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A Changing Market Requires Adapting New Software Licensing Models

By Joe Rizzo, TMCnet Contributing Writer

Gone are the days when you had an office with 10 computers that were stationary, sitting on each desk. When you purchased software, you signed a licensing agreement that would allow you 10 sessions. It was pretty straight forward. In most cases, if you added an eleventh computer, you either extended the license or 10 out of 11 computers could use the software.

In the past, I have installed more than my share of such set ups. However, things are changing today. Excluding a corporate headquarters, we are seeing more employees working outside the office. To add to the change, with the concept of bringing your own devices (BYOD) to work, just about any device can become require access to the software that the company is licensing. In addition, you have cloud services that further separate the distinction of being in a physical office.

According to Flexera Software, an American computer software company, the old software licensing models are changing rapidly. It's no longer acceptable to offer one license model to fit all customers. Business and consumer customers demand that you do business the way they want. In fact, market pressures are increasingly driving enterprises to a pay-per-use mentality.

In a blog posting entitled “Entitlement & Compliance Management,” written by Michael Costa, he states that most software publishers have an opportunity to significantly increase revenue, reduce operational costs and improve customer satisfaction by using electronic software licensing to reduce software overuse.

Ideally, a software developer needs to rethink how they are doing business. On the front end they have to think of new ways to license their products to the back office. This is where they identify what level of support, maintenance and upgrade a customer is entitled to receive. This is considered Entitlement Management. In all this, the developer wants to keep the following items in mind:

• Reduce time to market
• Minimize risk
• Increase product flexibility
• Achieve faster time to value (faster deployment)
• Enable competitive advantage

Costa feels that software publishers are in a position that can substantially increase revenue, while at the same time reducing operational cost, leading to improved customer satisfaction. If you don’t have customer satisfaction, that customer will no longer use your product. This can be achieved by using electronic software licensing to reduce software overuse.

The drive for profitability means stemming revenue leakage and piracy. This requires an accurate view of how customers use a developer’s software. Inconspicuous and mutually beneficial, the right entitlement and compliance management solution gives the developer the opportunity to monetize overuse and unauthorized use.

Customers gain a clear understanding of their own usage which is all accomplished without the intrusion of physical audits. If we look at the piracy figures, according to reports published in 2011 by Business Software Alliance and IDC (News - Alert) Research, more than $63.4 billion worth of software was stolen. That is no small amount!

In the blog posting, Costa mentions that they have seen publishers achieve 10 to 50 percent more revenue, reduce development and support costs by 20 to 40 percent and dramatically increase customer satisfaction. This can all be achieved at the same time by keeping the following in mind: 

• Incremental revenue is achieved by preventing unintentional overuse, monetizing periodic overuse, and tracking actual software use
• Operation costs are reduced by eliminating the need to audit customers, eliminating the cost associated with developing piecemeal internal license management systems and reducing a large volume of your customer support calls associated with licensing problems
• Customer satisfaction is improved by providing them with a self-serve license management system that’s easy to use, track & manage

A rational approach is that maximizing software revenues is a function of ensuring that customers are compliant with your license agreements, but it has to be throughout the software lifecycle. Preventing unlicensed use of a developer’s products can be difficult when you take into consideration the range of deployment models and reality of selling digital goods in current operating environments.

Of course, if this was easy or had a steadfast rule, then there would be nothing to write about. As you can imagine there are challenges that are associated with managing software licenses. In most instances, there are two principal approaches that are commonly used to manage these licenses.

On the one side you have contract-based licenses and on the flip side you have internally developed software license management systems. As stated by Costa, with contract-based, which is a manual approache, customers have to interpret a variety of license agreements and rigorously manage and track which users get which software licenses. This is all to make sure that all software use is compliant. The feeling is that this approach practically assures unintentional overuse due to the fact that the sheer number of variables that need to be managed can be overwhelming. 

On the hand, in order to address the range of functional requirements with internally developed software license management systems, the time and cost required to develop, maintain and continuously enhance the license management system is usually either very high, or you’re only delivering a small fraction of the capabilities required to both optimize revenue attainment and satisfy your customers.  Either way, internally-developed license management systems are rarely feasible from an economic perspective.

The problems are that by using only contractual licensing terms, you can create a scenario of experiencing lower revenue. This is due to the fact that there will be intentional, as well as unintentional overuse. On the flip side, using an internally developed license management software solution, can result in ongoing expenses that have a habit of taking over your budget.

Probably the best way to solve these challenges would be to have a reliable software licensing and entitlement infrastructure that fully supports your licensing models today, however also enables you to quickly re-tool and respond to customer or competitive challenges. This can be achieved by looking for comprehensive software solutions that provide a consistent, automated solution to manage entitlements. With the right software license and entitlement management solution you can reduce the risk of non-compliance and software piracy.

Yet another challenge is that customers will not only want a seamless software environment, they will also want it to be available around the clock. They will also want it to be on a self-serve basis, meaning that they do not want to call to take care of routine software license management tasks. If you can keep your customers compliant throughout the license’s lifecycle, as a developer you will be able to maximize software revenue.

When you take into account that the BSA Global Software Piracy Study found that over half the world’s personal computer users, at 57 percent, admitted that they have already pirated software and the fact that unlicensed use rates for business applications can reach into the 90 percent range in some geographies, you will understand how you can increase software revenue by reducing software overuse.