The hard truth of metered license pricing in the cloud

Flexible, pay-as-you-go pricing has long been a key selling point for cloud services. But as more established software vendors bring their apps to the cloud, that flexibility will come at a price. After all, traditional software vendors will guard against revenue erosion as some portion of their customer base migrates to the cloud. And if Amazon’s pricing for Oracle Database on RDS is any indication of the cost differences between traditional and per-usage licenses, IT buyers could find themselves paying a premium of more than 100 percent for the flexibility of metered pricing.

I should say that I am only using Oracle as an example here because the pricing of Amazon RDS for Oracle Database is public. This post intends to make no judgments about Amazon’s or Oracle’s price points, simply to highlight important compromises IT shops will have to make if this pricing becomes the norm.

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Calculating pay-per-use software licensing

Amazon RDS for Oracle Database offers two pricing models: License Included or BYOL (bring your own license). The pay-per-use metric of License Included rolls together the cost of the software (with Oracle Database), the underlying hardware resources, and Amazon RDS management.

It’s important to note that although three editions of Oracle are offered by Amazon — Standard Edition One (SE1), Standard Edition (SE), and Enterprise Edition (EE) — only Oracle SE1, the entry-level edition, is offered with pay-per-use pricing. This should not be a surprise as Oracle, like other established vendors, is still experimenting with cost models. Customers can also run Oracle SE1 using a BYOL model. This fact, along with Oracle’s list pricing, helps us perform some quick and interesting calculations.

Because both the License Included and BYOL options come with the cost of the underlying hardware, OS, and Amazon RDS management, the only difference between the two options is the price of the Oracle Database software license. This allows us to calculate the per-hour cost of running Oracle Database SE1 on Amazon RDS as follows:

We see that pricing for Oracle Database SE1 on Amazon RDS ranges from 5 to 80 cents per hour.

The Oracle list price for Database SE1 is $5,800 plus 22 percent, or $1,276, for software update, support, and maintenance. As with most enterprise software, customers could expect a discount of between 25 to 85 percent. For lower-priced software like Oracle Database SE1, let’s assume a 50 percent discount, although most Oracle customers are encouraged to enter into Unlimited License Agreements (ULAs), which frequently offer discounts at the higher end of the spectrum.

All told, Oracle Database SE1 after a 50 percent discount would cost a customer $3,538 [($5,800 + $1,276) x 50 percent] for one year, or $4,814 [($5,800 + $1,276 + $1,276 + $1,276) x 50 percent] for three years on a single-socket quad-core machine, such as a low-end Dell server. Note that Oracle doesn’t use its typical processor core factor pricing methodology for products identified as SE or SE1 as they are targeted at lower-performance servers.

A single-socket quad-core machine would offer the performance of somewhere between the Amazon Double Extra Large DB Instance and the Quadruple Extra Large DB Instance in the table above.

Consider the long-term costs of pay-per-usage

Using Double Extra Large DB Instance pricing, with our calculated cost of an Oracle Database SE1 software license on Amazon of 40 cents per hour, we reach a one-year cost of $3,504 and a three-year cost of $10,512. These figures represent a mixed bag. The single-year total is 1 percent lower when comparing Amazon’s pay-per-usage offering versus licensing Oracle Database SE1 through Oracle for on-premises deployment or a BYOL deployment on Amazon RDS, but 118 percent higher for the longer run. Obviously, there are also multiple caveats to consider, like the ability to get lower or higher discounts from Oracle or comparing calculations against the Quadruple Extra Large DB Instance price point.

A customer that is unable to get a 50 percent discount from Oracle could save licensing costs by using Amazon’s pay-per-usage offering for Oracle Database SE1. For instance, with only a 25 percent discount from Oracle, the customer could save up to 34 percent within a year, but still stands to pay an extra 46 percent over the course of three years.

Comparing the cost of Oracle Database SE1 using traditional licensing on premises with Amazon’s pricing through RDS, it appears that customers should look hard at Amazon’s pay-per-usage offering for up to a one-year term, but stick with Oracle’s traditional pricing model if the software is going to be used for the typical three- to five-year period over which companies traditionally amortize costs.

The obvious rebuttal to the above calculations would be that a customer electing for a pay-per-usage model would not necessarily run for 24 hours a day for a full year. While this is true, buyers should understand the long-term cost implications before making short-term decisions.

Follow me on Twitter at SavioRodrigues. I should state: “The postings on this site are my own and don’t necessarily represent IBM’s positions, strategies, or opinions.”

This article, “The hard truth of metered license pricing in the cloud,” was originally published at InfoWorld.com. Read more of Savio Rodrigues’s Open Sources blog and follow the latest developments in open source at InfoWorld.com. For the latest business technology news, follow InfoWorld.com on Twitter.