In-Depth

The Secret War Over License Transfers

The hitch in used storage gear

• By Jon William Toigo
• 03/20/2003

My friend got a deal: about $30K for the car, plus the remaining four years of the original manufacturer’s warranty. For $25, the warranty, which cost the original buyer over $1000, was transferred to him without a problem and he now enjoys bumper-to-bumper coverage for his pristine ride.

Across the country in New Jersey, another friend just bought some network-attached storage gear second hand through a reseller. The reseller got the equipment from a leasing company that handles trade-ins of old gear for new. The software licenses for the gear were transferred from the original owner to the leasing company, which then passed them along with the hardware to the reseller’s client.

The client was overjoyed to have the near-pristine hardware, with software licenses, at a fraction of the price the equipment originally commanded. However, the original equipment manufacturer, upon learning that his potential sale of new product had been thwarted by the availability of re-marketed used gear, refused to honor the software licenses.

As things currently stand, vendor lawyers are sending threatening letters to the client, the reseller, and the leasing company, asserting that software licenses are not transferable and that the client is, in effect, running bootleg software on his NAS.

I won’t reveal the names of the prominent NAS vendor, the leasing company, the reseller, or the customer because the whole mess appears to be snowballing toward litigation. Whether or not the vendor wins the case, it wins anyway. Litigating is a good way to take the blush off a sale—to silence the proud, self-congratulatory comments of a customer who is pleased with his own business acumen at having solved a storage problem so cost effectively.

Indeed, if the customer can’t wait until the legal smoke settles before he solves his capacity issue, he may well be forced to seek new equipment from the vendor or from one of its competitors. Either way, he is out the money he spent on the “gray market” gear and also whatever the new equipment costs him when all is said and done.

What is the difference between the case of the automobile warranty and the case of the NAS appliance software license? In both cases, the vendors confront a competitive market and a bad economy. Both have lost a prospective new equipment sale to a used equipment purchase. So, why is the automobile dealer less troubled by the transfer of a warranty than the NAS vendor is about the transfer of the software license?

Perhaps the reason has to do with market maturity. Automobiles have been sold to consumers for nearly 100 years. To a certain degree, a car is a car is a car. Commoditization has taken hold. There are different types of vehicles, and different categories with different price points, but at each level of the automotive caste system, there is competition and responsiveness to consumer demands. That is a good general description of a mature market.

By contrast, the data storage industry has only existed for about 40 years. Despite the fact that every vendor uses the same disk drives in their cabinet, each adamantly refuses to agree with the view that storage is a commodity. Instead, vendors seek the thinnest of differentiators to assert the uniqueness of their products and consistently argue that they have no peer in another vendor’s catalog. Virtually every product is portrayed as a Christensen-style disruptive technology. Everything is intellectual property with its own unique value proposition.

Despite this positioning, anyone who knows the market knows there are classes or categories of storage arrays that are segregated by how the array attaches to a server (IP network, Fibre Channel, SCSI parallel bus, etc.), how much disk capacity it offers (numbers of drive bays, maximum drive sizes permitted, etc.), how many ports it offers, what file system and block protocols it supports, what RAID levels it supports, and so on.

We further know that the speeds and feeds—the performance and throughput of an array in a system—help to establish a set of product classes. Ask Pete Foye, Director of Market Analysis and Support at Hitachi Data Systems. He is currently sending out a lot of e-mail to analysts to contest some misinformation from EMC regarding the relative performance of their top end array, the Lightning 9980V, and EMC’s latest, the DMX. The two products can be included in a category of arrays that roughly correspond to automotive industry’s luxury SUV.

So, if categories of products do exist in storage, and all products are not in a class by themselves, one might reasonably ask why licenses and warranties don’t pass from owner to owner as readily as they do in the automobile industry.

The answer seems to be that consumers haven’t created a sufficiently competitive playing field by voting with their wallets for the vendor that gives them what they want—like transferable licenses. After all, the Lexus warranty transfer policy only exists because a Lexus competitor made it incumbent on all other vendors to embrace such a policy—or lose a sale.

Instead, the storage industry is like the automotive industry of a decade ago. You may recall the time that vendors started putting EGR or Service Engine Soon lights on their dashboards that turned on when the odometer turned over a few thousand miles. The only way to get the light turned off was to take it to the dealer. BMW used to charge you about $200 just for a mechanic to reach under the dashboard and flip a switch to turn off the indicator. That’s a pretty good metaphor for the state of storage today.

So, what are we going to do about it? Make sure you have transferable licenses as a condition of any storage purchase. Get it in writing. Otherwise, the device has only the value of scrap metal when you go to resell it.