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The hard truth of metered license pricing in the cloud

Oracle on Amazon RDS sheds light on the kinds of premiums IT should expect to pay for per-use licensing flexibility in the cloud

By Savio Rodrigues, InfoWorld, 05/27/11

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.

[ Savio Rodrigues does the math on shared cloud computing resources in "Lowering your IT costs by using others' excess capacity." | Get the key insights on open source news and trends from InfoWorld's Technology: Open Source newsletter. ]

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.

For more enterprise computing news, visit InfoWorld. Story copyright InfoWorld Media Group, Inc.