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Software Costs

What is the number one reason IT organizations are turning to open source solutions? It shouldn’t surprise you that it’s to save money. It has been estimated that software costs U.S. companies more than any other capital expenditure category, including transportation and industrial equipment. Given the fact that software doesn’t naturally decompose like delivery vans or office chairs, this expense might be justified. But in reality, software costs a lot—maybe too much.

Trying to determine the actual value of software to any particular business or organization is difficult. In some cases, such as financial trading markets in which the value of instant access to information is measured in millions of dollars per minute, if a connection goes down, software costs are easy to justify. In other cases in which a particular application is made available to all with only a few utilizing it, or most using it only occasionally, the standard market value is tough to justify. In different instances, the same software might provide a dramatic range of actual business benefit.

This disparity is what has driven both software vendors and their customers to devise elaborate licensing schemes based on everything from individuals, to workstations, to usage, to sites, to organizations, to connections, and beyond. Although licensing strategies such as site or corporate licensing and software metering have helped to quantify the value of use, they have also introduced management variables that have increased costs to maintain and manage. Plus, licensing schemes have in some cases conditioned the environment for software producers to take advantage of vendor lock-in tactics.

In many respects, the open source movement is a consequence of disparity in use value for the same software in different situations. It is also a result of the vast difference between what software costs to produce compared to what the market will bear—the difference between the actual resources required to develop, debug, and post software by a user community to what a monopolistic market leader can charge to reap a maximum rate of return.

In general, you get what you pay for, but with open source, some interesting dynamics are altering the rules of the software licensing game. The primary area affected is licensing fees. With Linux, there are no licensing fees. You don’t need to pay for extra seats—no cost to make copies and run multiple servers, and no fee differentials for high-end enterprise uses as opposed to simple desktops. It costs nothing to obtain and nothing to share. The GNU GPL under which Linux is protected specifically states, "You have the freedom to distribute copies of free software." This single fact could be worth significant savings to your organization. Eliminate the cost of an operating system for every desktop and every server and you could cut your budget considerably. Add to it an office productivity suite for every desktop and you gain even more.

You might be thinking, "Well, both Red Hat and Novell charge for Linux—what gives?" The Linux kernel is free. What you are paying for with most distributions in which a transaction fee is involved is the packaging, testing, additional services, and utilities that are included with that particular distribution. There is a cost, but it’s significantly less than you would be paying for proprietary software. For example, Novell’s packaged distribution of SUSE Linux Enterprise Server 9 is retail priced at $349 USD. Compare that to Microsoft Windows 2003 at $1,020 USD. That’s a big difference!

This might be elementary, but the savings are not just a one-time benefit with the initial software purchase. Here are several ways that you can significantly reduce software expenses:

  • Initial purchase—If you buy software outright as a capital expenditure and plan to buy it once and forget it, you eliminate or reduce this cost. The initial purchase price is reduced to either the cost of the distribution or the manual effort to go find a place to download it.

  • Software maintenance—Software often continues to evolve and improve, even after a version has been distributed to market. These improvements are packaged and sold as the next generation of the product or as a new, updated version. If these updates are released to market within a certain window from the time you made your initial purchase (for example, 60–90 days), you are often entitled to the latest bells and whistles by getting the update at no charge. But, if the release is beyond that window, you have to purchase the update to obtain the new features. The price for software updates is often less than the initial purchase price, but updates can still be a significant expense—especially if the software is rapidly evolving with new features and enhancements. With open source software, the price of an update is, again, usually just the time it takes to download it. With open source software, there are no fees, and as updates are made available to the community, you can implement them as needed.

Open source can help enterprise companies cut other costs related to software asset management. Some organizations have created entire departments around ensuring that licensing restrictions are enforced and that the company is in compliance with all signed software agreements. With open source, resources used to monitor and enforce software compliance can be repurposed and expensive software asset management solutions can be shelved. The detailed and sometimes tedious business of contract negotiation and determining actual use can be eliminated.

A study conducted by a leading industry analyst firm asked enterprise software purchasers which software-licensing model they preferred. The most frequent response was, "Allow me to pay for what I use." The second most frequent was, "Allow me to pay for the value I derive." Open source helps bring licensing fees in line with value received.

Software licensing fee savings are dramatically evident for organizations that are choosing to eliminate replacement costs by migrating to open source. An article from IT Manager’s Journal details the savings for a company of 300 users. After pricing the cost to upgrade server OS software and email server and client software with associated access licenses, the IT manager was able to implement a superior solution using open source for 25% of the cost of a Windows solution. With the savings, he was able to buy all new hardware and purchase a new Oracle application. Savings of software costs can be significant.

Novell recently migrated from Microsoft Office to OpenOffice.org. With the open source solution, it was possible to get equivalent feature and functionality but immediately trim nearly a million dollars per year off of licensing costs.

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