Renegotiate software licence deals now, warns Gartner

Emerging trends in IT hardware could force software licensing costs up by more than 50 per cent over the next year unless businesses renegotiate existing contracts now, according to analyst Gartner.

Gartner claims the move to multi-core chip architectures, virtualised hardware and utility computing threatens existing capacity or processing (CPU)-based licensing agreements offered by the major software vendors.

Andy Butler, research director at Gartner, said that the software industry is failing to reflect the hardware changes in its licensing policies.

"There is some movement on the part of vendors such as BEA and Microsoft to address multi-core architectures but generally there is no word from the software vendors on how to restructure their software licensing."

Butler said conversations with the likes of IBM and Oracle about licensing for virtual machines – where an individual server is partitioned into 'virtual' machines - are met with "intransigence and inflexibility".

This means software prices could rise by at least 50 per cent by 2006. An example of a user upgrading to dual-core chip hardware shows they would pay double the CPU fee, despite only gaining a 50 per cent improvement in performance, according to Gartner.

Large corporates are likely to have more bargaining power with the software industry than small firms, according to Butler.

"The big organisations will be less exposed but the ones really exposed are the small and medium businesses," he said.

The other two main hardware trends that will force software prices up are "capacity on demand" and "rapid provisioning" tools to move software between servers with more or less capacity based on workload requirements.

Gartner warns that it is the convergence of these trends that will accelerate the issue of software pricing and that end user companies should initiate discussions with vendors now.