End-user perspectives on storage software licensing

By Deac Jones and Becky Hughes

As the storage industry evolves, greater emphasis is being placed on improving the management of subsystems in storage network environments. Efficient data management is the key to many companies' survival as they work to achieve more with fewer resources. The primary challenge is finding software to manage these devices-and the data that resides on the devices-under a single view.

The growth of the storage industry clearly rests in software development as companies work to improve data management in heterogeneous environments. This involves software that can manage the interfaces among various storage subsystems to deliver the data to a single management console that includes a framework that describes each device attached to the storage network.

the importance being placed on software's role in data storage. McData's acquisition of SANavigator and Hewlettt-Packard's acquisition of StorageApps are two other examples.

Similar to other technology curves, the cost of storage hardware continues to decline while software prices remain stable or increase with the introduction of innovative features.

Newcomers to the software industry are offering flexibility in licensing options to appeal to a broader base of customers. Hattras Inc.'s latest research found that the majority of end users prefer a choice of licensing options-both perpetual and subscription-based. While most IT executives typically select more-traditional perpetual licenses based on capacity, versus subscription licensing, individual departments with smaller budgets often find that alternatives to the perpetual licensing plan are more convenient for their specific needs and budget constraints.

While subscription licensing is gaining momentum, it is far from reaching critical mass. Previous research indicated that the market was taking a "wait-and-see" approach to Microsoft's endorsement of subscription licensing.

Results from a survey conducted earlier this year by CIO Magazine indicated that the "wait-and-see" period appears to be over. After Microsoft announced a new subscription licensing model in May 2001, claiming that it would simplify software licensing, CIOs disagreed.

Results from the survey showed that the majority of IT executives are in disagreement about subscription licensing. In fact, Microsoft's own research indicates that only 25% of its customers want to pay for software through subscriptions. Most prefer perpetual licenses.

The CIO Magazine survey interviewed 122 IT professionals on their licensing preferences. Respondents represented a broad range of industries, including manufacturing and process industries, computer-related industries, state/federal government, and medical/dental/healthcare.

End users are still in a state of transition when it comes to determining suitable licensing programs that will meet their individual needs. In the meantime, "outsourcing" the management and coordination of software licenses, as well as overall storage and software purchases, is gaining in popularity. This is especially true for enterprise accounts in the financial and oil/gas sectors. Firms don't want the burden of managing more IT decisions and dealing with potential problems. They want to remain focused on their core competencies. In small to mid-sized companies, end users hope that an industry standard will emerge to help them internally manage their software licenses, service, and support from one central location more easily. Licensing programs will need to evolve to meet the demands of end users.

End-user interviews and evaluation

Hattras recently interviewed approximately 100 end users from the telecommunications, financial, government, energy, and healthcare sectors to determine the specific needs of customers purchasing storage software. These specific vertical markets were selected because they were sectors known for purchasing storage area networks (SANs) and storage area management software. (For a complete breakdown of user preferences in storage software licensing by vertical industry, view the full report at www.hattras.com.) Survey respondents included CIOs, IT executives, software asset managers, and sales licensing coordinators.

The focus of our survey was to understand the priorities of end users selecting centralized storage management software. Preliminary findings indicate that enterprise software licensing, subscription licensing, service and support features, pricing and discounts, and understanding the overall purchasing process were top priorities for customers.


As expected, enterprise licensing structures that appeal to end users are often at odds with aggressive "vendor-favorable" licensing structures. From the perspective of buyers, enterprise licensing structures that allow for predictable financial management are critical. According to our end-user survey, the main components of a user-favorable licensing structure would include

  • Easily understood and measured metrics;
  • Early defined product pricing and discount levels;
  • Maintenance based on percentage of price paid, not list price;
  • Clearly defined upgrade pricing; and
  • Breakdown of options to allow customers to assemble unique configuration.

These concerns often are not consistent with vendors' software licensing practices. Aggressive vendor-favorable licensing structures have alienated end users. Strategic advantage will go to vendors with licensing structures that are perceived as user-favorable.

Perpetual vs. subscription licensing

Our research indicates that, overall, perpetual licenses are more appealing than subscription licensing. In short, users usually prefer to own rather than rent. However, these findings should not disqualify subscription-based licensing as a viable strategy when cost and/or flexibility are major concerns.

Service and support

In general, service and support terms should be seen as deal "sweeteners," or possible deal breakers in software licensing negotiations. If the buyer has strong skills and familiarity with the product set, then service and support are not as crucial to the negotiating/buying process. However, if the product set and technology are relatively new to an environment, and skill sets are lacking, then enhanced service and support terms can be a crucial factor in the negotiation process.

Several years ago, software licenses typically included numerous free upgrades throughout the year. Today, vendors usually release only one upgrade per year, because the technology is much more advanced and costly to deploy. With only one upgrade released annually, vendors are still charging the same price as when they produced multiple upgrades. Many users feel that the cost for upgrades needs to be adjusted and reduced accordingly.

Deac Jones is president and CEO, and Becky Hughes is managing director, at Hattras Inc. (www.hattras.com), a strategic marketing firm in San Francisco that specializes in the data storage industry.

This article was originally published on September 01, 2002