Best Practice Report

Software Buyers Should Consider Business-Metric-Based Licenses — But Cautiously

Buyers Can Achieve Cost Savings — If They Can Avoid The Pitfalls

November 14th, 2007
With contributors:
Andrew Parker , Antonin Shanahan

Summary

Many IT sourcing professionals negotiating contracts for new software purchases will receive offers of licenses priced by business metrics, such as turnover or employee numbers. Vendors are introducing these types of metric because traditional licenses based on usage or deployment are becoming increasingly problematic for both vendors and customers. Terms such as "user" and "server" are difficult to define or measure in the age of Dynamic Business Applications and Information Workplaces. Companies waste time arguing with their suppliers about licensing technicalities instead of focusing on getting maximum value from the products they've bought. Unlimited "enterprise licenses" using novel pricing schemes can be mutually beneficial, but there are also risks for the unwary in these pricing models — including a dangerous loss of flexibility when a company grows. Buyers should understand the pros and cons of business-metric-based software pricing so they know when to recommend it and how to protect their employers from longer-term problems.

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