Entitlement and Compliance Management

Is a Subscription License Model Right for Me?

So, you offer a perpetual license and are considering offering a subscription license model as an option for one or more of your products.  How do you go about creating a pricing model, and what are the implications to your business?  Will customers accept the pricing?  What will this do to your revenue?  These are all of the typical questions asked.

  

Let’s start with the most fundamental question – will your customers accept a subscription license model? Subscription license models can work for any product as it is fundamentally addressing a business issue, and not a functional one.  Subscription license models can make it easier for customers to buy software from you because they can be financially more attractive from a cash flow perspective.  The cash outlay may be easier to manage for the customer than the large upfront payment requirement for the perpetual license model and first year of maintenance. This is similar to the lease vs. buy considerations when purchasing a new car.

Ideally, the introduction of a subscription license model into your portfolio will open new market opportunities as it may enable you to reach customers that have a need, but where the financial requirements may have been a barrier. 

 

Also, subscription license models tend to flourish for products/markets where the underlying problem addressed by the software is changing rapidly.  Think of anti-virus software, which is eliminating the damage caused by the proliferation of software viruses. In the world of electronic design, complexity of the electronic design problem is governed by Moore’s Law. In the world of deep submicron electronic design, new kinds of problems emerge, requiring more innovative algorithms and approaches to speed analysis.

 

Subscription license models also fit well when an organization will use a software license for a project.  Management can purchase the software on a project basis and align the cost of the software usage with the project-based accounting.  This is often the case in mechanical design, software development, oil & gas exploration, or enterprise software testing.

Subscription license models may also be a nice adjunct license model to a perpetual license model if you have special use cases where there is a temporary need for the use of more software.  In these cases, customers may have a short-term need for more software, and may be unwilling to pay for another full copy.  Offering an annual or perhaps monthly “subscription” can meet this need without requiring excessive discounts.

 

It’s also been said that offering your customer a subscription license creates a compelling event (license expiration) for a customer to leave you for a competitor.  History has shown that after a customer has made an investment in your products and usage methodology, they will continue to buy from you if you are meeting their needs.  Conversely, customers will stop using your products if you are not meeting their needs, regardless of the license model.

 

In the end, offering a subscription license model alternative for your product line is offering your customer another option to do business with you. 

 

And in tough economic times, subscription licensing may be a very compelling way to generate revenue from prospects that have traditionally not been able to buy your product.   

Are you currently offering a subscription license option to your customers?  If not, what has been holding you back?

 

Next Time:  Myths and Legends – Subscription Pricing, Revenue Recognition & “The Dip”

Maybe a Half-SaaS’ed Approach is the Way to Go!

Software as a Service (SaaS) is still a hot topic in the press, blogs and in the boardroom. SaaS isn’t going to take over the world, though. What SaaS will do, however, is fit into the greater mosaic of the software landscape.  There is no doubt that offering your software as an internet-based or cloud service can provide a compelling value proposition for your customers and make it easier for you to penetrate markets.   This is especially true for enterprise-class software that requires high investment and an extensive setup/ configuration to automate what are often non-mission critical business processes.  With SaaS, customers can sign up for the service, pay a monthly fee per-use, and then begin the process of using the software.  Usually, little to no customization of software is required.  However, as a software provider, there can be a very formidable investment to SaaS-enable your applications and create the infrastructure required to deliver cloud-based computing.

 

You may also find that what your customers are looking for may not be the transition and associated benefits of pre-configured software offered on machines that you host.  There are many cases where customers already have an existing hardware infrastructure, and they may be looking for a more affordable way to purchase the rights to use your software.  In tough economic times, customers may not have the capital budget (CAPEX) to procure perpetual licenses, but they may have the operational budget (OPEX) to buy services.

 

If this is the case, simply consider another option for access to your software:  Provide a subscription license model for your existing host-based (also called on-premise) software.   The subscription license model is a combination of the software license and maintenance, and is typically offered on an annual basis to your customers.  That is, your users have the right to use the software and access new software updates, but all rights to use and update the software expire within the year.   At the end of the year, the customer must purchase the license and maintenance license rights again.  Of course, a subscription license can be delivered on any period of time, but a yearly license is most typical.

 

Many software providers in the science and engineering markets have offered a subscription license model for 10+ years, and some markets such as Electronic Design Automation (EDA) have standardized on this as the de facto license model. 

What is your experience? Are you currently offering subscription based services? If not, what is holding you back?

 

Next Time:  Is a Subscription License Model Right for Me?

Put the inner techie in the corner (for a while).

One of the best aspects of my job is meeting customers face to face. It’s my chance to hear from them and to talk about where Acresso Software is going with its products/solutions.

For me, these conversations are preceded by weeks of internal planning and debate, pulling together the wants and desires of hundreds of stakeholders. In the end, it’s up to the customers: “Will these grand plans address the specific needs of the people in this room?” When done right the rewards are immense.

Invariably on a break or in the larger conversation I will be pulled aside and asked a question around some complex aspect of software licensing. While keeping the techie “wannabe” in me in his quiet corner, I focus on the business aspects of what we do and what the customer needs to accomplish.

After all, software licensing describes one of the most important relationships you have with your customer - the right you have given your customer to use your product.

Once we pull back from a tech talk and focus on what the business is trying to accomplish, several good options quickly appear.  After all, a question around software licensing is in fact a discussion about the relationship between you and your customer, the “right to use” and how that relationship is documented and managed. Usually that moves discussion to an understanding of what everyone wants to accomplish in that relationship. With that understanding, the inner techie in us can come out and get to work to make it happen.

What’s your experience? When you talk with customers, where is your inner techie? At front and center or in a quiet time-out in the corner?

The “techie” in me has been in the corner long enough; I need to go find some long email thread where I can suggest the use of a b-tree or a salted hash…

Keeping track of software entitlements today – not an easy task

The task of keeping track of software has been around as long as there have been computers.  

Back in the day, everything was on the mainframe. Getting started at IBM, I provided support and testing for several enterprise applications IBM had created for the OS/2 operating system. In a very typical case of not “drinking your own champagne” everything we did however was on the mainframe. And while we sent an email product notification out for the OS/2 product called OfficeVision/2, we never used it ourselves. Managing software entitlements was not very complex. All these OS/2 machines were just running 3270 terminal sessions, so we could get to “PROFS” for email and “RETAIN” for our CRM.

For those who don’t know, the OS/2 applications went by the wayside in 1991. Now SaaS is here. But where is “here” when it comes to software entitlements?

Software as a Service may be different from more traditional forms of software like desktop and client/server applications, but is not necessarily better in terms of protecting and tracking software usage. You’ve installed that application and are serving it to several hundred employees via a web browser.

Counting the users is pretty easy but is everything compliant on the backend? Is that OEM database included in the application only holding the information that fits in the EULA that came with the application? Are the users simply sharing credentials, throwing off the user counts?  

As for keeping the value squared away, you may be charging $50 per seat but how easy is it with a little bit of coding to serve that $50 license up for 10 or 100 users? The point is: unless you have the proper tools, it’s very difficult to know for certain.

On the other hand, regardless of how software is used--mainframe, client-server, thin-computing, SaaS, cloud computing, the next thing to come along-- customers need to understand their usage and to control it effectively. Yes, some customers will try to gain unfair advantage, but most want to be compliant without spending more than they need. What they want—and what we should be able to give them—is the insight and understanding to accomplish those goals no matter how software is delivered.

If software providers don’t make it easy for customers to track their entitlements and usage, the software compliance conversation will continue to rage. Drop a line and give me your perspective.