The growing popularity of server chips with multiple microprocessor cores continues to muddy the waters of software pricing: CIOs should start planning now for changes and perhaps some uncertainty in their software budgets.

Enterprise software vendors have traditionally priced software per processor. But now that some server processors have two cores (and soon will have four cores, followed by 8- and 16-core versions), one processor delivers the power and speed of several. That means customers will purchase servers with fewer processors to handle bigger workloads—and software vendors won’t make as much money, if software continues to be priced traditionally.

To compensate, IBM recently announced it will begin charging for software based on how fast it runs, not the number of processor cores on which it’s running. The company has developed a complicated chart to show how it will price software for different processors. (See details at "IBM Introduces Processor Value Unit Licensing," www.cio.com/100106.)

As the basis for this model, IBM created a new license pricing unit called the "processor value unit." IBM will set software prices using this scheme beginning with the release of Intel’s upcoming quad-core Xeon server processor, expected to be available later this year.

Oracle unveiled its own multicore pricing plan in July 2005. Oracle’s method defines each processor core on a multicore chip as .25 to .75 of a processor, depending on the type.

However, Microsoft hasn’t hopped on this train yet; Microsoft says it will continue to charge per processor for software, not per core or using a performance-based method. This gives the software giant a slight edge over competitors, analysts say, because customers gain cost consistency.

Forrester Research analyst Julie Giera says she expects to see not only confusion but also frustration among customers in the next six to 12 months as software pricing continues to be "fluid" due to the growing prevalence of dual-core and multicore servers.

CIOs should look for verification from vendors that existing projects, especially those involving server consolidation, will continue to have the same cost structure as when they began, Giera advises.

As the software pricing changes begin to take effect, CIOs should start new consolidation projects with care since they may not be as cost-effective, she adds. "Server consolidation projects that may have generated 20, 25 percent savings six months ago may not be generating those same kinds of saving in the next six to 12 months," she says.

Another strategy: More CIOs may want to consider using open-source software as an alternative to commercial software during the transition period, Giera says.