The perplexing cost of multiplexing

It’s hard enough to keep up with the industry’s complex technical jargon, but for some reason software companies like to make matters worse by introducing a whole new vocabulary to discuss the pricing and licensing of their products.

When licensing fess change, for example, the companies

aren’t trying to bleed customers dry; they’re “”augmenting”” the pricing model. When companies want to explore ways to earn more revenue from their installed base, they don’t perform audits; they offer “”licensing management services.”” No wonder Oracle is calling the backlash over its redefinition of multiplexing a “”misunderstanding,”” while industry analyst firm the Meta Group calls its methods unethical.

Earlier this week the Meta Group released a statement lambasting Oracle for billing customers that perform batch feeds from non-Oracle applications to its database. The Oracle contracts are too vague, Meta claimed, and advised customers to not only resist the changes but to take Oracle to court. This is an unusual recommendation coming from a research company; the closest recent comparison would be Gartner’s recommendation last year that customers drop Microsoft ISS due to the product’s security vulnerabilities.

Media reports have focused on the many phone calls Meta analysts say they fielded from irate customers (there were actually nine such calls). Few mention the reason Meta has been getting the calls: it was the research firm who reassured clients that a single licence would cover multiple users involved in a batch feed. It may be right to criticize the licensing model, but Meta analysts didn’t find the contracts vague a few weeks ago. This attack is a face-saving exercise and Meta does not deserve the crusader’s image it has so brazenly courted.

If anything, the incident serves to highlight the miserable job software companies have done to set out clear pricing policies. Oracle, in particular, has treated pricing as the trick up its sleeve whenever money is a problem, as it is now. Specifically, its database revenue is down 26 per cent since last year, while application sales are down 41 per cent.

This would explain why the firm would adopt a licensing system whereby it can charge customers more money for using non-Oracle software. It does not explain why it can’t come up with a consistent model that works. Last summer, for example, it switched from the unpopular “”power unit”” pricing model whereby customers paid more to use its tools if they ran it on systems with faster processors to a per-CPU model. Though no one within Oracle would ever admit it, this was a concession to companies like IBM and Microsoft, who also charge by the number of processors.

Unlike IBM, however, Oracle has pushed customers to buy bundled solutions with hundreds of features, while Big Blue offers a lower-cost DB2 and charges by the add-on. In January, Oracle announced another new licensing scheme for its 11i business suite, where “”professional”” users (who would have full access to its applications) would pay more than “”self-serve”” users with limited access. Whatever way you slice it, Oracle wants customers to buy the complete solution. If they don’t — which is obviously the case in these batch feed situations — they will pay the price.

Nine phone calls probably didn’t shut down the Meta Group’s switchboard, and it is possible Oracle is telling the truth when it says that its definition of users has not created a widespread problem. But if it believes itself to be so much better at working with customers than Microsoft, it might learn from lessons from the latter’s Software Assurance fiasco, which was also greeted by many users as a blatant cash grab. Microsoft proved just as inept at communicating its strategy, forcing it to extend deadlines and modify the program’s rules.

These companies spend millions of dollars on educating and promotion, and part of their pitches should include a plain and simple description of the cost of doing business. No one should be surprised when the bill comes. Software companies may call that contract management. Most people would call it trust.

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