Think back to the first time you were in a computer class, picked up “Computers for Dummies” or listened to an “expert” on the TV or radio explain the basics of a computer. No doubt, one of the first distinctions they made was the difference between hardware and software. Hardware was something you could put your hand on, a hard drive, a monitor, or a keyboard. Software was whatever popped up on the screen after you turned on your computer, ready to set off in the magical land of computing. Unfortunately this distinction has led many people astray.
Unless you are an uber-geek (like me) you probably have no idea about Bill Gate’s famed letter to hobbyists, or how he sold IBM “licenses” to use DOS instead of selling IBM DOS itself. Confused yet? I don’t blame you. Having sat in front of astounded customers and had to explain that they had to pay not just for the “seed” (per processor, of course) of Oracle financials, but also a per user license, which was often north of $100K, I have developed some insight into the lack of understanding between the IT world and the regular world.
Most people think of buying software as going to your local electronics store and picking up a copy of Photoshop or Word, coming home and loading it onto their computer and that is the end of the story. What is actually happening is that you are paying for the physical medium (the CD or disk) and the right to use the software. If you take the copy of Photoshop and make it available to your friends to install, that is technically not out of compliance, since you bought the media. However, they don’t have the right to use the software since they did pay for it. Built into Photoshop is a function that will prevent you from using an unlicensed copy of itself for more than 30 days.
In a corporate environment a developer will often charge a “seed” fee, or an installation that can support a total of one person at a time at any given time. Oracle, my favorite example, makes money because it has a rock solid accounting software which can be accessed by multiple people. In their mind, the ability to have more than one person work in the software at the same time is worth money, and they see no reason why they should not charge for that. This is where we get a per user license fee. Not only do you need the “seed” of Oracle, you need to make sure all the people in your accounting department can use Oracle at the same time. In total, you will have to pay for the software plus 10 licenses.
If this seems like a lot of ways to nickle and dime you, consider the following: behind the scenes at Oracle are fifty to sixty talented programmers (MIT, CalTech, etc) who spend 3-4 years developing the software version you are using. Once they have completed that version, those same programmers remain on the project developing security patches and incremental improvements for that version of the software for as long the version is active. That is roughly the amount of work that it takes to produce a reliable (reliable defined as having an up-time of 99%) which a company can confidently use for 5-6 years as a primary platform for commerce. Quickly you realize that the $100k software platform earned your company many times that in efficiency, increased capacity, and lowered labor costs.