Are applications going to a per-minute model?

Virtualization is hitting developers where it matters most: in the revenue stream. The solution could be metered use of software

Cloud computing has been called the utility model of computing since it became a buzzword more than five years ago.

Yet the metered utility model may extend further up the stack than just CPU cycles. While today's SaaS (software-as-a-service) models typically charge a subscription price, the industry may start moving to more of a cell phone model: Customers get a baseline of usage, then pay for extra time.

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Driving this change is the discovery by software makers that the trend toward virtualization is shrinking their revenue stream. As companies move their applications to virtual machines running in their own data centers -- so-called private clouds -- software developers are often getting the short end of the stick, according to a survey by software-rights management firm SafeNet.

"Over time, people are going to have to move to more usage metrics for their licensing," says Chris Holland, vice president of SafeNet's SRM division. "Whether it is the number of users or whether it is the amount of time the software is operating, some metered metric is going to emerge as a more suitable model."

The survey of 300 IT decision makers, which will be released next week, found that 9 out of 10 companies had already or planned to have their software running on virtualized infrastructure by the end of 2011. Yet for software makers who do not take virtualization into account in their licensing, their customer's move to the cloud costs money: Nearly 50 percent of companies switching to virtualized systems spent less on software, far exceeding expectations.

The lesson for software licensors is that failing to keep up with the virtualization trend results in lost revenue, says Holland. The technology exists for software makers to keep track of how much their customers are using their programs. Based on that data, many of them could move to a metered model, but the transition will not be easy, he says.

"It is definitely tricky," Holland says. "Moving to a usage model could require a sea change, and I can understand why software publishers, especially traditional ones, may have some hesitation."

Software publishers would not only have to have to revamp their licenses, but they would also need to change the way they compensate salespeople and update their back-end processes, among other considerations.

Holland does not expect all, or even most, software makers to move to a usage model of revenue. However, metering will become widespread, he says, if only to allow developers to renegotiate subscription fees on a yearly basis.

"I do think we will see metering as a component of determining the appropriate compensation level for software usage," he says.

This article, "Are applications going to a per-minute model?," was originally published at Get the first word on what the important tech news really means with the InfoWorld Tech Watch blog.