Negotiating software licenses for physical machines can be a cumbersome process, but figuring out how to negotiate virtual software licenses is downright confusing.

Virtualization software uses a physical host to enable companies to run more programs on fewer machines and move assets quickly while reducing capital and operating expenses. With this new technology, software vendors offer a variety of pricing models ranging from licensing software on a per CPU (VMWare), to a per server (KACE and Acronis), to a per instance basis (Microsoft). Having these options available adds greater complexity to the licensing conversation and changes old paradigms regarding value and usage. Not only are there now more virtual machines than physical servers to control, these virtual machines must be administered just like a physical machine, to include updates, software deployment, and operating system management.

Licensing for virtualization technologies is slippery because virtual machines can be created and destroyed in an instant -- making their inventories and systems hard to track. As the virtual machines grow or shrink, IT departments need to pay attention to what software has been deployed, so they can figure out how many licenses they need. Rob Meinhardt, CEO and co-founder of KACE, a Mountain View, Calif. company which specializes in IT asset management solutions, says, “It’s the whack-a-mole problem of software that’s spun up and spun down. You press a button and have a new instance of a machine. You come into questions of licensing, and have to ask what’s an acceptable way to license software in a virtual world, depending on how many hours my company has used this software.” Meinhardt adds that KACE is moving towards licensing on a per instance basis, but for now they charge per server or per node, which he says offers more flexibility than charging per CPU.

CPUs and virtual software value

On one physical host or server, there can be multiple CPUs, with multiple cores, which can power up several virtual machines. VMWare, the leader in virtualization environments prices their licenses on a 2-CPU basis, which makes it easy for IT departments to assess use. But, depending on how many virtual machines a company owns, multiple license fees based on CPUs may price smaller companies out of the virtual market if they have to buy four licenses for four dual CPUs.

Another virtual licensing pricing issue arises regarding multi-core CPUs (of two, four, or eight chips) and how to isolate one aspect of the machine since not all of its capacity is used. Many customers feel that virtualized servers should cost less because they are using less space than physical servers. Andi Mann, research director at  Enterprise Management Associates says, “Customers want to pay for what they use, but it gets tricky when you’re not using all of the CPUs. The best vendors are the ones who are flexible with their licenses and are able to deal with what their customers are doing.”

For example, a server is running eight virtual machines with a 25 percent load on each duel-core CPU. How much should a customer pay for only using an isolated part of the host server? Because of the intricacy involved with these multi-core CPUs and figuring out costs, many vendors, like KACE, have turned to other pricing models to better serve their customers. Cameron Haight, research vice president with Gartner says, “There’s no standard for this [virtualization], but hopefully over time we’ll see some movements of allocations to different pricing models. It’s very much a work in progress.”

Different pricing allows flexibility

Acronis, a Burlington, Mass. provider of disaster and recovery software allows companies to backup and restore five or more virtual machines on a single server for one price with their True Image Virtual Edition software. Stephen Lawton, senior director of strategic marketing, says, “It’s very easy to confuse your customers with complex pricing models. If I’m in development and I deal with virtual machines on a regular basis, should a company charge every time I create or destroy a virtual machine?” For these reasons, he says the license for True Image will accommodate future virtual machines, as long as they remain on the same server.

Microsoft recently announced a per running instance license for their management servers, allowing companies to build extra virtual machines, but not be charged when they are not in use.

The best thing for companies to do when navigating this complex virtual world is partnering with a vendor who is flexible and understands what their customers want. Then, companies need to negotiate with these vendors for the best deal to ensure compliancy and budget control. Along with covering compliancy, IT departments are much more able to handle the budgeting for license fees if they know the number of virtual instances from the outset.