In Focus: The Ins and Outs of BI Software Licensing
Is the complexity of BI licensing—like the certainty of death and taxes—just something customers must accept?
Quick, what’s more indecipherable: the U.S. Federal Tax Code or the software licensing agreement you just signed with your business intelligence (BI) vendor? At just short of 20,000 pages, the Federal Tax Code probably takes the cake, but few (if any) pundits would argue that software licensing is not an incredibly involved proposition.
“BI pricing is messy and all the vendors need to simplify,” comments Cindi Howson, a principal with BIScorecard.com and a member of TDWI’s extended research collaborative. As a general rule, Howson says, few things are more confusing than the variegated ins and slippery outs of BI licensing: “Buying an ERP system, a house, and financing college fees are all simpler endeavors.”
Is the situation really as pat—or as terminal, for that matter—as all this? In other words, is the complexity of BI licensing, like the certainty of death and taxes, just something customers must accept? Not necessarily, Howson and other analysts say: In fact, a number of forces, market-driven and otherwise, could fundamentally alter the software licensing-scape.
In this regard, says data warehousing consultant Mark Madsen, the BI majors will probably be swept along with the rest of the ISVs. “I don't think the problems apply just to BI software. It's really the problem with enterprise software licensing models. With maturing markets for some of these products, it's tough for a software company to maintain growth. Hence the constant unbundling, rebundling and repackaging of the software in an effort to increase new license sales,” comments Madsen, who—like Howson—is a member of the TDWI extended research collaborative. “Part of the brokenness in BI is that it's still maturing, and vendors have to shift their revenue strategy.”
The revenue breakdown for most software vendors isn’t pretty, Madsen says: Big vendors generate about 45 percent of their income on support and maintenance alone, while roughly 80 percent of new license revenues are gobbled up by the simple costs associated with generating new license revenues. “For a mature company with a saturated market, it's tit-for-tat market share fighting with other companies. To differentiate, they try to add features, but that means R&D and [as much as] 85 percent of software R&D budgets are not for differentiable features, but for [things such as] maintenance and fixes.”
Right now, says Howson, most BI vendors support a mixed bag of named user and per-server licensing models. Both have their advantages, she explains: “Very few vendors do named user only. Most offer server-based [as well]. Named user is better for smaller deployments,” she comments, noting that server-based licensing is a source of confusion for many customers: “The definition of a server is a moving target though - is it a Windows Server, Unix Server, is it per CPU, and what if that CPU has more than one core all play into the definition.”
One potential roadblock to meaningful change, analysts say, is that some users are actually comfortable with the status quo. Or, to put it another way, if the devil is almost always lurking in the licensing details, then they’re far better with the devil that they know. Furthermore, named user licensing is value-based, so (theoretically, at least) customers pay only for those users who actually use the software; and named user licensing does seem to make sense in small installations. For these reasons, there’s a built-in comfort level with named-user licensing, says Wayne Eckerson, director of education with TDWI. However, this is changing, Eckerson stresses—although no one can tell just what’s going to happen.
There are the relational database vendors and the packaged applications vendors—both of which are encroaching from without—while still another emerging competitor, the open-source BI market segment, could one day amount to a force of some kind, too. All three competitors have exerted and probably will continue to exert pricing pressure—and possibly significant pricing pressure at that—analysts say. “The vendors are being forced by the maturation cycle to shift licensing strategies, and to also emphasize support profitability, which usually hurts the customers, adding fuel to the market share infighting. And along comes open source to pressure licensing at just the wrong time,” Eckerson comments. “Microsoft waded in, adding pressure to license revenues since it's becoming a commodity market and that's the market Microsoft knows how to dominate. My feeling is that this is why they waited so long to get into the BI market. It wasn't commoditized enough yet.”
There’s a dark horse, too. As more and more BI capabilities are roped into, or yoked as part of, packaged and custom applications—e.g., called via Web services, invoked by Web application servers—ISVs in general could be forced to accommodate users with more innovative, not to say flexible, licensing models—or run the risk of getting squeezed from below and above.
New application deployment models create new revenue opportunities, says Michael Cororan, VP of product strategy with Information Builders Inc. (IBI). New revenue opportunities create new challenges—for vendors and users alike—Corcoran says, but given the radical shift that’s at the heart of SOA and the Web application model—where composite applications can be cobbled together (dynamically, some optimists say) from multiple consumable services—this could be a Very Good Thing as far as users are concerned.
“I think we’ll see big changes in licensing terms, no more per server, no more per processor, no more per seat, even. You’ll see a lot of vendors move to more service-based models,” Corcoran comments. “This is a new revenue opportunity for us, because of the way we’re used [as a reporting front-end for many Web applications]. We took a certain layer, the most commonly used functions on the WebFocus product, [and] we made that [available at] a basic one-time price fee for unlimited users on that server.”
Other possibilities include BI products that are licensed on a per-query or even per-transaction basis, as well as lump-sum, flat-fee payments—plus ongoing maintenance, of course. The latter approach is touted by dashboard specialist Celequest Corp., for example, which markets its dashboard appliances at several lump-sum price points.
Elsewhere, suggests Eckerson, server-based licensing and hosted subscription licensing models—a la salesforce.com—will almost certainly come to the fore. “I believe that eventually server based licensing and subscription pricing models are the wave of the future. Thin client Web-based computing has made it possible to run everything off the server without installing client software, which takes away the ‘physicality’ of user-based pricing. If you are committed to a product and it helps run a portion of your business, a server-based license makes sense,” he comments. “Then again, subscription based pricing makes even more sense. You only pay for what you use—sometimes by user or server or [sometimes] not—on a monthly basis. You can always downsize or upsize at any time without changing your software, you just change what you pay.”
Eckerson says there are other benefits to this approach: “[I]f the vendor starts screwing up, you can discontinue the software immediately without affecting your IT infrastructure and sign up with a competitor. The transition is pretty seamless,—[although] not totally because you'll need to reconfigure—but miles better than the current lock-in approach to software acquisition that exists today.” At the same time, he concedes, the high monthly fees associated with some subscription-based approaches could deter users, as well.
Data warehousing consultant Madsen, for his part, foresees big changes, licensing-wise, over the next several years. “Since licensing and support are the big revenue sources, the companies have to shift strategies, and sooner rather than later.” He continues that the statistics “aren't pretty, and they're only a few of the indicators of what's happening to software company financials. I think this is one of the reasons all the software companies take open source as seriously as they do. It's a development and deployment model that's pressuring them, as well as offering opportunities to shift costs… I think that for the BI market, commoditization plus Microsoft’s entrance plus open source equals big changes in pricing models over the next few years.”
On the plus side, Madsen concludes, simplicity has come to the data integration space, at least in places. “Wouldn't it be nice if there was a single server price orconnection-based price and that was it? It's happening in the ETL space. [Business Objects] made Data Integrator pricing pretty simple, and Sunopsis made it even easier. Has anyone made it simpler in the BI space?”
Stephen Swoyer is a Nashville, TN-based freelance journalist who writes about technology.