Originally appeared in MSI Magazine
December 1, 2000

It’s the Machine Stupid

Intel’s recent technology bumps with Rambus notwithstanding, nobody is yet predicting the end of Moore’s Law—the axiom that processor power doubles every 18 months. Intel believes it has another decade of life left.

Moore’s Law implies cheaper hardware, a contention that is debatable. Just about the only real price decline lately was the introduction of sub-$1000 PCs, which emerged when Network Computers threatened to rain on the PC parade. Otherwise, price points have remained pretty flat with midrange and power user machines going at $1500 - $2500 and $3000+, respectively.

At least hardware prices aren’t going up. Software, however, remains another story. Just ask any ERP veteran or desktop software administrator. It’s not surprising that many of them are seriously considering ASPs to tame their software budgets.

The ongoing joke in the desktop world has been, what Intel giveth, Microsoft taketh away. Those perceptions were reinforced when Microsoft attempted to charge corporate users for re-imaging software. Imaging provided fast alternatives to re-inputting standard settings every time software was installed or upgraded.

The issue moved to the forefront thanks to Intellimirror, a new feature allowing users to replicate their desktop software images on any Windows 2000 machine within the enterprise. With Intellimirror, Microsoft began enforcing licensing provisions equating re-imaging as software upgrades, involving fees from $96 - $171 per seat. After a Gartner Group analysis revealed the move as a hidden price hike, large accounts screamed, and Microsoft backed down for installations numbering over 500 desktops. Recently, a European Microsoft executive hinted reconsideration of the surtax for smaller enterprises as well.

Upgrade surcharges aren’t new. Mainframe software customers have complained for years that their MIPS-based software licenses, which are based on CPU size, have penalized them whenever they replaced their machines.

Theoretically, the user-based licensing of client/server software was supposed to provide fairer alternatives reflecting usage. Your company could either pay for named users, or a more flexible license based on the average or maximum levels of concurrent users.

Yet, the Internet turned that equation on its head because the user base for any application that extends further into the enterprise—or outside it—is harder to count or anticipate. Furthermore, the nature of web-based transactions is less predictable. For instance, do millions of users hitting Amazon.com to browse, but not buy a book, carry the same weight as internal users of ERP or CRM systems? What about external users of B2B supply chain collaborations or trading exchanges? Can any designer of a web application accurately predict how many people will access the system and what the computing load will be?

According to major software players like IBM, Oracle, and Microsoft, web software usage looks more like mainframe computing than client/server. Not surprisingly, CPU-based software licensing has returned.

But not without controversy, however. When Oracle recently replaced concurrent user licenses with CPU-based “power units,” many customers complained that their license fees shot upward. Significantly, when IBM published its own analysis, showing Oracle 8i licenses for 4-processor UNIX or NT boxes costing about triple that of DB2/Enterprise, Oracle didn’t dispute the numbers. Instead, Oracle claimed that 8i offered better value because of its superior third-party application support and availability ratings.

Yet, according to Sun’s Scott McNealy, these disputes may eventually become irrelevant. McNealy, who in his spare time is paid to make outrageous statements, recently told Gartner Group conference attendees that, eventually, virtually all software would be embedded in hardware. Server appliances have emerged to handle functions like HTTP serving, web caching, and storage. IBM even plans to embed Domino into an AS/400 appliance for B2B collaboration. There’s no reason why XML transaction mapping couldn’t follow.

Maybe McNealy was spouting off to get a rise out of Microsoft’s Steve Balmer, or maybe he was justifying his recent $2 billion purchase of appliance maker Cobalt Networks. And maybe software licenses might become relics.

But don't hold your breath, Microsoft, i2, or SAP won’t out of business anytime soon. For instance, under Microsoft’s .NET vision, your company will probably rent software as services.

The common thread is that each of these visions revolves around generic software functionality. Therefore, while embedded software may compete with ASP-style rentals, more complex processes like supply chain optimization or customer relationship management won’t compete with anything. In the future, your company will still have software licenses to grouse about.