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True story:  In the mid 1990’s, I was working for a defense contractor doing CAD/CAE work on a variety of systems, using a variety of products.  In those days, the mainframes, workstations and PC world were co-existing pretty well, but the PC world was clearly the odds-on favorite to win out.  Sometime around my fifth year at this company, a small group of men arrived in the main lobby, wearing suits, and flashing papers around.  After some heated discussions leaking out from the front office, they left.  Our upper management folks looked like they had just been diagnosed with a terminal disease.

The next day we learned that our company had purchased a small number of licenses of a particularly popular PC-based CAD application, but had installed it on more than one hundred computers.  Those people who visited us were from the Business Software Alliance, or BSA.  They were brief, and direct, and they weren’t laughing.  We were now forced to negotiate a settlement.

The terms that were offered went something like this:

  • Remove all current installations, licensed or not.
  • Purchase new licenses for every current installation at FULL retail price.
  • Pay a fine of 300% of the retail price per infraction.
  • Agree to a follow-up audit in a specified number of days.

My numbers may be off a bit, but it translated into something like this:

  • 150 x $2,500 = $375,000
  • 150 x $2,500 x 3.0 = $1,125,000
  • Total penalty = $1,500,000

And they would have to stop all business operations to uninstall and reinstall new copies on every computer.  In that era, it would’ve taken a few days.

While this company had offices in more than a dozen US locations, and several in Asia, they simply could not comply without filing for bankruptcy.  In those days, filing for bankruptcy sent customers running away, ending the business entirely.  In fact, one of their largest competitors had filed bankruptcy following a contract dispute with the Department of Defense, and it resulted in that company shrinking in size about 90%.

Needless to say, word got around within our company, and throughout the competitors.  Business slowed a bit, but we eventually recovered.  Then we learned of subsequent audits of them as well. Some fared better than others, but they all seemed to survive.

A few months later, during a conversation with one of the attorneys for our company, I asked how serious the situation was and why didn’t they negotiate tougher terms.  He said, “The BSA has never lost a case.  Never.  To challenge that with our situation would’ve been suicide.”

That was then.  So what about today?

In 2015, the biggest trend, which most IT staff, financial analysts, and business planners saw coming for years, has been subscription licensing.  The most common complaint I hear from customers is that they’re not comfortable “not owning” their software.  The irony of course is that they really never owned their software licenses before.  In fact, when I ask most businesses how many End User License Agreements (or EULAs) they read during an average month, the answer has always been “none”.  They don’t read them.

Too bad.  For if they had, it might have scared the living shit out of them, even back in the 1990’s.  Some of the larger software companies had (some still have) EULA terms that allow them to seize counterfeit and illegally installed products, including the original physical materials, and the computer(s) on which said products are installed.  Think about that for a moment.

Let’s say, and this is a very real example, you purchased five (5) copies of a product and installed it on 25 computers.  The vendor has (or had, back then anyway) the legal right to obtain a warrant, enter your premises with police protection, scan any and all computers which “might” have the software installed (network scans and individual scans as well), and take the computers with them as evidence for legal action.  Your business could close in a matter of hours.

But that’s not all.  Now comes the money part:

Let’s assume you paid $120 per license, at a discount from the usual $200 per license.  That’s $600, plus taxes.  Now you have 25 installs.  Based on typical penalty terms, you would have to purchase 25 at $200, which comes to $5000, and then pay a 300% fine based on the retail cost, or $15,000.  That’s now $20,000.  And the auditors typically post their winnings publicly, thereby damaging your business reputation and credibility.

While that risk is (or was) mortal to a business, most still ignored it.  They played the odds that they wouldn’t be hit by a BSA audit.  And most were correct.

So in 2015, with subscription licensing becoming more common, customers are still scratching their heads and asking “why?”  The answer is simple: software vendors have given up trusting customers with insuring compliance.  Technological solutions are cumbersome and costly as well.  And the intrusive process of external auditing not only scares the shit out of customers, it pushes them away from buying more than they need until forced upon them.

Now we’re seeing per-user licensing, with multi-device allowances, becoming the norm.  Not that this is a ‘new’ thing.  Apple iTunes wasn’t even the first to employ this model.  It’s been around for a long time, but the Internet fabric and cloud services aspects weren’t in place to handle the backend demands.  Now they are.

Going forward, it remains to be seen how long the status quo and the newer leased or per-user licensing model will coexist.  Eventually, all of the bigger vendors will migrate to the cloud-oriented, centrally-managed, over-the-network licensing model.  But the timing is just about perfect as well.  The growing variety of platforms and devices on which software can, and is being used, makes for a mess when it comes to tracking where things are and how they’re used.  Moving them to the cloud makes sense.  And while they’re in the cloud, the licensing goes with it as well.

Welcome to the cloud.

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