By: Cris Wendt
Can you make a meal out of a software license and entitlement? You can, if it’s a software bundle. In almost any industry one of the more common business practices to market a group of products is to create a bundle or a "super product." An historically popular consumer bundle is the McDonald’s "Happy Meal" – a combination of different food items packaged together and designed to appeal to children in a way that gets their parents to buy more food in one meal, and also, to buy more meals over time. In consumer markets, the use of a bundle can be an effective marketing tool to grow market share.
Since we’re all familiar with the concept of creating a software bundle, regardless of whether you call it a solution, suite, package, marketing bundle or sales bundle, we tend to apply the same concepts to the enterprise software business for one or more of the following similar reasons:
- It’s a way to offer and promote "solution" to customers - a situation where you can expose your customer to a combination of products that can address a larger problem than a single product in the portfolio (that may have the most brand awareness).
- By combining products and offering a "bundle discount" it’s possible that the customer may buy more than they normally would because of the incentive of attractive pricing. This can be done on a permanent basis, or, as the result of a "promotion." In a retail situation, this happened to me a few weeks ago when I was looking for a few travel-sized packages for toiletries. I bought a travel kit of toothpaste, shaving cream, and deodorant that also included a comb, mirror and clippers when I only really needed the toothpaste and shaving cream.
- It’s an approach to grow market share in specific market or customer segments by offering a combination of products that would appeal to those particular segments. This is often done as a pricing reaction to a competitor that enters the lower-end of a market where the software producer may not have a product offering, but where they may not want to compromise pricing for the rest of the market.
- Bundling is a method to squeeze competitors by offering a complete solution at an attractive price that makes it more difficult to buy the best-in-breed point products. This is what happened with Microsoft Office – Microsoft was able to pretty much eliminate Aldus Persuasion, Lotus 1-2-3, Quattro, WordSTAR and other software from the enterprise desktop simply by offering Word, Excel, and PowerPoint (initially) in a single package with an attractive discount.
Since creating a software bundle appears to involve little more than packaging existing products together, most product managers think it should be easy to accomplish. The reality is that with enterprise software, nothing could be further from the truth. Bundles cause more trouble than any other product packaging/structure issue I see in companies. It’s amazing that something so simple, can be so elusive.
I have found that almost all software companies have problems with software bundles – either as a result of software entitlement and fulfillment systems, or, lack of consideration for the software license lifecycle. Surprisingly enough, here is what we find – over and over again:
- Software bundles often rarely, if ever, deliver on the stated business objective of increased market share or revenue, whether it was delivered as a promotion or a long-lived product. Bundles tend to be reactive, and generally don’t attack the root-cause issues of why a competitor is gaining market share, or, why pricing is not competitive. In general, I find that bundles tend to be a last- ditch effort to recover revenue from products that aren’t producing as well as they should.
- Software bundles are typically comprised of products that have their own lifecycles independent of the lifecycle of other products in the bundle. If the bundle is marketed as a single super-product, there tends to be a need to break-up the bundle over time into its constituent parts as each of the individual products are End-of-Life’d (EOL’d) and replaced by new products. As a result, maintenance and compliance groups go crazy trying to figure out what a customer is entitled to use – especially after software bundles morph and change over time.
- Quoting and fulfillment systems typically aren’t designed to handle software bundles particularly well and tend to be the forgotten business requirement when ERP and software entitlement systems are designed. When software bundles are comprised of products that cross product fulfillment mechanisms (e.g. due to acquisition) or have different revenue recognition schedules, it’s not uncommon to find that entitlement management systems aren’t designed to allow a single SKU to enable the fulfillment of software license keys from multiple systems. On the other hand, few systems are designed to allow the ordering of a software bundle at an aggregate level that, when a specific combination of products are ordered together, allows a discount to be applied across the individual products, yet still allows the products to be delivered and managed separately over its lifecycle.
If software bundles do get sold, but are ultimately deemed unsuccessful, then there are the lifecycle issues to deal with to end-of-life the bundle or create new bundles.
As a result, I tell most companies to avoid software bundles. But if you insist on eating the "happy meal", don’t forget the Tum’s!
Next time – best practices for designing product software bundles (if you insist on using them).