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Underlying technology trends could push software licenses for enterprise applications through the roof, according to Gartner.

The analysts say that licensing models used by IBM, Oracle, Sybase and other vendors which are based on hardware will increase by at least 50 per cent by 2006 unless they are renegotiated quickly. Licensing for such applications is usually based on the processing power of the box the software is installed on.

But the move to servers with more than one chip could land businesses with a big bill. If an application currently costs $40, 000 per CPU then a dual-CPU system will cost $80,000 - a 50 per cent improvement for twice as much money.

Alexa Bona, research director at Gartner, said: "The current licensing model does not give software vendors an incentive to write more efficient code. It also leaves users unable to control costs when single core systems become unavailable, perhaps as early as year-end 2006. By that time, many enterprises will pay at least 50 percent more in software fees from a number of mainstream software vendors that currently license based on CPU."

Other trends likely to push fees higher are use of virtualised hardware resources and capacity on demand machines. Virtual machines use partitioning to divide a chip up so different parts run different applications. But many vendors do not recognise this so business end up paying for using the whole chip even if they are only using a fraction of it.

Capacity on Demand systems face a similar problem. Such systems contain more processing power than a business typically needs so the extra processors can be switched on when they are needed. But again software vendors typically charge for total potential capacity rather than what is actually used.

Gartner recomends business takes urgent action because by the end of 2006 single core systems will not be available. The analysts say companies should start talking to software vendors now to get policies changed. In the longer term they call for standards that "would permit a proper long-term restructuring of software pricing". ®

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