Ownership of the Software License – What Does it Mean for Software Pricing?

Recently, as you may have read, the 9th US Circuit Court of Appeals ruled that software publishers can forbid the transfer and sale of software licenses as part of the terms of their software license agreement.  For most software publishers, this is not really a new revelation, but it does underscore how to think about your software when you bring it to market.

 
The sale of a software commercial software license (generally) does not convey ownership, but simply a “right to use” the software.   This means the person who buys the software license is only using the software in a compliant fashion when they use the software based upon the terms of the license agreement.   The end-user cannot simply use software any way they want.

What this also means, is how you should think about software when you price its value.  We often like to stress with clients that produce software that when creating license and pricing models, it’s best to think of the software license as a service that provides value in the context of usage.  In that context, the more of the service that the end-customer uses, the more value they obtain, and therefore, the more the software publisher can charge for their offering.    This allows the software publisher to really understand value to the end-user of the software provider, and perhaps think outside of the simple box of feature and function and into additional dimensions of license rights.   This can also lead to some segmentation of markets for products, and therefore, additional price points.  More importantly, it allows the software producer to really match the value of the software to its expected use.

Some ways this may affect your pricing includes:
• Resale or re-distribution.  While the software producer can limit the resale of software, they can in fact allow re-sale, but perhaps at an optional price. Some software publishers allow the movement of software license rights from a particular user to another use within a company for some set number of times to accommodate the need to share the value of the software among users.  Beyond a set limit of transfers, the software publisher can charge additional fees.

• Wider use of concurrent licenses.  In many markets, software products can be used by any user, as long as only a set number of users can use the software at any one time.  The concurrent license usage can be priced based upon the scope of usage.  For example, you can charge an additional amount of the users who access the software are geographically dispersed, as more value can be obtained if the software usage follows the sun. 

• Limited Time Usage.  Some of your customers may use the software for limited periods of time during the day, or, over the course of the year.  When taken to an extreme, this becomes a form of pay-per-use license and pricing model.

• Project-based Usage.  Some customers plan to use software only for certain projects that exist for certain time periods, and want to allocate the usage of software to a specific project, using what is often called OPEX (operational expense) budget.  This may lead to offering your software license as a time-based license for the period of the project.

• Payment Terms.  Some enterprise customers who use software may have the need to manage cash flow, and may be willing to buy a software license if they can spread the payment terms of a period of usage.

In many cases, the enforcement of software usage as described above requires technology such as a license service or license manager, but these technologies are mature and well understood and can easily be applied to the creation of new license models. 

This approach to understanding usage will become a vital approach as software usage becomes more “cloudy” with the emergence of cloud computing, virtualization, and SaaS delivery mechanisms.