Entitlement and Compliance Management

We Couldn’t Agree More, Mr. Andreessen!

By Bashyam Anant

In a recent Wall Street Journal article, Marc Andreessen pronounced that "software is eating the world". He went on to explain "we are in the middle of a dramatic and broad technological and economic shift in which software companies are poised to take over large swathes of the economy. More and more major businesses and industries are being run on software and delivered as online services—from movies to agriculture to national defense." Marc provides examples of many industries, from music and video distribution to automobiles, financial services and others, that have been transformed by software and how software companies have upstaged industry incumbents in unforeseen ways.

While software-driven innovations are at the heart of Marc's article, business models are also being transformed in parallel, and are, in many cases, just as crucial for the success of companies driving the transformation. For example, reinventing how consumers pay for music was key to Apple's success with iTunes as we pointed out a while back: "One of the keys to iTunes' success was to allow music to be purchased like it was consumed, thus transforming the monetization model in the music industry. The incumbent model in the music industry was to aggregate collections of tracks into albums, which then became the unit of purchase for consumers. iTunes transformed this model to allow consumers to only purchase what they consumed, one track at a time, if desired."

In a telling symptom of all this, we see the lines between "software" and "hardware" companies blurring rapidly, as pointed out in many articles in this blog on virtual appliances, monetizing embedded software in devices and the growing role of the software supply chain within hardware companies.

It should come as no surprise that we see a tremendous opportunity for software companies and device manufacturers to grow revenues by monetizing their software and the value delivered by it. The remaining question is how one goes about it. In our experience, the tenet of a software-driven business transformation requires software companies and device manufacturers to:

1. Protect intellectual property. This may be obvious to software vendors. However this is a new concern for device manufacturers, especially for those that are pursuing an "all software, no hardware" approach using virtual appliances.
2. Re-think monetization models based on how customers want to use and pay for software. The software business has enormous flexibility here ranging from try-before-you-buy, subscription models, freemium models, pay-by-use, perpetual licenses and so on.
3. Automate the entire software, device and entitlement lifecycle from an end user's perspective. These lifecycle processes include processes such as software installation, device provisioning, software activation, subscription management, software updates, upgrades and other changes to entitlements.  

Reference: "Why Software is Eating the World", Marc Andreessen, Wall Street Journal, August 20, 2011.

Making Software Audits Obsolete

By Michael Costa

Software audits have long been considered a necessary "evil" for maintaining end-user compliance with licensed use rights. Audits are one of the primary mechanisms software vendors use to make sure that customers are not deliberately or unintentionally overusing licensed software. Some software market segments and vendors operating in those segments tend to audit customers more than others. Nonetheless, merely the threat of having to endure an audit prompts most end-user companies to develop and maintain reasonable software license compliance programs. The news stories that are frequently published about companies suffering the embarrassment and liability of inadequate compliance seem to be growing, but the published reports are just a small fraction of the adverse experiences that otherwise law-abiding end-user companies experience on a daily basis. And, unfortunately, the audit trend is growing dramatically with the growth of innovative software licensing models and efficient IT infrastructures. Computing and license models like unlimited, term, subscription, utility, peak/burst, pay-per-use, cloud computing, virtualization, X-as-a-Service and a variety of new ways to measure license use provides major benefits for vendors and end-users seeking to improve flexibility, access and efficiency, but they're also fueling a rapid increase in audit activity. And, it's likely to get worse as software vendors optimize revenue gains and end-user compliance programs become overloaded.

The irony is that audits aren't really necessary for most software vendors or end-users. The reason they're unnecessary is because software can be made "compliance-aware". Software can be designed to recognize when it is being used in non-compliant ways and act accordingly. That's right. Software can "self-audit". That also goes for hardware that includes embedded software and/or is network-attached. In fact, CAD and other segments of the technical software and hardware markets have done this for 20+ years, virtually eliminating the need for audits. It's commonly called electronic license management, compliance management or electronic licensing. The basic functionality is the same: the software stores use rights, measures and tracks actual use, compares use rights vs. actual use and responds in whatever way the software vendor defines. The basic capability can be developed by software vendors or robust software license management systems can be purchased from commercial vendors and integrated. The big question is why most/all software vendors don't provide this basic capability and why end-users don't demand it much as they would any other basic software capability.

Let's explore that a little. Some vendors, unfortunately, seem to actually like auditing their customers. Some vendors prompt customers to consider auditing one of their core competencies – and provide software licensing models that practically promote unintentional overuse. Most vendors, however, recognize auditing as the dysfunctional relationship killer that it is. Some in the latter group also perceive electronic license management as obstructing the customer experience and, even if they do have strong proof of customer overuse, rarely follow-through on an audit. Software vendors can implement electronic license management in any way they see fit – from providing information in a usage log file to disabling overuse. Other vendors provide robust IT asset management dashboards that truly differentiate their offerings. It's hard to understand why most software vendors don't make license compliance much easier.

The vast majority of end-user companies want to be compliant and do everything they can to maintain compliance. One of the common problems is that end-user companies just can't keep up with the growing complexity introduced with license model and IT infrastructure innovation. Software and "intelligent hardware" can and must integrate and manage license use rights and help customers maintain compliance day-to-day. Software vendors need to improve this aspect of the customer experience and customers must make sure that this basic capability is included with every software product they buy. In my opinion, license compliance audits can and should be rendered virtually obsolete.

What are your thoughts?

SoftSummit 2011—The Premier Software Licensing, Entitlement Management, and Pricing Conference

By: Flexera Software

 

SoftSummit 2011 is shaping up to be a great event. SoftSummit is the only software licensing and entitlement management event designed exclusively for software vendors and intelligent device manufacturers. If you develop and/or sell software or intelligent devices, this is the event for you!

We are just 40 days away (October 24-26) from the annual SoftSummit software licensing and software pricing conference in San Jose, CA.  The agenda has come together and we are expecting a great group of industry experts from some of the world's leading software vendors and intelligent device manufacturers.

We're very pleased to have Chris Gahagan, Senior Vice President of Products and Solutions from Avid as our keynote this year. He will share his perspectives on the how software licensing and entitlement management plays a role in Avid's business objectives. 

This year's event will also feature speakers from CA, Symantec, NetApp, Tekelec, IBM, Accenture, IO Turbine, Oraya Therapeutics, Software Pricing Partners, IDC and Flexera Software.

Topics will range from discussions on the impact of Virtualization, the Could and SaaS to usage-based software licensing models, the convergence of hardware and software business models, software tagging and continuous software licensing compliance.  You can review the entire agenda for the event here.

SoftSummit promises to be a thought provoking event with lots of opportunities to network with some of the industry's best and brightest.  You can register for SoftSummit 2011 here.

If You Have a License Technology Problem, Start by Understanding Your Business Needs

The "Myth of the Plug-in Solution"

By: Victor Hoisington, PMP, ITIL

Today, almost every software vendor, and most intelligent device manufacturers (with embedded software) have multiple software license management systems acquired via acquisition, mergers, and divestitures. The problems that result are disconnected systems, manual processes, and the inability to create solutions from products that span the technology of the constituent companies. When this happens, IT is directed to fix these problems of inefficiency in a way to ensure no loss of continuity in the business (we need the revenue), so they try to merge existing systems in a patchwork way, retrofitting, and manually manipulating the systems so that they can deliver to their customers and keep the revenue recognition engine flowing.

This works for awhile, but eventually these retrofitted systems simply don't work together and in fact, the situation may become worse. What happens next is that IT starts looking for a "plug-in" technology to fix their problems and make it all better, but – just like the common cold, there is no magic pill to make it better.

I call this the "Myth of the Plug-in Solution".

The "myth of the plug-in solution" ignores some pesky systemic problems that probably existed before and that become worse after multiple years of poor definition of the business requirements and business intent behind software licensing and entitlement management. Or, the requirements have changed due to market conditions (e.g. new license models, cloud computing, virtualization, simpler customer experience, etc). As IT focuses on the systems and their connections, they sometimes lose track of the business drivers, and more importantly, the fact that a true solution will require a combination of process, policy, and technology.

What's required is an examination of the underlying business requirements and supporting business processes with the involvement of stakeholders from across the entire business. What Flexera Software does when working with customers to solve these problems is to use a defined, top-down framework that starts by examining the business and market requirements then proceeds to understand and share "best practices" on commercial realization models (e.g. product structure and license models), the compliance and enforcement strategy, and finally the "prospect to support" use cases that define the customers' relationship with you. This business first definition of the requirements leads to the systems (of record) and interconnection strategies needed at the IT level and now we can begin to define the technology which most closely meets the needs of the business.

Failure to lead with a business first philosophy will lead to propagation of bad solutions. Using a business first based framework to define a business solution and truly understand your business requirements, policies and customer use-cases will drive the correct combination of policies, procedures and finally technology to create the synergy needed to meet your needs and your customers' expectations.

Want to know more about our framework and business first process, let us know and we'd be glad to help.

Predictable Pay-For-Use Hardware and Software Licensing

By: Mike Costa

Much has been written lately about pay-for-use hardware and software licensing – including the many benefits and drawbacks compared to the traditional, perpetual approach. Pay-for-use licensing comes in many flavors—SaaS, IaaS, PaaS, cloud computing, utility computing, etc. In general, these license models allow customers to rent all or some of the software and/or hardware for which they would otherwise have to purchase perpetual or ownership rights.

One of the primary characteristics that differentiate the various types of software/hardware rental is time granularity – the duration of the rental period. Other time granularities include: multi-year, annual, quarterly, monthly, weekly and so on. Subscription and term are two popular rental models. Subscriptions generally provide for ongoing rental until cancelled with pricing based on specific configurations or products rented during one or more time intervals each. Term licensing is similar to Subscription but allows rental over a predefined period of time, not ongoing. I use the term "pay-for-use" to describe ongoing software and hardware rental types, in this case, all but Term.

Pay-for-use, in its most valuable form, is fairly dynamic – within reasonable limits, of course. Suppliers can use it to satisfy customer demand whenever and wherever it occurs, gaining market share and increasing revenue. Customers can use it to improve asset flexibility, access and efficiency. So why aren't more suppliers offering pay-for-use and why aren't customers adopting this model when it is offered? The lack of predictability seems to be one of the most often cited reasons. Ironically, pay-for-use is a very important model for suppliers and customers precisely because it addresses unpredictable asset demand. Let's face it, it's a dynamic world. Customers need the ability to quickly increase software and/or hardware resources to meet peak demands – without having to over-purchase for peak needs or risk onerous audit liabilities. Suppliers would much prefer allowing customers to rent assets during these peak periods vs. having to loan them free of charge or strain relationships with audits. The loan approach is much less feasible due to Sarbanes-Oxley financial controls.

So how do we crack this predictability "nut". Actually, with an adequate infrastructure and a supportive pricing model, it can be fairly straightforward. In fact, the common cell phone pricing model provides a useful basis. The cell phone model usually includes a committed "bucket-of-minutes" plan coupled with the customers' ability to exceed his/her committed volume for a peak per-minute fee. Now, there are two major changes needed to make the cell phone model feasible for business customers. First, the peak per-unit fee has to be much less than 5-10x the committed per-unit fee – 1.25x to 2x is probably more reasonable for the same time granularity. The price difference should be high enough that it fairly compensates the supplier while not being so low that it invites peak usage as the norm. Also, as with cell phone plans, peak usage is billed in arrears and customers should be provided the ability to increase their committed volume under suitable conditions. Second, business customers must be able to proactively control their peak use expenses, not experience the surprise of receiving a "budget-busting" bill for usage run amok, after the fact. This can be accomplished by providing customers the ability to control how much, when and to which employees the peak assets are allocated – preferably without having to contact the supplier beforehand. Supplier predictability is optimized because the relative committed vs. peak pricing difference minimizes peak usage. Customer predictability is no longer an issue because they control peak quantities and licensing durations so they can therefore fix maximum incremental cost exposure.

Great theory? Not at all. Flexera Software can help suppliers and customers realize these capabilities today. I've personally had the pleasure of working with two innovative software suppliers that have been providing these capabilities to customers using Flexera Software products since 1996. What is your experience with pay-per-use licensing models? Have you cracked the predictability "nut"?