Phil Bertolini, CIO of Oakland County, Mich., doesn’t have time to market his Web hosting services to neighboring cities — but he wouldn’t mind if his vendors did it for him. In fact, Bertolini wants software vendors to treat the county as a hosting partner. Vendors would sell software to local governments with the intent of hosting those products on the county’s cloud as part of the deal.

The arrangement would provide new revenue for Oakland County, while reducing costs for other local governments using the county’s cloud. For instance, Bertolini contends that it could cut help desk fees for hosting customers because the county — not software vendors — would provide most of the help desk support.

“I realize that these changes may adversely impact [companies’] revenue stream,” Bertolini said, “but the way revenues are declining in government, there may not be any sales at all.”

Licensing Hurdles to Shared Hosting

Bertolini isn’t the only local CIO rethinking how to deploy and pay for software. After several years of recession, local CIOs simply are running out of things to cut. That’s driving more local governments to explore collaborative regional software hosting arrangements as a way to reduce IT spending, according to Bert Jarreau, CIO of the National Association of Counties.

But as local CIOs try to establish new licensing agreements or test the flexibility of existing ones, will vendors go along? Given that the point is to pay vendors less — at least in most cases — how much revenue will companies eat?

The different types of license agreements that various governments have with the same vendors makes collaborative hosting difficult, contends Steve Emanuel, CIO of Montgomery County, Md. For example, Emanuel would like to start hosting Oracle’s E-Business Suite for Montgomery Public Schools. But the county pays for E-Business Suite through a fee based on the amount of revenue generated by the application. The school district, by contrast, pays based on the number of employees using the E-Business Suite application. Emanuel said local governments typically stop short of forming the type of collaboration he’s advocating because it means renegotiating existing licenses with vendors — and that usually results in higher fees, not lower fees.

“I need the vendors to be more creative on how they license,” Emanuel said.

A fee based on the number of CPUs used to run the shared application might make more sense, he added. This would save money for the county and the school district because the consolidated application would run on fewer CPUs than two separate systems. Emanuel said vendors in general weren’t showing much interest in this type of arrangement, likely because it would reduce their profits. (Oracle did not return multiple e-mails from Government Technology about Emanuel’s remarks.)

“I’m open to anything the vendors want to pursue,” Emanuel said. “We’re just saying [that] right now, we believe many of the major licenses are relatively inflexible.”

Changing Times?

That situation may be changing, however. At the time of this writing, Microsoft announced a policy called “mobility licensing,” which lets customers transfer existing Microsoft licensing agreements to other hosting environments. On the surface, mobility licensing appears to support some of the ideas being investigated by local CIOs.

Stuart McKee, national technology officer for Microsoft, spoke supportively of Bertolini’s hosting idea.

“It’s totally plausible,” McKee said.  

Bertolini’s staff plans to evaluate each of the county’s vendor relationships one-by-one to see which vendors would be open to such an arrangement. He hasn’t made any formal requests yet because his staff is still determining the specifics of how they’ll deploy their cloud infrastructure. Among the questions hanging over Bertolini’s head is one involving the county’s database vendor. Oakland County would like to offer some of its in-house developed applications, hosted on its own database, to neighboring municipalities. Bertolini hopes his database vendor won’t charge him extra for providing that service.

“We are waiting until we have decided what our architecture will look like before we open up too many conversations,” Bertolini said in an e-mail. “We will be asking those questions very soon.”

McKee said  Microsoft would be amenable to selling software that would be hosted on Oakland County’s cloud. “We would be incredibly supportive of the agenda Phil has,” McKee said, but cautioned that actual implementation of a county-run cloud could be difficult.

“There are a lot of details related to what you may or may not be able to provide as a cloud infrastructure,” he said.

Other vendors already allow counties to host applications for other municipalities. In 2009, Ann Arbor, Mich., a city within Washtenaw County, received licenses to use the county’s Hyland Software document digitization system. The agreement let Ann Arbor avoid a lengthy procurement process and $350,000 in hardware costs, according to Dan Rainey, director of IT for Ann Arbor.

“Vendors need to be thinking of this approach because often it’s the cost of technology entry that is the barrier, not the ongoing costs,” Rainey said.

Concurrent Licensing

Some vendors offer concurrent software licensing, in which the government pays based on the number of employees it expects will use the application simultaneously. For example, 60 employees might access Microsoft Office, but only half of those employees ever use it at one time. A concurrent license allows 30 users to access the software at the same time, as opposed to the more typical arrangement where agencies buy individual licenses for every user who expects to access the software at some point in his or her job. Yuma County, Ariz., CIO Neal Puff explained that a government usually pays more for each license under a concurrent arrangement, but overall it costs less than licensing individual employees. He said ERP vendors frequently offer this arrangement, but other software vendors have shied away.  

Puff recently turned down a form of concurrent licensing offered by Microsoft, saying  it would have been too difficult for his staff to maintain. The arrangement would have allowed Yuma County to purchase Microsoft Office licenses for the number of employees expected to use the software simultaneously. But multiple copies of the software would need to be installed, according to Puff. Instead, he wanted to host multiple users on a single copy of the software, because running multiple instances of the software is labor-intensive and costly.  “It’s more complicated. It uses more system resources. It requires more storage and processing power on the back end,” Puff said.

But not all licensing arrangements work that way. For instance, IT vendor Citrix, allows multiple employees to access a single copy of software, Puff said, and offers a simplified sign-on process for users.

And, in fairness to software vendors, CIOs acknowledge that today’s data center environments make it difficult for companies to audit usage of concurrent licenses. Such licenses were common, they say, when agencies did most of their processing on a single mainframe computer. Back then it was relatively simple to monitor whether or not a concurrent license was being respected by an agency, said Emanuel. Now software usage is processed through multiple servers at multiple locations with different kinds of add-on hardware that would make an accurate audit very complicated, he said — and a CIO wouldn’t want that kind of responsibility. Emanuel believes concurrent licenses might make a comeback as more governments move to cloud computing.

“That whole process would get a little easier because we would be going back to a mainframe kind of environment, except in the cloud,” he said.

And given the way services are provided and billed by cloud computing providers, he said, a specified limit on concurrent license usage would be simple for the cloud provider to track.