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					Pay-Per-Use,      SaaS     and
Subscription Software Licensing
Model Blog Posts are the Most
Popular         of        2010
We took a few minutes to identify the most read Entitlement
and   Compliance      Management:       Talking   Successful
Software blog posts of 2010 and here is what we found…

  1.    The Myths of Pay-Per-Use Software Licensing & Pricing
        Models
  2.    What Licensing Technology is Most Effective—To Dongle or
        Not?
  3.    Enterprise Software License Models Under Attack
  4.    Don't be Afraid of Subscription License Models
  5.    Floating Software Licensing 2.0 – Virtual Machines & Cloud
        Computing
  6.    Some New Twists on Current Themes in 2010
  7.    Thinking Pay-Per-Use Software Licensing – Consider
        Remix!
  8.    The Inevitable Move to Usage-Based Software Licensing
        Will Have a Profound Impact on Software License
        Management
  9.    SaaS is More Than a Software License Model
  10.   SaaS Software License Models – Can Traditional
        Independent         Software         Vendors        Adapt?
The   Myths  of   Pay-Per-Use
Software Licensing & Pricing
Models
By:                       Cris                   Wendt
<http://blogs.flexerasoftware.com/ecm/authors.html>

A lot is being written about the eminent arrival of pay-per-
use license models and how it will change the software
licensing and pricing landscape. In fact, a lot has been
written about the arrival pay-per-use models since the
1990’s. Nothing could be closer to the truth, yet farther
away                from             the               truth.

Pay-per-use provides an intriguing and common value
proposition to provide flexibility – pay for only what you
use: eliminate the large up-front license costs and ongoing
maintenance                                            fees.

Don’t be fooled: Pay-per-use, in a granular sense, will
NEVER be deployed in a large scale across the software
landscape, whether the software is hosted via SaaS, sold
on an enterprise server, or distributed across the desktop.
Pay-per-use software licensing and pricing have 2
fundamental flaws for large scale deployment; an
unpredictable revenue (provider) or cost (purchaser)
stream and high operational costs to maintain. It’s also
just generally a nuisance to be measuring seconds or other
fine units of usage, especially when some software can
take a long time to load, or, if the software crashes in the
middle                of                a              task.

Yet, if you look across the software industry, usage-based
licensing                                            models
<http://blogs.flexerasoftware.com/ecm/2009/07/flexible-
license-models-which-one-is-right-for-you.html>         are
successfully deployed, and are a part of fabric of
enterprise licensing models. As the software industry has
matured, we haven’t seen the evolution toward a single
model, but rather, a refinement of different license models
to meet the needs of different market segments. The key
to success of a usage-based model is finding a balance
between the flexibility of a pure pay-per-use model, with
the predictability of a subscription or perpetual license
model.

This is well illustrated in the science and engineering
markets (Electronic Design Automation; Oil & Gas
Exploration; Mechanical CAD, etc) where there are a
number of different models such as "Token licensing",
"Subscription Licensing", "Peak Usage Licensing", "Remix",
"Variable Usage" and other names. These licensing models
all balance flexibility with predictability and work well for
large consumers of software. The goal is to license and
price software in a way that makes it easy for customers
to          do           business           with        you.

So, if you’re waiting for pay-per-use models to arrive on
the scene, don’t hold your breath. But on the other hand,
if   you    are    waiting,  it   may    be    too   late.

Customers are using Flexera Software products to deploy
usage based licensing models today, are you? Want to
learn   more?      Attend     our   upcoming       webinar
<http://mktg.flexerasoftware.com/mk/get/WEBREG_ECMK
EYTRENDS_WBNR> tomorrow January 28, 2010 as Amy
Konary from IDC will be presenting her findings on the
software licensing and pricing survey done in late 2009
and share her insights on trends and predictions for 2010.



What Licensing Technology is
Most Effective—To Dongle or
Not?
By                       John                    Frame
<http://blogs.flexerasoftware.com/ecm/authors.html>

The      interesting   aspect    of     using     dongles
<http://en.wikipedia.org/wiki/Dongle>     for    software
licensing
<http://www.flexerasoftware.com/solutions/challenge/soft
ware-license-management.htm>         is     that     most
Independent Software Vendors view them as providing
portability, not necessarily more security. Licensing
systems allow the software to attach the entitlement rights
to a specific machine or user. The core question is, how do
you identify the machine and/or user in such a way that is
reliable (reduces revenue leakage) but at the same time
does not create a negative user experience (reduce
customer acceptance and drive up costs). Dongles play a
role in this balancing act and it is this balance between
revenue and customers satisfaction that independent
software vendors and high-tech manufacturers should
explore when evaluating a software licensing and
protection                                         solution.

There are two general classes for this license identification
process, the traditional certificate file based and the more
recent license activation style. In the certificate file based
systems one or more identifying characteristics are listed
in the file, along with a description of the entitlement
rights that the customer has. The file is then digitally
signed so that it can’t be altered. The licensing system
reads the file and checks to see if the signature is valid
and then makes a determination if the identifying
characteristics listed in the file are the same that it finds in
the environment. If so, then the licensing system serves
out the entitlements as they are described.                 The
identifying characteristics that are commonly used are
items such as the Ethernet MAC address, the host name,
the display name, or in some cases the ID from a dongle.

A MAC address or host name can easily be modified by a
malicious party. A dongle is stronger but not that much
stronger since dongle emulators have been in existence
just about as long as the dongles themselves. What a
dongle gives the independent software vendor and the
customer is greater portability. Unlike an Ethernet MAC
address, the dongle is easily disconnected from one
machine, transported to a second, where the licenses are
easily served from that second machine. The dongle is as
strong an identifying factor as any other single
characteristic so the entitlement rights are not significantly
more secure but they are much more portable. To
increase security independent software vendors and high-
tech manufacturers should look at an activation style
licensing                                             system
<http://www.flexerasoftware.com/products/flexnet-
publisher/features.htm>                                    .

Using a single identifying characteristic presents an easy
method for a malicious person to defeat. If an
independent software vendor increases the number of
characteristics then the solution must account for a
concept called ―machine drift‖. Over time any given
machine will change. Hardware is replaced, components
are upgraded, and configurations are modified. When that
happens if the machine drift is not accounted for the
licensing system simply refuses to work until new license
rights are issued. Activation style licensing accounts for
machine drift by providing a much higher level of
confidence on securing the entitlement rights but also by
delivering     a      strong     customer       experience
<http://www.flexerasoftware.com/webdocuments/PDF/fno
_cs_MapInfo.pdf>                                         .

Activation style systems keep a record of both the current
machine configuration and past configuration.           The
independent software vendor or high-tech manufacturer
does not specify any characteristics, it is handled entirely
by the licensing system. If the configuration has changed
a little bit but has not changed too much over the past
several days, weeks or months, then the drift of the
machine is allowed to occur and the license rights continue
to be accessible without issue. Only if the machine drifts
too far, too fast does the licensing system require the
entitlement to be ―repaired‖. In the activation style
licensing, dongles don’t play a role since the activation
style licensing is looking at the overall machine.

There are several vendors, each with their own twist on
the above concepts but the concepts are consistent in
what you will find in both commercial solutions and home-
grown implementations. If you are looking for portability,
Dongles might be good for you. But if you are concerned
about revenue assurance, high customer satisfaction and
low cost, an activation style licensing solution should be
considered.

What is your experience with Dongles? Do you use
Dongles or other methods for software licensing and
protection?
Enterprise              Software               License
Models                  Under                   Attack
By:                   <http:>                  Cr
<http://blogs.flexerasoftware.com/ecm/authors.ht
ml>
<http://blogs.flexerasoftware.com/ecm/authors.ht
ml>                     is                Wendt
Software license models for enterprise software, such as ERP,
CRM, and databases have long thrived on the traditional
perpetual license revenue model, with license metrics such as
named user, number of CPUs, and number of cores. This
means that their software was purchased for a single
―upfront price‖ that scales based upon how many users are
using the software, or, by a machine proxy such as the
number of CPU’s or number of cores. These models have
suited the industry fine for many years as their markets
have been growing into new segments and industries and
the pricing could be tweaked to meet the needs of an
individual customer. For this software, success of the
software has been based largely upon feature and
function.
In many cases, the perpetual license model and associated
metrics may still be appropriate. However, the market
landscape is changing and these models are becoming
increasingly inadequate as the markets become more
nuanced and new trends emerge. More specifically:
Market maturation: As more competition is entering
markets, or, as markets themselves hit effective saturation
points, enterprise software vendors are looking at new and
innovative       ways       to      reach       customers.



Tightening budgets:Customers can no longer simply
spend hundreds of thousands to millions of dollars on
more software, especially when the usage and value of
such software becomes increasingly difficult to justify.



New                                            Technology
<http://blogs.flexerasoftware.com/ecm/2010/01/software-
licensing-and-entitlement-management-some-new-twists-on-
current-themes-in-2010.html> : Cloud computing, SaaS
models, and the effects of virtualization are creating the
need to re-consider different ways that value can be
captured to more accurately reflect the benefit received.



Compliance: With the added burden of the financial risk of
being out-of-compliance, customers are looking to their
enterprise software vendors to provide more license models
and tools to ensure that the software is being used in
compliance      with    software     license   agreements.

What this means is that companies that can adapt to these
changes are more likely to succeed in the market. In
particular, what we’re seeing with clients we work with:
Time-based                 license               models
<http://www.flexerasoftware.com/solutions/industry/softw
are-vendors.htm> are becoming more widely adopted to
offer more affordable or cash-friendly alternative to
procuring licenses. Time-based licenses run a gamut from
the simple subscription license model (e.g. annual license
usage rights, combined with access to updates), through
―peak usage‖ models designed to adapt to variable usage
patterns, all the way to more exotic models based upon
usage (software remix, token license models, and some
pure-play-pay                    per                  use).



Software license metrics based upon hardware proxies such as
the number of CPU’s or number of cores is supplemented and
replaced by new metrics, as this ―physicality‖ of license tends
to be orthogonal to how value is received in more virtualized
environments. There is a trend to employing license metrics
based upon other measures of value, such as: the amount of
software instances allowed on a network or enterprise (e.g the
number of jobs being performed by a simulator), the capacity
of the job being performed (e.g. the total amount of reports
allowed per month), and concurrent use (e.g. how many
instances of software can be run at parallel by any number of
users).
The honor-system enforcement approach and ERP-centric
back-office processes to manage software deployments are
being replaced by software entitlement management systems,
software licensing technology, and asset management and
reporting tools to help manage and administer the deployment
of these new license models. As customers are now using
software in virtual environments, or, have software that
may expire, it’s becoming a necessity to provide
technology to help the customers remain compliant and
more effectively manage their assets, as well as ensure
that software vendors receive the revenue that they are
entitled                   to                   receive.

If you produce and market for enterprise software and are
looking for new ways to protect and grow revenue – don’t just
think features and functions – but look to more innovative ways
to       license      and       price       your      products.


Don’t be Afraid of Subscription
License                 Models
By:                        Cris                        Wendt

Subscription license models still seem to cause a fair
amount of anxiety among customers looking into the
possibility of offering such a model for their traditional
software. While there are some minor variances in the
interpretation of a subscription license model, it is typically
defined as an annual or multi-year software license that
combines the right-to-use the software with the rights to
obtain software updates and service. At the end of the
term, all rights associated with the use of the software and
the         acquisition      of        updates         ceases.

It’s interesting to see some of the same conversations
occur repeatedly as more companies look to offer such a
license                                             model
<http://www.flexerasoftware.com/products/flexnet-
publisher.htm> . There is typically a fear that their
company is going to take a "revenue hit" if they move to a
subscription license model. What they are referring to is
the change in accounting process for company revenue
associated with the subscription license model. Revenue
associated with perpetual licenses is recognized on the P/L
statement when the order for software is booked, whereas
the revenue for a subscription license is recognized over
the term of the license, typically 1, 2, or 3 years. However,
companies do like the annuity revenue-stream associated
with a subscription license, usually providing more overall
revenue    for    the    company      in    the   long   run.

I am usually posed the inevitable question – "why should
we move to a subscription license model if we’re going to
lose revenue or take a revenue hit". Most are shocked
when I tell them NOT to move to a subscription license
model if it’s going to negatively impact the business.

However, I tell independent software vendors that the
adoption of subscription license models typically occurs
differently     than         they      may        think:

· Use the subscription license model as a way to generate
new business, and not simply as a different way to license
software differently for a potential long term benefit.
Software vendors, who have used the subscription license
model, did so as a way to grow their business. It’s often
possible to penetrate customers who have a limited
capacity to pay for the software license all at one time, or,
where the customer wanted to pay for the software using
an expense budget, and not a capital budget, as in the
case where software was being expensed to a project.
Also, subscription license models are a great way to
penetrate large accounts and fortress against competitors
where you can offer a wider breadth of your offering for a
fixed annual budget. The subscription license model is a
way to grow your footprint in accounts where finance and
access issues tend to be the business drivers (as opposed
to accounts where access to different products or product
functions             are             the             issue).

· Subscription license models are typically not introduced
to market in a way to replace all perpetual licenses.
Typically, they are introduced as a way to extend the
product line and offer customers a choice. The "revenue
dip" that is theoretically associated with converting all new
sales from perpetual licenses to subscription licenses (with
revenue recognized up-front) usually doesn’t occur.
Subscription licenses are typically offered as alternative
method to buy software license, and not the only method.
A few years ago at SoftSummit, an annual conference for
the software industry, I asked a variety of customers in a
conference session what happened to their revenue when
they offered subscription licenses. None of them saw the
revenue dip, and furthermore, about 60% said their
revenue grew. However, I tell companies who are selling
product to market for the first time and don’t have legacy
products that offering only subscription licenses (or time-
based licenses) may be the best way to go!

· Subscription license models are a great way to "test the
waters" for other time-based license models. Sometimes
independent software vendors find that customers suggest
that they might want license terms less than a year to
accommodate seasonal or project "bursts". This can lead
to     other      time    or     usage-based     licenses.

· Pricing subscription licenses, like pricing anything can be
a complex process. But at its core is a simple 3-5 year
payback analysis. Customers are typically willing to pay a
yearly subscription fee that equates to a 3-5 year payback,
often    the   lifecycle   timeframe      of   most    assets.

So, unlike Grandma in the Story of Little Red Riding Hood,
there is no big bad wolf hiding in subscription license
models. But, think first about how to better reach new
markets                   and                    customers
<http://www.flexerasoftware.com/webdocuments/PDF/wp
_ecm_CustomerSat.pdf> , and determine if the value
propositions of the Subscription License model can be an
answer.
 <mailto:is-webservices@flexerasoftware.com>

Floating Software Licensing 2.0
– Virtual Machines & Cloud
Computing
By:                   Cris                Wendt
<http://blogs.flexerasoftware.com/ecm/authors.ht
ml>
Software licensing models evolved in the 1990’s with the
emergence of the floating license model, a model still in wide
scale use today, largely in technical software markets. At the
time, the floating license model was an evolution of
machine-locked      software     that   was    prevailing   on
standalone or lightly-networked personal computers.
 Interestingly, the floating license model is taking its next
evolution,            with          virtual         machines
<http://www.flexerasoftware.com/webdocuments/PDF/ds_
FNP_Virtualization_Jul09.pdf>       and Cloud Computing.
 However this time, floating licenses are probably going to
do for enterprise software what they did for technical
software          the        first        time         around.
Floating Licenses 1.0 – License Mobility for Vertical
Software
The           floating        license         model
<http://www.flexerasoftware.com/solutions/industry/softw
are-vendors.htm>       evolved to meet the needs of
workgroup computing in the 1990’s. In the late 1980’s
and early 1990’s the computing environment began to
evolve with the availability of the networked workstation
from Sun Microsystems and others. In a networked
environment, resources such as printers and storage are
shared among users in a local area network. A natural
evolution was the sharing of a software license – hence
the term ―floating license‖. With the floating license
model, when the user starts their software on a machine in
the network, that software will automatically check-out a
license from a license server (so long as licenses are
available). As long as the license is checked-out, the user
is able to run the software associated with the license, and
no one else can use that license. When the user is done
using the software, the license is automatically returned to
the license server for others to use. The license server can
contain multiple quantities of different licenses, allowing
entire workgroups to share licenses for different software
titles. If a license isn’t available for a particular user
because they are checked-out, the user can wait for the
license to be available, and/or, as the system
administrator to buy more licenses. The floating license
has an interesting attribute - because a software license is
sharable, it can be used on a variety of different machines
over the course of its life. This means that the software
license can’t be tied to a particular machine type as
identified by the number of cores, CPU’s, or processors.
 The floating license model works very well in markets
where customers require access to a wide variety of
software    titles  over  the   course  of    a   day.
Over time, the flexibility of the floating license model and
associated license server technology provided the basis for
more flexible license models in wide scale use today (such as
subscription licensing, time-based ―peak usage‖ licensing;
forms of pay-per-use licensing models), along with a variety of
asset management and reporting tools associated with the
license server technology. This in turn, allows for more
efficient usage and tracking of software, and, the
capability to construct more sophisticated license
agreements with both the consumer and independent
software vendor understanding usage information.
Floating Licenses 2.0 – License Mobility for Enterprise
Software
Fast forward to a year in the future, say 2011, or 2012. The
floating license model is becoming the paradigm for the
use and management of enterprise level software, for
similar reasons it became popular with technical software.
With virtualization technology, enterprise software licenses
previously dedicated to physical machines are increasingly
being deployed in unique virtual machines. This virtual machine
can be moved to the particular physical machine that is
available and best suited to the requirements of the user.
With virtualization moving technology such as VMotion, the
situation becomes more interesting. Now users, have the
capability to dynamically move those virtual machines
from one machine to another, without disruption and
without delay. For now, this is a convenient method to
provide a high-availability solution for enterprise software.
 If the machine running the main virtual machine fails, the
virtual machine can be ―auto-magically‖ moved to another
physical                                            machine.
Now, let’s extend the paradigm. Suppose an enterprise has
several enterprise applications running on premise, but
they are running out of machine bandwidth, perhaps due
to some seasonal variability in the business. Wouldn’t it
be convenient to move one or more of the virtual
machines to another machine on-premise or, into the
cloud and let another hosting center run the application for
awhile?    Alternatively, suppose an enterprise initially
decided to have their purchased enterprise software
hosted by a cloud provider initially, but over time, decided
to move on-premise to lower costs or gain more control?
 Wouldn’t it be ideal to simply transfer a virtual machine
(including all associated data) from the hosting provider in
the      cloud      to     an      on-premise     machine?
Of course, this is a reach right now with virtual machine moving
technology, compliance technology, and security, but it’s not
too far-fetched to think we may see it in the next few years.


Software     Licensing    and
Entitlement Management : Some
New Twists on Current Themes
in                       2010
By:                        Cris                         Wendt

With 2010 upon us, I thought I’d share some of our field
observations about industry trends we see in the field for
software licensing and entitlement management. While
some of the topics below are certainly well documented,
we      have      been      seeing     some        twists.

From Device Revenue to Software Revenue:
We have been working with more high-tech manufacturers
<http://www.flexerasoftware.com/solutions/industry/high-
tech-manufacturers.htm> in 2009 and in 2010 who have
been traditionally viewed as hardware manufacturers, that
is companies who have derived most of their revenue from
hardware. This seems especially true in the medical
equipment,       industrial    automation,     and      the
telecommunications industries. As the underlying hardware
becomes commoditized, an increasing number of
companies are looking at new ways to create more
annuity-based      revenue    streams    from    software,
maintenance, and services. This includes the design of new
entitlement management systems to track the deployment
and even of their software through complex sales channels
to know more about who is using their products

Server        Virtualization        in        Production:
While     the    general    growth     in     virtualization
<http://www.flexerasoftware.com/pl/virtualization-
resource-center.htm> is certainly no surprise, what did
surprise us wasn’t the use of server virtualization per se,
but the increased deployment of virtualization into
production environments (as opposed to just development
and test) as a way to take advantages of technologies
such as WMware’s Vmotion to create lower cost business
continuity solutions. This trend has also been driven by the
improved     performance      of   virtualization  offerings.

Evolution         &        Maturation        of      SaaS:
Almost all companies we work at are in some phase of
planning a SaaS solution to bring to market, if they
haven’t already done so. Certainly, many small companies
offer exclusively SaaS-based solutions, but what surprised
us is how many mature companies are looking to create
new revenue opportunities from hosted offerings. This
means that simply offering a solution in a SaaS model may
no longer be a unique way for startups to differentiate
themselves against the more traditional software
companies. For the mature SaaS companies who realize
SaaS isn’t enough, we’ve been working also with some to
evolve their solution to increase revenue through improved
authentication, and improved entitlement management.

The          Next         Phase           of        M&A:
We see many larger companies creating initiatives to
simplify and consolidate product offerings that have
evolved through years of M&A. By consolidating complex
and often overlapping product lines into fewer, "high
impact"       products      and       license      models
<http://www.flexerasoftware.com/products/flexnet-
operations.htm> , larger companies are finding it easier to
do business with channel partners and customers and
simplify the sales process. In addition, the reduction of
clutter enables companies to focus development and
support      on      newer      generation       products.

Interested in hearing more on trends and predictions? Join
us on January 28, 2010 as Amy Konary from IDC will be
presenting the software licensing and pricing survey
findings and share insights during a Flexera Software
Webcast
<http://mktg.flexerasoftware.com/mk/get/WEBREG_ECMK
EYTRENDS_WBNR>                                           .
Thinking Pay-Per-Use Software
Licensing –   Consider Remix!
By:                        Cris                     Wendt
<http://blogs.flexerasoftware.com/ecm/authors.html>

Usage-based software license models that are effective will
tend to balance two criteria – flexibility to meet the needs of
the software consumers who are using the software to
accomplish a task, and predictability of costs in order to
satisfy the Finance departments of both the software vendors
and consumers. Usage-based software license models can be
difficult to perfect because of the seeming complexity, but by
balancing predictability with flexibility, a practical model can
be                                                     developed.

The "Remix" software license model was developed in the
Electronic                 Design               Automation
<http://www.edac.org/industry_what_is_eda.jsp>        (EDA)
market in the late 1990’s. EDA software is provided from
suppliers such as Synopsys, Cadence, Mentor Graphics,
Magma, Atrenta and others is used by manufacturers of
electronic components and systems, such as Apple, Intel,
AMD, nVidia and others to design their electronic products.
The EDA software market has several characteristics that led
to the creation of new software license models:

   High Value and High Software Licenses: The software
    performs complex design and analysis functions in a wide
    range of computing environments (desktop, server, or
    compute farm) that are crucial to developing electronic
    products in a short time frame. It’s very expensive to
    simply overbuy and over-equip engineers.
   A wide portfolio of products: There is a design flow that
    starts with "design capture" and proceeds through
    functional simulation and physical design. After all, it’s
    important to know if a particular chip will really work at
    lower power in the complexity of an iPhone before you
    manufacture millions of them. But there is a challenge; it
    is difficult to know when a project start the exact profile of
    software that is required due to nuances and problems in
    the electronic design process.
   The Need to Use Operational Expense Budget
    (OPEX): Many electronic companies prefer to expense the
      software costs to particular projects, in order to manage
      the ROI on a project basis.

The resulting Remix License model evolved after iterations and
experiments in the larger enterprise customers. The essence of
the model is to allow customers to replace low utilization
software (shelf-ware) with software that is expected to be used
with higher frequency. There are some variations to the model,
but the framework is characterized below:

     At the core is multi-year license usage agreement, usually
      2-3 years for a fixed yearly fee. This provides an element
      of financial predictability.
     Each software title is assigned yearly usage price values,
      that when added up, yield the total yearly price of the
      agreement.
     At the beginning of the agreement, the customer will
      declare a mix of software titles (and associated quantities)
      to meet the bulk of their usage requirements. Adding up
      the yearly price of the software mix, will yield the total
      yearly price of the deal.
     Periodically (quarterly, semi-annually, or annually), the
      customer can change a fixed percentage of their mix of
      software licenses to reflect changing usage patterns
      Typically, 25% of the total yearly value of the agreement
      can be changed. For example, if there is a $1M annual fee,
      then any collection of software in the contract whose
      yearly license fees multiplied by quantity are equal to
      $250K can be swapped out for a similar total value of
      software licenses.

A few things to note about the model from a revenue
recognition perspective (which requires good counsel from your
Finance department to understand):

     As with most time-based license models, the software
      vendor must recognize revenue ratably over the course of
      the agreement.
     You need to be careful to avoid providing access to
      products not available at the time the agreement was
      constructed, or more severe revenue deferral processes
      may be involved.
The tactical deployment of the model requires the users of the
software to be able to measure and report on software usage in
order to identify software utilization profiles. To date, that
hasn’t been an issue in the EDA community, where such tools
have         already       been        widely        deployed.

In other technical markets with similar challenges, the "token
license model" is another license model variant that has been
successful.

Next   time  – how do you approach software pricing
<http://mktg.flexerasoftware.com/mk/get/ss09-software-
trends-
survey?lead_source=ECM%202009%20Key%20Trends%20in%
20Software%20Pricing%20and%20Licensing%20Survey&pcode
=fnp <http://mktg.flexerasoftware.com/mk/get/ss09-software-
trends-
survey?lead_source=ECM%202009%20Key%20Trends%20in%
20Software%20Pricing%20and%20Licensing%20Survey&amp;p
code=fnp> > such a license model, especially if your
perspective   is   a    classic perpetual  license   model?


The inevitable move to usage-
based software licensing will have
a profound impact on software
license               management
By:                       Randy                         Littleson

In a recent blog post entitled "Predictions for software license
management in 2010: Usage-based software licensing models
on                             the                            rise
<http://blogs.flexerasoftware.com/elo/2010/01/predictions-for-
software-license-management-in-2010-usagebased-software-
licensing-models-on-the-rise.html> ", I talked generally about
the trends we’re seeing in the market related to usage-based
software licensing models and cited our recent research report
entitled "2009 Software Pricing and Licensing Trends
<http://www.flexerasoftware.com/company/newscenter/pressre
leases/press-releases_10725.htm> " on the topic. What I’m
seeing is that the application market is maturing and historically
mature markets have moved to value-based pricing, which for
applications                    is                 usage-based.
Whether you’re a software company selling applications to
enterprises and/or governments or a high-tech manufacturer
increasingly differentiating your products with applications, this
trend is gaining momentum and will surely impact your
business. I’m hearing this in the discussions I’m having with
various vendors. Making this more challenging are technology
changes like virtualization, cloud and SaaS that are taking place
at the same time. These add new wrinkles as most licensing
models have not been usage-based and they have been tied to
the physical hardware where the applications run. Both of these
fundamental software licensing premises are under increasing
pressure.

In fact, in my discussions with vendors, it is virtualization that
seems to be the key driver today. Users want virtualization to
consolidate their computing infrastructure, save money and
provide a more dynamic environment to adapt more quickly to
changing business conditions. But, from a vendor perspective as
noted above, virtualization introduces a host of software
licensing and entitlement management implications. Another
vendor I spoke with shared the story of how their customers are
increasingly looking for "time bound" or "lease for use" (just
different terms for usage-based) licensing. Their customers
realize that they have peaks and valleys in demand for their
applications and don’t want to pay the same rate in a valley as
they do in a peak. High-tech manufacturers see the same thing
as many products need to be able to dynamically allocate
capacity and/or enable specific functionality but only at certain
times.

Almost everyone I talk to acknowledges that change is
underway. Of course, like all change, this too brings
uncertainty. There’s a lack of standards today, vendors struggle
with the implications to their business and revenue models
(both software licensing models and the entitlement
management infrastructure needed to manage their customers’
rights to use the applications), etc. These all need to be figured
out, and some are further along than others, but the trend
seems inevitable and users are going to continue to push these
issues. The question for vendors then is what to do about it?

Are you seeing a growing interest in usage-based software
licensing models? If so, what are you doing about it?
SaaS is             More         Than         a     Software
License                                                Model
By:                            Cris                            Wendt
<http://blogs.flexerasoftware.com/ecm/authors.html>

Many, if not most Software-as-a-Service (SaaS) offerings are
typically offered using a named-user license metric and a subscription
license model. Salesforce.com is the most popular example of this
approach. But SaaS is really much more than a license model
because:

     Offering your software in a SaaS model usually provides faster
      time-to-benefit,    especially   for   enterprise software   as
      configuration costs can be reduced through more standardized
      workflow templates and eliminating the need for complex
      software installations and in some cases, customization.
     SaaS reduces upfront software and hardware capital
      expenditures (CAPEX) and ongoing maintenance costs and
      replaces it with a predictable operating expense budget (OPEX),
      which many software users find attractive.
     Corporate risk for compliance is reduced as provisioning to the
      service is typically managed by the SaaS provider at the point
      of access.

However, I often hear SaaS described only in the context of the
named-user, subscription license model. This perception does bring
up a few interesting points about SaaS and license models in general:

     Subscription license models are widely adopted for traditional
      desktop, enterprise, and device management software, with
      adoption increasing. There's no need to wait for a SaaS
      deployment
      <http://blogs.flexerasoftware.com/ecm/2010/05/saas-
      software-license-models-can-traditional-independent-software-
      vendors-adapt.html> of your software if the benefits of a
      subscription license model.
     SaaS offerings are moving beyond the single subscription-
      based named user license model into models based upon
      capacity used (storage) over a period of time, and, also to
      concurrent user models, where pricing is based upon the
      maximum number of concurrent users that can access the
      software in a time period. We're helping a company with such a
      deployment. Other companies use more granular transaction-
      based pricing (Travelocity or Expedia's booking fee is a good,
      simple example).
     As I've blogged before, I think the train has left the station on
      the widespread adoption of pay-per-use license models
      <http://blogs.flexerasoftware.com/ecm/2010/01/the-myths-of-
      pay-per-use-software-licensing-pricing-models.html>            for
      common desktop and enterprise software. However, as end-
      customers embrace SaaS offerings and paying for their
      software as a service, there will be more license model
      innovation with SaaS offerings. But, most software ISV's do
      offer their software to some percentage of their customers
      using a form of a usage based model. "Remix" which I
      described in an earlier blog, is one such sample.

So, if you're think that a subscription license model works for your
customers,         then       don't        wait         for    SaaS.
And, if you think that a SaaS deployment makes sense for the use of
your software, then don't think you have to use a subscription-
based,           named          user            license       model.




SaaS Software License Models –
Can    Traditional   Independent
Software      Vendors     Adapt?
By:                      Cris                  Wendt
<http://blogs.flexerasoftware.com/ecm/authors.html>

Most SaaS companies sell access to their SaaS software with
some form of named user or managed capacity metric, using a
subscription                                              license
<http://blogs.flexerasoftware.com/ecm/2010/03/dont-be-
afraid-of-subscription-license-models.html> model. In these
license models, software access is sold based upon the amount
of access to the SaaS offering that is being used. Customers are
then invoiced monthly or quarterly for access. Revenue is
"recognized" accordingly – on a periodic basis as the SaaS
service is being consumed. Since SaaS is really a service, that
type of licensing and pricing model makes sense and works well.
This creates a recurring revenue model that grows over time as
the SaaS offering gains market acceptance. This is more of a
"farmer model" to growing revenue, and works well for
companies       who      are    pure-play     SaaS     providers.
The real challenge is for traditional Independent Software
Vendors (ISVs) who sell their software using a perpetual license
model. For these companies, their business is built for the
accounting model of recognizing their revenue up-front, at the
time the software is booked. For these companies, there is a
large infusion of revenue that occurs, typically well in advance
of the software being operational and productive. The financial
model, Wall Street expectations (for public companies), and
internal sales and management compensation models are built
for these large bursts of revenue as deals are signed. This is
more of an "elephant hunting" model to revenue creation.

I see the difficulty many ISV's have in changing this model even
for adding simple subscription license models to their offerings.
I've seen the subscription offering fail because sales
compensation
<http://blogs.flexerasoftware.com/ecm/2010/01/want-to-
accelerate-market-success-of-new-software-license-models-
align-compensation-with-results.html> was not aligned with
the recurring revenue model. Individual sales compensation
plans were based on an "elephant hunting" model. Even in
cases where more sophisticated time-based models were
offered, there was often dysfunctional behavior to structure the
deal in such a way that more revenue could be recognized up-
front.

The real question with a SaaS offering for traditional ISV's isn't
so much that is it technically possible, but, can the organization
really   adapt      and     adjust     the     business    model?

So, how does a traditional ISV succeed in providing a SaaS
offering? Clearly, some companies have succeeded. Usually,
they follow a few simple principles that also apply to rolling out
a successful subscription model:

     Use the SaaS offering to initially grow or develop a new
      market opportunity, where the overall revenue impact to
      existing revenue streams are not large, and, where there
      are incremental revenue opportunities.
     Align sales compensation with to the new model. In some
      cases, a different sales channel may be required. This may
      work well if the SaaS offering targets a different market.
     Consider creating a new business unit with its own P&L so
      that it can be isolated from the pressures on the
      mainstream business.
     Be patient, grow, and learn.

Do you have other approaches to bringing a SaaS offering to
market?

				
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