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Will Microsoft or IBM Have the License that Kills?

Microsoft officials reacted strongly to IBM Corp.'s recent Processor Value Unit (PVU) licensing for both its proprietary and Intel-based server applications. Perhaps a little too strongly.

In early August, IBM took a decidedly different path from many of its competitors in the way the company prices its middleware products running on multi-core chips. The new software-licensing scheme is based on the idea of PVUs, which replaces Big Blue's existing per processor licensing policy. The PVU concept reportedly provides a framework for licensing differentiation on a number of different processor technologies. The software is then licensed based on the number of "value units" assigned to each processor core.

IBM believes its PVU approach allows the company to "more appropriately align software cost and value," and address other issues related to multi-core technologies. The licensing scheme kicks in during this year's fourth quarter, when the company ships an Intel-based server using a quad-core version of the Xeon chip.

The PVU idea stands in sharp contrast to the software-licensing models for multi-core chips of Microsoft, which has stuck with its per-chip model that counts a chip as a single processor no matter how many cores it has. Some Microsoft officials see the difference in licensing as an important weapon in the battle between the two companies where the high-cost, low-volume software of IBM figures to clash with the low-cost, high-volume software of Microsoft.

"This is the collision of two worlds meeting somewhere in the middle. What is interesting here is IBM using this to keep [its] prices high, yet still wanting to compete with Microsoft," says Andy Lees, corporate vice president in charge of Microsoft's Server and Tools Marketing.

The financial stakes involved could be enormous. As more cores are added to increasingly less expensive single processors -- single Intel chips alone could typically have eight cores in the next year or two, with proprietary chips having many more -- sales of such servers and their applications figure to explode as many more small and midsize companies can start to afford them.

"Multi-core chips in general-purpose machines means they will have super-computing power. What we believe could and should happen is that low-cost, high-volume software goes up and replaces the need for these esoteric hardware and software products with their esoteric pricing," Lees says.

Some analysts agree with Lee's opinion that IBM's PVU idea is overly complicated. They are quick to add, however, that Microsoft can hardly serve as a beacon of light when it comes to simplified licensing models given the confusion generated by its Software Assurance plan.

"Microsoft will have a very difficult chore convincing anyone that it can serve as the defender of simple, straightforward licensing," says Dana Gardner, principal analyst with InterArbor Solutions Inc. in Gilford, N.H.

Gardner notes that licensing plans for both software and hardware from major vendors are generally much too complex these days and hurt large IT shops and eventually the vendors themselves. A complex licensing plan or too many changes to such a plan, only gives IT shops a reason to look at a vendor's competitors' products and licensing options.

"If users can get a direct and understandable way to license, then they would be interested in buying more product and/or upgrading faster, which is what the vendor should be interested in getting them to do," Gardner says.

IBM, Microsoft and other vendors selling to large enterprises are missing the larger picture by focusing too much on licensing plans involving complex technologies such as multi-core chips and virtualization. If IT shops become too frustrated with the lengthy process of sorting out the cost benefits of such plans, they might just opt for a comprehensive subscription plan that subsumes such technology issues and also provides them with support, maintenance and even hosting, according to Gardner.

Microsoft argues, however, that the emergence and continued acceptance of multi-core servers is merely an extension of Moore's Law, something Lees says benefits the general health of the entire industry. But IBM's PVU approach is something that not only works against Moore's Law, but could slow the acceptance of multi-core technology across the board.

"It is troubling from the industry's point of view because effectively what [IBM is] doing is hedging against Moore's Law. [It's] nervous that Moore's law will make these high-volume (multi-core-based), mission-critical servers we offer highly competitive on an industry standard platform," Lees says.

Both Intel and AMD executives have told Microsoft, according to Lees, that charging per core could slow the adoption of multi-core technology. They point out that a dual core chip, for instance, does not give users twice the performance over a single core chip, but more like 1.6 to 1.7 times the performance.

"People would end up paying twice as much for the software and not getting twice the performance, and they would be discouraged from accepting this latest technology, which has everything to do with Moore's Law. This is why we want to fight it," Lees says.

About the Author

Ed Scannell is the editor of Redmond magazine.

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