Up-front software costs a problem for government cloud providers

Server-huggers aren't the only ones wary of the lure of cloud computing. Software vendors also seem reluctant to hitch onto this latest trend.

Earlier this week, Doug Bourgeois, director of the Interior Department's National Business Center, talked about how NBC is ramping up a set of infrastructure services for other agencies to use. He spoke as part of a cloud-computing panel at the Virtualization, Cloud Computing and Green IT Summit, held by the 1105 Government Information Group, publishers of GCN.

The idea is that NBC can offer other agencies such infrastructure at a lower cost and with all the necessary government security compliance already in place, largely because it had already built out much of the infrastructure in the process of delivering its own services. But in the course of ramping up the center's offering, Bourgeois did come across one stumbling block: Software licensing.

NBC plans to offer infrastructure service on a pay-as-you-go basis (at least, initially, in monthly increments). But much of the software needed to supply this infrastructure-as-a-service — server software, databases, and such -- can only be procured via old-fashioned enterprise licenses. This means all the software that NBC might use must be purchased beforehand.

"The traditional enterprise license agreement that software providers want to bring to the table requires the service provider to outlay the money up front for the entire enterprise license, and then you have the ability to provision those licenses as clients accessing your system," Bourgeois said in a subsequent interview with GCN. "That just doesn't work in a cloud model. The service providers are taking all the risk and paying up front" for services that may or may not be actually used.

This is especially problematic, Bourgeois explained, insofar as the projected use of NBC's cloud services, being not only a new service but a new type of service, can vary wildly. And because much of the cost-savings is based on a shared-usage model, charging full price for each copy of a program that might be used, and/or for every customer that might use that program, would cut into the cost-savings that cloud computing could bring about.

Oddly enough, hardware vendors seem to have come to terms with the pay-as-you-go route. For its own cloud services, the Defense Information Systems Agency hammered out an agreement with Hewlett-Packard and Sun Microsystems wherein each company would outfit DISA with fleets of servers within the agency's data centers, but only charge for those servers that were actually used. NBC struck a similar deal with its own vendors.

Yet many software companies seem loathe to offer a similar deal, Bourgeois said, adding that NBC is currently talking with a number vendors to see if any deals can be worked out. 

Bourgeois didn't name the vendors he was speaking with, though we queried a few of the biggest enterprise software companies — including Microsoft, Oracle, Red Hat, RightNow Technologies -- to find out if they offer any sort of usage-based licensing, or if they would be willing to do so. Thus far, one company has responded to our recent request: customer relationship management software provider RightNow Technologies (We'll keep you updated with their responses from the other companies).

RightNow currently does not offer usage-based pricing, but is open to the idea, said Kevin Paschuck, the company's vice president of public sector operations. In fact, the company already is in discussion with DISA on establishing a monthly payment based on actual consumption.

"Our typical contract aligns with the industry standard of an annual commitment with the opportunity to tune up or down the licenses at the end of the contract based on amount used," Paschuck said in an e-mail. "However, we are open to monthly usage based contracts."

True, vendors have long padded their bottom lines with the inherent inefficiencies of government IT purchasing — by making small but expensive sales to branch agencies, or by selling more seats on agency-wide enterprise licenses than ever get used. From behind the procurement officer's desk, a bounty of cost-savings can be glimpsed. But to be fair, it is obvious why some software companies may be reluctant to go to a usage-based pricing model. Software sales are what keeps software companies in business. It is a core asset. Duh! You can't return a partially-eaten half smoke to Ben's Chili Bowl and expect an incremental refund of some sort.

As with transparency efforts stifling frank vendor-agency talk, usage-based pricing could ultimately spur some serious fiscal introspection on the part of vendors. And rethinking how a company's primary source revenue would be regenerated under a cloud model is not a task to be undertaken lightly. Add into this muddy mathematics the fact that many software companies, such as Microsoft or RightNow, are ramping up or already have their own software-as-a-cloud offerings, thereby making a government service cloud provider a potential competitor, in addition to being a potential customer. In short, asking for a new type of pricing is a big request.

Still, the current reluctance could problematic for nascent government cloud offerings. "The standard license agreement puts too much risk on the service provider," Bourgeois said.