Microsoft to switch to 'per-processor' licensing

Microsoft is set to radically change its server application licensing model, by charging users on a per-processor basis rather than by number of users.

The software giant claims the decision - which will apply to its next generation of server applications - is a logical move as the growing use of the Internet in business makes it difficult for companies to accurately estimate the true number of users per server.

The strategy mirrors similar moves by IBM and Oracle last year.

Analysts claim the move reflects an industry-wide shift to pricing systems that focus on customer value, claiming that while SMEs (small and medium-sized enterprises) could find themselves with smaller bills, large corporations and ASPs might pay more in the short term.

Mark Roberts, director of Cap Gemini, said the model is not without pitfalls. "A pay-per-user licence involves a lot of financial engineering. You need to estimate over three to five years your average traffic and costs. In the short term, it will be more expensive, but in the long term it allows you to measure and monitor. You can decide how expensive it will be," he said.

According to Dale Vile, senior analyst with Bloor Research, the move is a compromise by Microsoft to satisfy customer demand and increase potential sales, without investing in the more stringent monitoring required by licensing models such as the 'concurrent user pricing system'.

He said: "Microsoft is letting people feel more comfortable using software in a more predictable environment. If people have a predictable billing structure they will use more software and more applications."

But, Vile said large companies with big servers will be at a disadvantage under the scheme. "New applications coming on the market necessitate the installation of a system with room for growth. As technology develops usage will grow, but in the meantime companies are being penalized for investing in the future," he said.

However, Clive Longbottom, service director at Strategy Partners, said the move will benefit Microsoft and its customers equally.

"Microsoft has a guaranteed income and is able to predict to Wall Street what that income will be. It also gives large companies the opportunity to look at their server policies and sort them out, optimise them. If a company gets caught with a considerably higher bill they probably deserve it."