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Maximizing Software Revenue Requires a Range of License Options

By Mae Kowalke, TMCnet Contributor

Some software developers might ask themselves why they would want to offer a wide range of licensing models for their software. Why, for instance, would they want to offer a usage-based licensing model when that can only reduce revenue (since buyers will only select a usage-based license if they think it will be cheaper than purchasing a perpetual license)?

One of the biggest reasons is capturing the widest possible customer base for the software.

Giving prospects a range of software license models that provide an optimal mix of flexibility, access and efficiency reduces the amount of time and support required to win new customer business and renewals.

“Subscription, term and usage-based license models have helped many software publishers capture incremental revenue, expand into new markets and reduce sales time and cost,” noted a recent Flexera blog post.

The first step is getting users to buy the software, and then the trick is to upsell them to more lucrative licensing agreements.

Subscription-based licensing, for instance. While the monthly fee for software usage might be lower than having a user purchase a perpetual license, subscription-based licensing revenue can quietly add up.

As I recently discussed with a graphic design colleague, Adobe’s (News - Alert) decision to only offer its design software via subscription was a nice revenue move for the company; while users who buy the Adobe Creative Cloud get access to a vast number of programs, how many of those programs were they going to purchase in a given year under the old model? Through the subscription model, designers now regularly shell out more than $600 a year for access to programs such as Photoshop and InDesign.

Each software licensing model has its own advantages, but one trick is that many developers are not in a position to offer the right licensing models because their business processes are not flexible enough to account for various models.

“Most IT systems and associated business processes are not inherently flexible enough to support new license model implementation without significant changes and, in many cases, major changes to ERP, CRM, billing and other systems and processes – including a significant amount of system customization,” noted the Flexera blog.

Also, it added, “because software license model development is not a frequent occurrence, there is usually a critical shortage of the necessary internal expertise. New license model development and implementation is not usually a software publisher’s core competency.”

This is why smart developers are increasingly considering software licensing solutions that handle this important but usually neglected part of software development. Internally developed licensing systems are just not nimble enough to keep up with the new models and the range of licensing models it takes to maximize software revenue in 2014.

Just like coding a software package entirely from scratch versus using off-the-shelf code for common functionality, using an entirely in-house entitlement and licensing system more often than not comes with costs higher than the rewards.