. Data volume for many businesses is going up, and, in turn, the number of processors they need to license is rising too, while the number of users are remaining the same or even decreasing.

"You could be paying double, or more, if you license by processor," said Duncan Jones, software licensing analyst with Forrester Research Inc. in Cambridge, Mass. Estimates say data volumes are increasing by 50% every 18 months; while businesses themselves are not growing in terms of users, Jones said.

The caveat to this approach is that some vendors will not bend in terms of licensing on a  Per-processor basis since it is a model they are used to and one that supports their revenue stream. They want customer to buy more processors, in other words. Some vendors, such as Oracle, are offering options to license some of its products in a virtual environment on a processor basis or a named-user basis, Jones said.

3. Look to retrofit existing software licensing terms for a virtual environment. Some vendors offer amendments to existing licensing agreements to account for running software on a VM. IBM has a program called  Sub-capacity licensing in which customers can sign a contractual amendment that accounts for server licenses on a concurrent basis rather than a named basis.

"What IBM does with [sub-capacity licensing] is look at the capacity peak the customer needs over time and charges for licenses based on that peak," Jones said. "A good approach for the customer is to set up management software to limit allocation of resources so they can dynamically switch between physical devices as long as they keep total capacity below licensing limits."

4. Pay attention to support contracts. Hewlett-Packard has licensing policies in place to allow for conversion from traditional licenses to ones suited for a virtual environment. In fact, Hewlett-Packard is considered a conversion leader. But where many organizations run into problems with vendors is the support contract signed at the time of the licensing agreement, said Chris Wolf, virtualization analyst with The Burton Group, based in Midvale, Utah. When signing a licensing agreement, many vendors say they will support their software in a virtual environment, but what does that mean exactly?

"Some vendors will only resolve an issue with their product if you convert it from a virtual environment back to a physical one," Wolf said. "Conversions will cost you time and money. ... How long will the app be down?" he said.

Make sure you clarify in your support contract what you do not consider to be virtualization-related problems, and get them covered under the contract -- things like I/O or latency-related issues that are definable within the application logging mechanism. This covers you if vendors say they will not resolve the issue because it is virtualization-related and not related to an issue with their software, said Wolf. He believes the licensing disconnect between some vendor policies and actual user needs is  stalling virtualization adoption.

You could be paying double, or more, if you license by processor.

Duncan Jones, analyst, Forrester Research Inc.

5. Avoid costly gotchas. Putting IBM, Microsoft and Oracle products on VMs within one big server may make sense to you, but from a licensing perspective it can get tricky. Some vendors act as if the entire physical server is supporting their product alone, versus their product only being used by part of the processors.

"You may have one server that has some VMs supporting one vendor, other VMs supporting another vendor, and even if you restrict dynamic resource switching, the vendor may charge you for all the processors on that box even if their product isn't using all of them," Jones said.

There are also restrictions on how frequently you can move around VMs. Microsoft enforces a 90-day rule, for example, in which Windows Server 2003 instances in VMs cannot be moved more than one time in a 90-day period. This no longer applies to Exchange Server or SQL Server with volume licensing agreements, Wolf said.

DeGroot explained that this rule harkens back to existing rules Microsoft has in place to protect against licenses being used on a global basis and transferred to different users in different time zones if they are not licensed to do so. There is no clear resolution to this problem at this point. Limited options for that are: Don't move the VM or buy another license for the given product if you want to move it between VMs more than once in 90-days, he said.

Software vendors are making strides, but do have incentives to stick with old licensing schemes. This will cause some midmarket companies to seek out more enlightened smaller vendors that are willing to bend licensing terms or even change them entirely to evolve with the needs of their customers, experts said.

And more pressure may be put on larger vendors not willing to play fairly as customers opt to adopt cloud computing models in which the concept of a physical device essentially does not exist and cannot be tracked in a cloud environment, Wolf said.

Let us know what you think about the story; email Christina Torode, Senior News Writer.

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