International Software Pricing Is a Mess

Pablo Valerio, International Business & IT Consultant | 11/23/2012 | 42 comments

Pablo Valerio
Earlier this year, Microsoft Europe had to align their volume-license prices across Europe because several country managers complained that their British counterpart was using the favorable pricing scheme, and the Euro-Pound exchange rate in the UK to undercut deals in the continent. Now, after the price adjustment, UK customers have to pay an extra 7 to 33.4 percent for their Microsoft licenses.

Many of the big software companies have different prices for different areas of the world, based on many factors -- including support costs, localization, competition, and the region's economy. This model worked for many years since local support was perceived as important as the software itself. But large corporations and government agencies usually need less support as their IT staff is capable and experienced. The cost of additional licenses is considerable; shopping for better pricing in different regions could save corporations millions.

Another issue is used license reselling. Back in July, the Court of Justice of the European Union ruled against Oracle in a lawsuit brought by the German used-software reseller UsedSoft, stating:

Even if the licence prohibits a further transfer, the rightholder can no longer oppose the resale of that copy.

Now UsedSoft claims they can save corporations millions by acquiring previously purchased software licenses from companies or government agencies that no longer need them.

With many corporations downsizing in Europe, a new market for those licenses has opened. Corporations such as Oracle, Microsoft, SAP, and others are trying unsuccessfully to stop those license transfers, since existing customers want to recover the cost of licenses they no longer need and other corporations that need more licenses can save between 30 percent to 50 percent buying those. As the Court ruling states:

Where the copyright holder makes available to his customer a copy -- tangible or intangible -- and at the same time concludes, in return for payment of a fee, a licence agreement granting the customer the right to use that copy for an unlimited period, that rightholder sells the copy to the customer and thus exhausts his exclusive distribution right.

And the court also states that the new customer has the right to download a copy from the vendor's Website with all the current updates.

That is a newfound source of cash for government: A report from the Cabinet Office on Government ICT Strategy says that in the UK alone, more than 6.3 million licenses are not used (35 percent of the 18.5 million "held" licenses). Without further research about the underuse of the other licenses, the agencies can convert the 6.3 million unused ones into cash by making them available to other government organizations across Europe. Some smaller European government agencies are already doing that, generating badly needed cash for the seller and substantial savings to the buyer.

This is just the tip of the iceberg forming about the conflicts of international pricing of software licenses. The European Union is very clear about agreements trying to restrict the "fundamental right" to procure goods and services anywhere in the EU: It is illegal! Also, software companies are advised that they have to provide the same support and update offers to any customer in the EU who purchases a legitimate license, regardless of the country of origin.

Services such as UsedSoft are starting to offer an exchange for "used" licenses the same way you can buy and sell your cloud instances on Amazon. CIOs and CFOs need to balance the potential savings against the possibility of damaging their relationship with the software distributors. For government agencies, it is imperative to save taxpayers' money looking on the second-hand market both as buyers and sellers.

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Susan Nunziata   International Software Pricing Is a Mess   12/5/2012 7:50:26 PM
Re: Protection of IP
@Pablo: Thanks for the good sound advice. i agree the traditional software licensing model could use some repairs and a fresh coat of paint to bring it into this century. What you propose is for more reflective of how businesses actually use software. With rare exceptions (manufacturing?) no single person is using an appliation 24X7X365, yet that's how we're paying for it.
zerox203   International Software Pricing Is a Mess   11/30/2012 11:01:47 PM
Re: Simple Business Sense
@Mejiac,

The more I read on the topic, the more I see people agree with your perspective (it's mine too, for the record); And, hey, as it turns out, the courts seem to agree as well. There've been far more high profile cases of the court agreeing with the consumer or reseller than the original manufacturer.

I think the root of the issue here is pretty simple. Somebody at these software companies knows they're not dealing with anything different than a piece of furniture, but a lawyer somewhere told them they might be able to fudge it so it looked different (maybe this was as far back as the 90s)... so they gave it a shot. You can't blame them from trying to wring some extra money out of their product, and I guess you can't blame them for fighting for it in court, either... so we just have to sit and wait for the law to sort itself out.
 
mejiac   International Software Pricing Is a Mess   11/30/2012 2:39:37 PM
Re: Reselling may be costly
@nimanthad,

Agreed, pirating is a big thing, but I think companies like microsoft are getting better at disabling pirated software. Also, Accounting audits to serve as a safety net to keep people in check regarding software licenses....
mejiac   International Software Pricing Is a Mess   11/30/2012 2:38:10 PM
Simple Business Sense
"they can save corporations millions by acquiring previously purchased software licenses from companies or government agencies that no longer need them."

Many small companies seek to buy licenses from other companies in order to save cost, and this was seen (and is still being seen) with companies going out of business. But why is this a surprise? That is a model that governments are also implemented? Why are people surprised?

A license is considered an assest, and thus you're entitled to sell your assests to recup. If you can sell a laptop, furniture, a home to a business...you can sell your licenses.

I honestly don't see the issue.... that it may lead to some profit loss....than don't sell licenses at such a high cost.
nimanthad   International Software Pricing Is a Mess   11/30/2012 4:37:03 AM
Re: Reselling may be costly
Its not a good sign for the world market. I seriously do not know what the root cause is but surely the pirate copies do affect alot.
zerox203   International Software Pricing Is a Mess   11/27/2012 10:46:02 PM
Re: Reselling may be costly
@impactnow,

it's hard to deny that we're dealing with a doubel-edged sword here, and on both sides of the issue to boot! Users (or, companies, in this case) want the anonymity and ubiquity of the internet to protect them as a matter of freedom of speech, but they don't want big companies to be able to claim special rights when selling digitally. Conversely, companies want to circumvent licensing laws by using digital distribution to milk out extra money, while being upset that their customers are using the model to resell at greater convenience.

Basically, everybody is crying foul while also being responsible for the smell themselves.  It looks like we're going to have to rely on the courts to sort it out, but it also doesn't look like that's happening any time soon.
zerox203   International Software Pricing Is a Mess   11/27/2012 9:49:35 PM
Re: Clear as mud!!
@eethtworkz,

I'm inclined to agree with you - if we pull this issue back and look at it in the context of any other product, it's a no-brainer. The consumer has the right to resell something they bought, plain and simple. What we have is not a user violating an agreement they signed, but a vendor violating the law by writing that agreement to begin with. As multithreaded and complex is the issue has become, that's essentially what it boils down to.

The companies are not complaining out of a good-faith feeling that they're being treated unfairly or being robbed of profits they deserve - they're being greedy and reaching for profits they know they shouldn't be able to get in the first place, and that's where the line is supposed to be drawn (IE monopoly laws and such). They love the free market when it helps their pricing, but complain to the gov't when it causes it to drop - too bad, suck it up.
zerox203   International Software Pricing Is a Mess   11/27/2012 2:54:52 PM
Re: Clear as mud!!
@Keith, it is a headspinner! One could say the users are bound by the EULA or whatever else they agree to to submit to the original vendor's terms. However, if a national government rules that the vendor doing so is against their basic law code, then the user is back in the right - unless the vendor claims they're waiving their right by signing the agreement. Mutliply that by the issue of this occuring across national border AND over the internet (where 'signature' is a dirty word), and there's no hope of getting to the bottom.

In the end, it might take a common sense approach and a high court somewhere that's had enough to put their foot down - I'm of the prevailing opinion that the  original vendors are the ones trying to double dip first and foremost, and even if they're working around some portion of the letter of the law, they're the ones infringing on it's spirit.
impactnow   International Software Pricing Is a Mess   11/27/2012 12:40:42 PM
Reselling may be costly
 

I am both intrigued and afraid of this trend. While I completely understand the desire of companies to gain some financial benefit from partial used licenses, complying with the edicts of a license are complex and need to be carefully evaluated. Licenses are often purchased with a company purpose that may not be suited to the secondary purchaser so buyer beware, you may not get what you think you are purchasing and you may get lots of legal issues!
Pablo Valerio   International Software Pricing Is a Mess   11/27/2012 5:35:23 AM
Re: Clear as mud!!
"Government agencies should be able to do some interdepartmental software sharing as long as the overall time and other limits of the licence are observed."

@kicheko, This is one of the hot issues in software licensing. Governments are probably the biggest offenders in wasting money (Taxpayer's money) in software licenses. The 35% in the UK -considered to be an efficient government- is a good example; I believe this percentage is higher in most countries.

Governments should be able to "share" license use and ONLY purchase new licenses if they can't get to share it from other agencies.
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