January 17, 2004

The true cost of software ownership

Author: David Sugar

What does "total cost of ownership" really mean in
relation to commercial computer software? It's not the same as ownership of a tangible asset. I own a '67 Chevy -- I have a title
that says so, and all of the rights and responsibilities of ownership
that naturally comes with it. I can compute what I paid to acquire and maintain this asset in usable condition.

There is no ownership involved in proprietary commercial software, because all users are mere licensees. Users are at best tenants, and the
most correct and appropriate term should be "total cost of usage" (TCU),
since commercial proprietary software is now often sold on leases.

When we talk about commercial free or open source software and try to
determine the cost associated with its use or whether there is a TCO,
we find that we have something fundamentally
different from proprietary software. Free software often comes with a
license, like the GNU General Public License, or others, that grants
rights that feel a lot more like ownership. This is not to say that "ownership"
as such actually exists in software, whether free or proprietary; this is not supported in fact or in law due to the intangible nature of software. But setting aside the question of whether
software has owners in the conventional property sense, users of
commercial free and open source software do receive an owner-like interest in the
software that they are free to exercise, and so the term "total
cost of ownership" (TCO) may potentially be applied.

To understand why software cannot be owned, except through artificial
agreements and contracts that restrict software to make it conform to
unnatural constraints, one need only consider the nature of
intangible goods. Intangible property is non-rivalrous. While I can
look out the window and see that I have that '67 Chevy on cinder blocks
rusting on my front lawn, I can be sure that nobody else does. If
somebody else did choose to take it overnight while I was asleep,
bless their soul, it would be gone, and I would be denied the ability to
use it.

In the case of software or ideas, the fact that a program or idea exists in my home does not prevent the very same program or idea from existing or being used simultaneously elsewhere. Even if
the software or idea is borrowed, it does not mean that it
vanishes from my machine or mind, never to be used by me again.

In place of property ownership we have the concept of
copyright for these intangible works, which puts some temporary artificial constraints and offers
specific privileges to an "original author" when
expressed in a specific form. Copyrights are designed to promote the
long-term public good of having more original works created and published by
offering temporary monopolies in their use as an incentive to publish.

Richard Stallman likes to say "software has no owners" for a number of
reasons. However, what free software licenses like the GNU
General Public License do is permit many of the privileges of copyright
to be shared with everyone. This is somewhat like the idea of sharing
ownership, and is certainly far more natural, given the nature of
software, than some of the artificial constraints found through
copyright law today. Hence, this shared privilege of copyright we can
substitute as comparable to ownership and hence have basis to say
TCO may indeed exist for Free Software.

How do we compare the TCO of Free Software with the TCU of proprietary software? Well, we can look at costs, such as license fees and training and support costs. Proprietary software vendors often claim that license costs
represent only 20% of the total cost of usage when considering these other
factors. However, as we will shortly see, TCU for proprietary software
is very different from TCO in free software.

The first problem one finds with TCU is that it is a continually
re-occurring cost. Microsoft loves to claim that studies show that the TCU of
its proprietary software, often over a period of three years, is not
much different than the TCO of free software over the
same period. However, there is a reason they often choose a
three-year period for their studies; they license the use of
their software under enterprise agreements for three-year periods, and
in the fourth year, users have to pay for additional time. With Free Software, there is no re-occurring cost to license or use the software.

However, the TCU for Microsoft products are even worse than this over
the long term. Microsoft's enterprise agreements require and force
licensees to purchase and use the latest release of its software, and
restrict the ability for licensees to acquire old releases -- a policy
known as "forced upgrades." This means that every few years, their customers' users and support staff have to be retrained to use new
and different products at the vendor's whim. This means
that customers not only have to perpetually purchase new software
licenses, but also all of the training and support, over and over again.

Customers may also find that with new software, existing
custom and in-house software may no longer function or perform as well
as before, since old APIs are being emulated, hence this in-house
software may also need to be rewritten or at least updated, adding
additional cost. Hence, the annual TCU of proprietary software under renewable enterprise agreements never significantly diminishes over time.

By contrast, with Free Software, nobody forces someone to change the
software they have deployed. One can choose to upgrade free software,
in part or in whole, at any time they desire, or choose never to
do so. When working systems are left in place, the cost of
supporting them goes down over time, hence the annual TCO of Free
Software actually decreases over time.

When I was involved in federal contracting, we often computed TCO for contracts
over a period, not of three years as in many of Microsoft's published
case studies, but rather over 10 years, which was a more realistic
perspective for true enterprise costs over time. Over a 10-year period, what we
often found was that the TCO of Free Software, even computed through
standard means, was about 1/2 to 1/3rd the TCU of comparable proprietary
software. That was before we looked at all the additional
liabilities that proprietary software burdens the enterprise customer
with, such as losing the right to resale, the possible unexpected
costs of license audits, and many other risks too numerous to enumerate

Free Software TCO is a lot more like true ownership, where once
you purchase something, you do not have to purchase it again and again,
and once it is payed off, it too can serve you very well for many years --
until it is ready for the cinder blocks.


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