Since the dawn of the Industrial Revolution, a steady chorus of Luddites, doomsayers, and social critics has voiced concerns about the impact of technology on mankind. Usually, this concern has come in the form of a simple question: At what price progress?
At the end of this year, finance chiefs will have a pretty good idea of the price. That’s when IBM is scheduled to change the way it charges customers for use of the company’s middleware products. Managers at IBM say the new pricing model (which affects about 350 products and 1,300 part numbers) was necessitated by a number of trends buffeting the IT industry. But the reality is, IBM is simply bowing to progress — in this case, progress in server technology.
Indeed, recent advances like virtualization, grid computing, and, most importantly, multicore processing, have radically altered the old concept of per-processor licensing models. “It’s hard to determine which application is running on what processor,” acknowledges Jeff Tieszen, a spokesman for IBM. “Pricing based on processors is outmoded.”
Rather than try, IBM will now charge clients based on the performance of underlying hardware — what Big Blue dubs “processor value units” (PVUs). In the past, IBM has followed the industry practice of basing fees on more-general measures, like processors or cores, which are the computational engine of a microchip. But given the variety of chip designs out there, and with more on the way, many analysts think the switch to processing output makes sense. They also believe other software vendors will take a similar tack. Says Amy Konary, a program director at technology research firm IDC: “The days of licensing software on a simple one-license-per-installation basis, or on a straight per-user or per-processor basis, are coming to an end.”
In theory, performance-based pricing should help IBM better match licensing fees to the actual mileage a customer gets from a program. The company has been basing fees for business products like Lotus Groupware and Websphere middleware on the number of cores in a processor. For an x86 chip with two cores, IBM has been charging half a licensing fee per core. For an existing RISC-based chip, the vendor has been charging one license per core.
Adding to the muddle: different vendors use different methods for pricing applications that run on the same chip. This not only complicates things, it tends to make people’s heads hurt. “It was starting to get to the point where customers were having a hard time budgeting for next year,” says Tieszen. “They didn’t know how new processors would be priced.”
Hence, IBM will base its pricing on PVUs — essentially, the processing muscle of a chip. Analysts say that’s important, since some single chips with dual cores do not produce twice the processing power, as you might expect they would. Instead, a number of dual-core chips generate only one-and-a-half times the processing speed of a single-core chip. “In that case,” asks Dwight Davis, vice president of market-research firm Ovum Summit, “why should you pay the software vendor for two full licenses?”