Will indirect usage licensing skyrocket in the next decades?

02 dec '14 - Alex Cojocaru - share: LinkedIN Mail
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Software Asset Management (SAM) is a continuously expanding industry in the cyber-physical world we live in. The rapid growth in IT in recent decades has definitely shaped SAM into the multi-billion industry it is today. Here, I want to highlight one of the many areas of the industry that will be the next big boom in the world of software licensing, namely Indirect User or Indirect Usage licensing. This will have an impact on both software vendors and end users. 

What is Indirect Usage?

Let me first explain what it imeans, in case you never heard of it. Indirect User or Indirect Usage licensing has been around for a while in many shapes and forms. Judging by the significant impact it has already had in the past, it is safe to assume that it will be much, much bigger in the future.

Indirect usage – Indirect Access would be better put – means that a user makes use of a software system that triggers data streams to and/or from other software systems and, therefore, indirectly accesses other (underlying or connected) software systems. Such usage may e.g. involve an individual (directly or indirectly) creating, reading, updating, and/or deleting data in or from a software system.

All the major software vendors define Indirect Usage slightly differently in their license terms and conditions:

SAP defines Indirect Usage in the definition of Access 

Access means the use of the software to obtain, retrieve, or place data or other information from the software by the end user, its affiliates, business partners or any other third party by way of an interface layer (such as client software or web interface) or another intervening technology now or hereafter created. Access requires a license for the user or system to access the software and will through its operation reduce the number of Named Users or other license Use metrics from the software. If the Access is made through a front-end or middleware layer through which it requires Software from more than one individual or systems to be funneled, then each such individual that places inquiries before the inquiry that is funneled must be licensed as a Named User and/or other license use metric, as the case may be (e.g. the required number of licenses required to Access the software cannot be reduced by funneling several individuals to one front-end that then Accesses the software).

Oracle defines Indirect Usage as Multiplexing

Named User Plus (NUP) is defined as an individual authorized by you to use the programs that are installed on a single server or multiple servers, regardless of whether the individual is actively using the programs at any given time. A non-human operated device will be counted as a named user in addition to all the individuals authorized to use the programs, if such devices can access the programs. If multiplexing hardware or software (e.g., a TP monitor or a web server product) is used, this number must be measured at the multiplexing front end.”

Microsoft defines Indirect Usage as Multiplexing

Multiplexing is when end users use hardware or software to pool connections, reroute information, or reduce the number of devices or users that directly access or use a product. Multiplexing can also include reducing the number of devices or users a product directly manages. Multiplexing does not reduce the number of Microsoft licenses required. Users are required to have the appropriate licenses, regardless of their direct or indirect connection to the product. Any user or device that accesses the server, files, or data or content provided by the server that is made available through an automated process requires a CAL (Client Access License).

Progress Software applies the same terminology as Oracle

Multiplexing hardware or software can be used to reduce the number of connections, agents, or processes to less than the total number of Registered Clients served. For environments with multiplexing hardware or software, all counts must be measured at the multiplexing front end. Hardware or software programs cannot be used to reduce the number of Registered Clients licensed. This includes, for example, J2EE server applications that can multiplex a single database connection to support multiple clients or intermediate data structures such as OLAP cubes or CorVu® Dynamarts, which can be accessed by multiple clients but may retrieve data via only one database connection.

Although the way the different software vendors describe Indirect Usage is slightly different in their license agreements, all have one thing in common: all require an end user to license Indirect Usage of the enterprise software. Here are some examples that everyone comes across in their day-to-day activities:

  • Think for example about doing the grocery shopping. You select your vegetables in the store and put them on the weighing scale to calculate the price. The pricing information needs to be stored somewhere, which would typically be a database platform. Although there might be at all times only 1 person (concurrently) making use of the weighing scale, all the individuals that could weigh their veggies (which can be in essence anyone) would be reading the data from the database platform and therefore be using the software; all individuals would need to be licensed in such a case.
  • Another example may be you making a phone call to a friend. You call his or her number and your telecom provider registers how long you have talked with your friend, from what location etc. (the so-called Call Detail Records). This information needs to be stored somewhere, which would require enterprise software. Since all the individuals who make (or can make) a phone call, will trigger storing/inserting data into the enterprise software, all (potential) individuals who (can) make a phone call would need to be licensed.
  • Think about a Network as a Service in which all applications and data sources are connected. There are a number of middleware technologies and application server products that support this seamless integration. However, does every organization still understand which individual connects to which applications, which applications connect to which middleware layer(s), and which middleware layers connect to which database platforms? All of this is needed to understand the direct and indirect (multiplexing) usage of the different software programs.

Indirect Usage was and will become an even more important topic since enterprises are increasingly deploying tablets and other mobile devices in the field, which are connecting to their internal but also to the portals of their customers, employees, and supply chain. As this increases accessing the systems of a number of third-party applications, the number of required licenses (or the need for a different licensing model) will go up, typically resulting in large implications for the overall software license costs.

Although there are other tool vendors on the market (e.g. Flexera Software, IBM, HP, iQuate, Snow) that provide tooling to perform “software program detection” and “software usage measurement”, none of these tools are currently able (and most likely will not be in the future) to “measure” the Indirect Usage of enterprise software programs.

Why do I think Indirect User Licensing will skyrocket?

Have you ever heard of the IoT? It stands for the Internet of Things, a very interesting concept that is not particularly new as it has been around since 1999. It refers to the interconnection of uniquely identifiable embedded computing-like devices over the Internet infrastructure. It is based on the idea that living things and inanimate objects can be provided with a unique identifier and that they will have the capability to transfer data automatically across a network, without interaction from humans or computers. A simplified example of how the Internet of Things can touch our lives can be found at: http://www.hellolamppost.co.uk/

According to Forrester Research, over 50% of senior business executives were planning to implement an IoT solution in 2014, primarily thanks to the proliferation of cloud technology, which makes it more accessible and cost effective. Since its earliest days, IoT has continued to evolve, thanks to converging wireless technology, electronic systems, and the Internet. The numbers of "things" that can potentially be "connected" is growing exponentially and by 2020, there could be as many as 30 billion devices with wireless Internet connectivity, based on forecasts by ABI Research. Other experts, for example Cisco, believe that their estimate is on the low side and that there will be in excess of 50 billion. Whichever way you look at it, the result will be a lot of devices to be monitoring and tracking. This is expected to be mainstream quite quickly.

It all sounds very fun and futuristic but it will be a real nightmare when it comes to licensing all of the “things” you have in your enterprise estate. In licensing terms, it means that a vastly increased number of potential "users" are going to be (directly or indirectly) accessing the software controlling transactions like purchasing a train ticket or turning on the coffee machine from the park.

The software license compliance implications present a significant risk for organizations that want to take advantage of IoT and use enterprise software. It is very likely that alternative licensing models will be provided, but history teaches us that it takes decades before the old ones are no longer in place. Therefore, it is vital to recognize what is happening and that you question your type of licensing on a regular basis. This is what software asset management should be used for.

Getting caught out by vendors for failing to take into account the requirements to license Indirect Usage is a very common pitfall. I remember a situation in which a public railway company had to license all the people who within the train station were looking at the digital screen showing how long it would take the next train to arrive; the company did not realize that every person that was looking at these screens in the train station would need to be licensed since it’s licensing contract stated that each “user” who can access or view information from the database had to be licensed. An alternative (most costly) licensing model had to be applied.

From a financial perspective, licensing Indirect Usage already generates big license and support revenues for software vendors like Oracle, SAP, IBM, and other enterprise software publishers. This is only the top of the iceberg if you think about the multiplying effect once the Internet of Things starts to truly become mainstream.

Bottom line: it does not matter if you are a software vendor or end user, this is the future and the future is now. Enterprises should become smarter in using and applying Software Asset Management to make software license compliance an existing opportunity to improve their business and use it in their favor instead of being afraid of the potential financial, operational, and/or legal risks.

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