Page 22 - MetalForming August 2011

Don’t Confuse
How You
Deploy ERP
with How You Pay For It
BY CINDY JUTRAS
ERP
With all of the hype circulating more often nowadays a perpetual license have the equivalent of a kill switch in it
that disables it and prevents continued use at the end of the term. This requires the embedding of a license management code in the software, and is not always done, particularly in older software. If it is not and you don’t renew, you might find a software auditor at your doorstep.
Subscription-based pricing usual- ly represents a form of a term license. This can cause confusion: You can use the software as long as you keep your subscription current, but people often equate subscription to software as a service (SaaS). With SaaS, the customer doesn’t purchase a license, and instead pays for the software as a service. So, most applications delivered as SaaS are paid for through a subscription.
On-Premise, Hosted, and Cloud Applications
When software is installed at the company’s site, it generally is referred to as “on-premise.” But some compa- nies prefer to outsource the care and feeding of the application to a third party. This, however, does not neces- sarily mean that the software is deliv- ered as a service. Often, the software is simply delivered to a different desti- nation and licensed just as it would be if it were running on-premise. This generally is referred to as a hosted envi- ronment, and services also may be pur- chased to perform that care and feed-
about the cloud, it is no won-
der that there is ample confu- sion over how ERP software is bought and paid for. Even for seasoned enter- prise application buyers, terminology can be confusing. SaaS. Cloud. On Demand. Hosted. On Premise. Perpet- ual License. Term License. Subscrip- tions. Multi-Tenant. Multi-Instance.
Do you know how all of these are dif- ferent and where they have similarities? Let’s get down to basics.
How to Pay for ERP
Enterprise application software typ- ically is not bought and sold; it is instead licensed for use. It may be licensed to be used by a company, on a particular computer or by other crite- ria such as number of users. This is similar to consumer software. Buying it once doesn’t mean you can duplicate it and share it with all of your friends, or even sometimes with all of your own computers.
A software license can be perpetual. That means you pay for it once and then can use the enterprise application forev- er—maybe. This once was the case, but
Cindy Jutras is principal, Mint Jutras, LLC, Windham, NH, an independent research-based consulting firm that spe- cializes in analyzing the business impact of enterprise applications.
agreement might include a stipulation that provides the right to use the soft- ware only for as long as you continue to pay maintenance fees to the software vendor providing the product.
If your software knowledge base only comes from consumer software, there may be no equivalent. Buyers of Microsoft Office or Adobe Acrobat can continue to use the software on their computers for as long as they want. But if Microsoft or Adobe come out with a newer version, they don’t just give it to their users. You might get a break on the price if you buy the newer product, but you still must buy it.
The Maintenance Agreement
A maintenance agreement—a recur- ring cost—typically provides technical support as well as certain innovations. Some of those innovations will be included in the maintenance fee and others you may still have to purchase. Maintenance typically is priced as a percentage of the software license; the going rate at list price currently is around 22 percent for ERP.
But perpetual licenses are not the only type offered. Instead, your license might cover a specified period of time. This gen- erally is referred to as a “term license.” At the end of the term, you must either renew the license or discontinue use of the software. In fact the application might
MetalForming/August 2011
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