IT Spending: Don’t Get Hit With A Big Software Ticket

CIOs may be tempted to save on hardware costs through capacity on demand and dual-core processing, but there may be a catch. Because vendors price software according to the CPU, the savings could be erased by increases in software costs, according to Gartner.

To save money using capacity on demand, CIOs may buy a server with eight CPUs yet use only six of them, configuring them to take on maximum workloads only when needed. However, many vendors—including IBM, Oracle and Sybase—determine what they charge for software based on the number of processors, whether or not they are used.

Meanwhile, some CIOs are turning toward dual-core processors for savings. A dual-core processor is an integrated circuit to which two processors are attached. Because the processors are connected in such close proximity, a dual-core chip is faster, consumes less power and generates less heat than two single-core chips—thereby making dual-core systems less costly to operate. However, many software vendors plan to charge double for dual-core systems, even though the performance remains the same.

Gartner predicts that the combined effect will mean software price increases during the next two years, although the higher fees may not hit every IT department immediately. In a recent CIO survey, 80 percent of IT executives who responded haven’t committed to replacing their single-core systems, even though single-core chips will no longer be manufactured by 2007.

Alexa Bona, a vice president of research at Gartner, believes that software vendors will have to change their policies. Until they do, Bona says, CIOs can protect their organizations against price increases by following certain safeguards. These include auditing current software agreements to find out which are based on CPUs and getting software vendors to clarify their pricing intentions for dual-core processors.