Enterprise Architect’s Guide to Cloud Licencing Models


Moving to cloud licencing models, including SaaS, does not become less difficult and with the possible proliferation of services can become difficult for the Enterprise to govern. As with any type of licence agreement the Enterprise must know the agreement they have signed, the implications of the licensing model and the interaction on other 3rd party contracts. Monitoring of Service and Usage is paramount. The monitoring must relate back to the agreement and be within the dominion of the Enterprise. Every element of your organization’s software licensing must be managed under an onsite software agreement; but it must also include agreements for the software potentially being used externally as well.

Enterprise Architecture must understand the types of licencing models in the Cloud and how the effect the Enterprise and its customers. The following blog describes my experiences with cloud licences and the different models:

  • IT Cost as a Percentage of Revenue: Optimal Spend
    • Many Enterprises use IT Cost as a Percentage of Revenue to understand the OPEX costs of their IT against corporate revenue. This model works for larger enterprises with stable revenues.
    • For the start up the services can be used immediately and the model can scale according to demand. The challenge can be that it is difficult to scale on utilisation if the revenue decreases and therefore IT Cost as a Percentage of Revenue can peak.
    • Even within start-ups the Enterprise Architect must be aware of the ability to divest as well as invest in new technologies.
  • Hosted vs. On Premises: Software Asset Management
    • One of the biggest advantages of moving to Cloud or SaaS based applications is the reduced hardware infrastructure and personnel costs required to run business applications. An externally hosted infrastructure or more pertinently a hybrid model requires the inventorying of hardware, applications and licences.
    • New Software License Optimization tools are required that allow organizations to accurately inventory virtualized cloud environments
    • In a hosted model the software and infrastructure licence costs are bundled. Normally the costs are competitive but in certain scenarios such as storage it is possible to find a better deal through internal hosting. The Enterprise Architect must logically decompose the physical architecture to understand the optimal cloud deployment model and to consider as part of the Enterprise’s cloud architecture.
  • Subscription vs. Perpetual: Licence model cadence
    • The perpetual licencing model is well understood; the Enterprise has formal RFPs and set renewal date for Perpetual licences. The cadence with a Cloud model is faster. Subscriptions renew monthly and the Enterprise needs to ensure they are not over-spending or heading towards over-spend on a monthly period.
    • The Enterprise Architect must manage their IT estate of Cloud services closely because the barrier to entry to the Cloud is much lower than with perpetual licences. Without formal RFPs, the Enterprise will enter into multiple subscriptions for the same services or will licence services that may be underused.
    • The role of the Enterprise Architect for cloud governance is critical; without strong governance the precedent of point cloud solutions can spread across the Enterprise.
  • Usage-based Software License Models: Pay for what you eat but you’ve got to rent the plate
    • Cloud has made usage-based pricing more popular and seem simple at inception become increasingly more complex as your Enterprise’s requirements develop.
    • Usage based pricing models are complex as the cost to serve does not always align to the cost to use and determining the value of the service can then become very complex.
    • The Enterprise Architect provides benefit by understanding the value of the Software Licence Models. The EA needs to be familiar with the different types of software licencing models and their pitfalls. This includes both the licencing models and the legal and regulatory possible issues.
  • Accurate Forecasting of Costs: Roadmap use
    • On-premise perpetual licences provide predictable pricing and no surprises. The accurate forecasting of future spend in the Cloud is a challenge as the pricing models can change, usage changes, and there are not as many controls over growth or capacity demands. Enterprises need to be much more diligent about making sure their licensing costs are optimized, transparent, and predictable.
    • The Enterprise Architect has the foresight on the system roadmap and must understand the Cloud usage model. Here the EA must work closely with the finance team to predict the expected growth in the licencing model and to have a strategic roadmap for key scenarios.