Entitlement and Compliance Management

Maintenance Deserves the Same Respect as Your Software License

By Cris Wendt and Anna Connell

IDC conducted a survey a few years ago that illustrated the importance of software maintenance to the overall revenue stream of an enterprise software company (generally offering a perpetual software license model). The result of the analysis was a simple, compelling graph. One line was the license revenue growing at an annual compounded rate of 7% (healthy, but not spectacular), and the other line showed the growth of maintenance revenue, priced at 20% (annually) of the associated perpetual license with an 85% renewal rate. It showed that within 10 years, the maintenance revenue was a greater portion of overall revenue than license revenue (and continues to grow). This illustrates the power of maintenance revenue over an ever-increasing software installed base.

However, in the spirit of a marketing perception audit, if maintenance were a person, it would be Rodney Dangerfield, and would be quipping, "Hey, I get no respect". While software companies generate substantial amounts of money from maintenance, maintenance is often treated as an appendage to the primary software products, with a surprising inattention to optimization of the offering. Here are signs that you may be neglecting your maintenance business and leaving millions of dollars of (mostly bottom line) revenue off of the table:

• Lack of a maintenance offering. Sometimes software companies seem overwhelmed or new to software and declare that they "provide updates and bug fixes for free for as long as the customer owns the product. Maybe someday, we'll have an offering".
  
  
• Maintenance is not treated like a product, where it is assigned a product manager, whose responsibility is define the product, price it, and communicate its salient features to customers and channel partners.
  
  
• Maintenance renewals are not handled by a separate and dedicated team whose role is to generate high renewals rates and protect/grow the existing maintenance revenue stream. Without this level of focus, maintenance revenue is frequently cannibalized in preference of new license revenue.
  
  
• The maintenance offering is often ill-defined other than "phone support and updates". Little consideration is given to what is included in an "update" and what might the value be to the customer. Are there boundaries to what functionality defines an "update" you receive on maintenance as opposed to an option that is paid as an "upgrade"?
  
  
• Software companies often have poor discipline accurately keeping accurate records of their customers – either by company name or by key contacts at their customers. This means that the maintenance renewal process cannot be effectively performed, if it can be performed at all. The problem becomes worse if sales are made through an indirect sales channel. Keeping accurate customer and sales records allows companies to track maintenance revenue and renewal rates which can gauge the health of their business long term.
  
  
• Pricing for maintenance is very ad-hoc, over-simplified, and pays little attention to the product lifecycle. Maintenance may have 1 or 2 price points that reflect an annual price that is a simple percentage of the purchase price of the original software license. Little value is given to the fact some products may provide tremendous value with their updates and may reflect a different price than maintenance on another product. Also, phone support is rarely separated from software updates (although often for good reason).
  
  
• Maintenance and renewal are typically overlooked when an event occurs on the product associated with the maintenance. A price change to the list license price of the product has the same result to maintenance and must be explained at renewal. When products are re-packaged and re-bundled, entire customer configurations often have to be adjusted to reflect the new packaging and pricing, leading to many manual steps to align current product offerings with what the customer originally purchased.

While many of the problems above are related to "entitlement management" business processes and systems where Flexera Software can help you, a good first step is to honestly evaluate your maintenance business and to make it a priority with good leadership.

Will the Perpetual Software License Model Ever Go Away? That Depends Upon Who You Ask…

By Cris Wendt

The perpetual software license model won't seem to go away, as much as the press and various surveys seem to indicate.

The perpetual license model has been the predominant method for selling the software license for most software for the past 30 years. With this approach, software is purchased with the right to use software into perpetuity. Of course, most software only has a useful lifetime of anywhere from 3 – 10 years. The software will eventually become obsolete due to a number of factors including the obsolescence of the underlying hardware, the changing nature of the problem that is being solved, or the availability of better software. To remedy this situation, a maintenance plan is offered whereby a combination of phone support and software updates or "refreshes" are provided. For better or worse, companies know how to sell this software and manage all of the associated business and accounting practices, and, end-customers know how to deploy this license model.

The alternative, broadly speaking, is the subscription or time-based license model. With this license model the right to use the software expires after some amount of time, and the license must be purchased again if it is to continue being used. In some cases (the subscription model), the right to install software updates is included. As described in previous blogs, there are different financial reasons why some markets, or some specific customers prefer one license model over another.

For the past several years, Flexera Software and IDC have been conducting an annual survey asking a variety of software producers in various markets which license model generates the most revenue, and, how they expect that mix to change. While there is some variance among different markets and in the actual numbers, the general answer seems to remain the same every year – almost like the recurring day in the movie "Groundhog Day" – About 66% of the revenue comes from perpetual licenses, 34% of the revenue come from subscription licenses or some other variant. Furthermore, respondents say that they expect the mix to change about 10% toward offering more subscription licenses and away from the perpetual license. However, the results of this perceived migration toward more revenue being generated by time-based licenses hasn't occurred.

Perhaps we've reached an aggregated plateau where the license models have stabilized based upon the various forces and value propositions in different markets. My guess is that this situation won't change, ever………..with one caveat – this will be the case for on-premises software – that is, the case where software runs on machines at the customer environment. In these situations, the hardware and software form a system unit that is more physical than virtual, so a license model that matches to a machine lifecycle makes sense.

However, as we enable our customers to take advantage of mobile computing and elastic compute models built upon virtualization and the cloud, then perpetual licenses will be non-existent and pay-per-use or time-based models will be the norm.

So is the perpetual software license model going away? Well, that depends upon who you ask.

Cut Through Cloud Clutter: Insights from Visible Ops Private Cloud

By Ann Reist

Last week Jeanne Morain, Flexera Software and Andi Mann, CA Technologies presented at the webinar: Cut Through Cloud Clutter: Insights from Visible Ops Private Cloud hosted by TMCnet.com.

Mann and Morain provided prescriptive guidance for ISVs and Intelligent Device Manufacturers for cutting through the Cloud clutter. They discussed some of the key Cloud challenges and shared best practices for software licensing and porting applications to the Cloud (Private or Public). They provided insights from key customer and consultant interviews (conducted for their recent book, Visible Ops Private Cloud) on Cloud bursting, licensing implications and regulation hurdles facing ISVs and their customers.

View the recorded webinar here

Tamper Resistant Code Helps Thwart Software Piracy

By Ann Reist

With $59 billion dollars of software stolen globally in 2010 and the struggling economy, many software vendors take piracy (whether it is intentional or unintentional overuse) very seriously. In this video, Maureen Polte, Sr. Director of Product Management for InstallShield shares thoughts on the value of utilizing tamper resistant code with InstallShield's implementation of FlexNet software licensing technology to protect valuable IP against piracy.

Preventing Software Piracy Video

 

Implementing tamper resistant code helps prevent cracked versions of InstallShield.