ISVs' software licensing agreements bend with the times

Enterprises might not be rushing headlong into the public cloud — indeed, most experts believe the infrastructure of the future will be a hybrid cloud — but savvy CIOs are taking a page from the public cloud subscription model to negotiate software licensing agreements on their terms.

Take George Brenckle, senior vice president and CIO of UMass Memorial Healthcare, the academic partner of UMass Medical School, with three campuses in Worcester, Mass., and four member hospitals in Worcester County. “Health care is a very capital-constrained industry,” he said, and he’s realized that the cloud subscription model might be a better way to balance the books while purchasing new technology.

“If I don’t have the capital to buy a product now, but [a vendor] can offer me a service model and build the infrastructure to do remote support, there’s nothing to stand in the way,” Brenckle said.

That realization came to Brenckle two years ago, but when he asked an independent software vendor (ISV) to consider a subscription model, he “got the blank look,” he told attendees at a recent Society for Information Management meeting. Last month, expecting the same blank look he got two years ago, he repeated the request “and they jumped on it,” he said, and promised to come back with a proposal.

Welcome to the age of “anything goes.” As ISVs modify their licensing models to accommodate the economic downturn, virtual use, cloud computing, and in turn, subscription-based options, negotiating new software licensing agreements has become one of the top issues for IT, experts say. And the licensing-agreement term of choice is subscription-based.

By 2014, 40% to 70% of ISVs will offer a subscription model for business software regardless of whether it resides on a public, private or hybrid cloud, according to a study of 756 IT professionals in the public and private sectors by CDW LLC, a global technology solutions provider based in Vernon Hills, Ill. That’s because it makes sense, not only from an enterprise point of view but also for the vendors, said Nathan Coutinho, virtualization solutions manager at CDW.

“In the last six months, ISVs have begun to offer subscription-based pricing models,” Coutinho said. “At some point, it will only be subscription-based, if I had to guess. It would let the ISVs develop much faster, with a steady stream of revenue because of maintenance.”