Virtual Software Licensing

What will the biggest change in what, how and why we are selling software in 2008 be? Virtualization is it - if you believe in their prediction for 2008 and several other news articles I've read recently such as this computerworld article.

When you think about it, when you sell enterprise software, what you are selling is a right to use a particular set of software in a particular way on a certain number of systems. When these systems are just simple hardware devices running a particular operating system this is quite easy.

However in the past few years these underlying systems are becoming more often than not virtualized using products like VMware. In some cases vendors have already changed their license conditions to support the way customers want to use products, such as Windows Server DataCenter Edition. However in other cases these changes are more negative, to disallow certain uses of software - such as MS Vista home products on virtual systems - or increase the cost - often without adding any additional functionality.

This shift in the conditions around the use of existing products really will change how we can sell software, and potentially affect the size of deals - measured in virtual systems might well be 2-3x higher for the same company.

Other advantages of virtualization might also lead to current license conditions needing a rethink - for instance it is really easy now to start up a cloned copy of an existing server - does this mean we need an additional copy of each license on that machine?

One tough thing is - how are we supposed to find out how many licenses a customer needs? How are they supposed to know. Managing virtual machines is much harder than tracking physical hardware. It is so much more fluid, can be there one day and not the next. Could be 1 machine today and 32 tomorrow. Should a customer buy a license for their potential number of virtual machines, their peak number, their average number or their current number.

Meanwhile, I read these posts which I found quite informative on the subject:
We will track this issue as it progresses throughout the year. Another similar issue seems to be arising around Multiple Core technology and vendor's attempts to change license models to meet them.