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I have another travel update I'll post shortly, but wanted to get one "on topic" post up as well.

Long time blog readers will know that I've had a long time interest in business models and pricing models for enterprise software. CPU pricing, while currently the norm, has several major challenges. CPU performance continues to increase rapidly, effectively cutting software vendor's prices in half every eighteen months. Not to mention the very definition of a CPU is becoming nebulous. Is an eight core Sun Niagra processor a single CPU? Or how about a eight virtual CPUs all runing on a single physical CPU using something like VMWare. Or what about open source business models that are charging for support (or even for new features). 

All of this makes pricing enterprise software challenging. BEA tries to cope with this by having well documented and explicit policies around multi-core and virtualization. And by, where it makes sense, having enterprise license agreements that allow for even more flexible use of products. Others, like Sun, having taken revolutionary steps such as subscription-based per employee pricing. Still others have declared an intention to do transaction based pricing. (Which, as I've discussed before, I think is a horrible idea. It makes software costs unpredictable and discourages use.)

But perhaps worst of all is what IBM just announced for it's middleware pricing. They've brought back the idea of "power units" or MIPS based pricing, this time calling it "processor value units". IBM portrays this as providing for more flexibility and simplicity in pricing. (I think flexibility in this context means "we can charge you more".) Most disturbing is their announced intention to "differentiate licensing of middleware on processors .. [evolving] to differentiate processor families based on their relative performance". Meaning that if a faster processor comes out, IBM plans on charging you more to run their software. Or they might charge you more to run on Sun SPARC chips than IBM chips.

I agree that simplicity is a desirable characteristic for pricing. But I don't think processor value units create any simplicity at all. In order to buy WebSphere I know need to know how exactly what models of servers I have, exactly how many cores they have, exactly how I've partitioned those servers, and exactly what processor value IBM has assigned my server model. That doesn't sound simplistic to me.

Posted by davidogren at 03:15 AM in Other | Digg This | Add to del.icio.us

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