Entitlement and Compliance Management

Software Pricing and Packaging Best Practice Advice from Software Pricing Partners

By John Lipsey

The software industry is rapidly changing and becoming more commoditized.  In a mature marketplace, software vendors must be more creative and innovative in product pricing and packaging in order to differentiate and gain competitive advantage.  Packaging features and functionality in new and creative combinations enables vendors to deliver additional value and capture new revenue streams.  Indeed, flexible packaging, software licensing and entitlement models are key to giving software vendors the upper hand to act and react to changing product and pricing sensitivities. 

In this video, Jim Geisman, president and founder of Software Pricing Partners, discusses software licensing, pricing and packaging best practices software vendors should adopt in competitive markets.

Watch the Software Pricing and Packaging Best Practice Advice from Software Pricing Partners Video

  

Jim Geisman, President and Founder, Software Pricing Partners

User Centric Computing: Implications for Software Licensing

By Bashyam Anant

Over the past year, there has been an increasing buzz around User Centric Computing, especially in the enterprise IT context. Very little has been written about what this trend implies for software publishers. This article will demystify User Centric Computing as it relates to its impact on software licensing from the perspective of software publishers.

What is User Centric Computing? Unlike IT's traditional "device-centric" approach, user-centric computing is all about providing business users with a seamless and personalized experience of all their applications regardless of their device, location, operating system and network connectivity. Enterprise IT benefits by being able to secure and manage users and their environments centrally. As pointed out in another blog "Getting Started with User Centric Computing" -- user-centric computing gives users control of their computing experience, providing them with access to any combination of computing environments, applications, settings, and data from any location or device.

 The ingredients of a User Centric Computing solution include[1]:  

• An approach to managing user preferences, data and user-specific applications. User Experience Management Solutions such as AppSense meet this requirement.
• An approach to delivering applications provisioned by users' IT departments. Application Virtualization (e.g. Microsoft App-V), Remote Desktop Services (e.g. Citrix XenApp) and Virtual Desktop Infrastructures (e.g. Citrix XenDesktop) are broad categories of solutions targeting this requirement.
• An approach to managing the end user's computing environment, when applicable. Note that with enterprises allowing users to "Bring Your Own Device", corporate IT may not actually be responsible for managing the end user's computing environment. This requirement is met using the management framework of a Virtual Desktop Infrastructure solution.

From a deployment perspective, User Centric Computing involves the creation of a bundle of applications on a central server and delivering them to users using an application delivery approach listed above.

Implications for Software Licensing – If you are a software publisher, User Centric Computing will require you to:

Evolve your licensing approach: If your current software licensing approach is tied to a device, it has to change, by definition, since user-centric computing un-tethers users from their devices. If you use some form of concurrent licensing, that too needs to evolve to account for off-network use of applications as well as situations where the same user consumes your application from multiple devices. In either case, licensing metrics and approaches should align with users (e.g. licensing based on named users) of the application rather than devices or instances of your application.

Consider usage-based monetization (versus license enforcement): As enterprises expect a seamless application experience for users across diverse environments, they will not want license provisioning to get in their way. At least some enterprises will push publishers for usage-based licensing approaches (versus license enforcement). Besides, license enforcement based on device attributes will just not work in solutions such as Virtual Desktop Infrastructures as machine virtualization is at its core.

Provide centralized administration for entitlements and licenses: Centralized administration of users and their computing environment is a key aspect of User Centric Computing. Needless to add, we will see enterprises pushing their software publishers to provide tools that help them administer entitlements and licenses in a consolidated fashion across all their products and eventually, across multiple publishers.

[1] Source: "User Environment Management: Smackdown", PQR, http://www.virtuall.nl/download-document/user-environment-management-uem-smackdown

All The Hype Around SaaS and Subscription = CONFUSION!

By Mathieu Baissac

Recently I had a call with some folks who were responsible for process improvements in the company's "Quote-To-Cash" processes. They work at a very large software/hardware producer (household name withheld). They asked all kinds of questions, including: 

• "When is this SaaS stuff going to be mainstream?"
• "When do I need to get ready for generating phone-bill like invoices in any large amount?"
• "When is this subscription stuff going to get real (in a meaningful way)?"

The most senior person said, "There is so much buzz—I don't believe any of it."

I then came upon an article in Forbes – The End of ERP – from the CEO of Zuora, Tien Tzuo. The article has statements like "ERP – enterprise resource planning software – is on its deathbed" and "A moment of silence for ERP." As someone who has implemented ERPs for many years, in many countries—for different types of companies—I started laughing.

His point…  I'm referring to the shift we are experiencing away from a 20^th century product-based, "buy once" economy to a 21^st century services-based "Subscription Economy" centered around recurring customer relationships… Is potentially correct, but it doesn't mean that ERPs are going away.  ERPs run manufacturing floors, maintain financial books, track purchases, etc. Those aren't going to go away just because we're moving to a "subscription economy."

So back to those process improvement folks. What are they supposed to think about this article? They're going to just chuck it to "more buzz" and choose to ignore it. That doesn't help us – the subscription economy is growing and ERPs are here to stay.

By the way, my answer to them was, "You have a while before SaaS and Subscription revenue becomes a large percent of your revenue, but since it's so transformational and affects so many areas – you'll need to start investigating now!" and "We can help you."

View the recent 2011 Key Trends in Software Licensing and Pricing webinar with Amy Konary from IDC for more information on transformational technologies you need to be prepared for.

The Next Evolution of Software Licensing: Monetization of Usage Data

By Tu Le

As more companies (both software publishers and intelligent device manufacturers) move towards virtualization, software licensing is evolving from on-premises licensing models—concurrent, node-locked, perpetual, etc.—to monetization software license models based upon usage data—pay-per-logon, pay-per-use, pay-per-period, etc. The market trend for 2012 and beyond labeled as "adopting Cloud" is becoming more mainstream and ubiquitous because, in the past 5 years,  virtualization technology has transformed datacenter computing from physical to virtual.

As software licensing models slowly, yet surely evolve to the Cloud eco-system world, it is important to understand the need for a similar evolutionary process to happen as it did for datacenter computing. Today, traditional software license models rely solely upon the ability to uniquely identify and enforce to machine parameter(s). For example, if you bought Microsoft Office, you had the right to install and run that application suite on one computer. The ability to identify a physical machine in order to enforce license rights is then critical to preventing license leakage. Now, with the ever increasing use of virtualization technology, it has become impossible to uniquely capture the true identity of a machine.

As the next platform combination of application and smart device become more reliant upon the Internet to becoming "Cloud ready," the amount of usage data will increase exponentially. Everywhere we go, we leave behind bread crumbs of data, which are knowingly being collected by Apple and Google for future market research. Whether it is shooting angry birds, rotating color shapes to create the biggest combo break, furiously slashing fruits, or tapping on an ad, data is being created and stored.

A study from Cisco Systems on Visual Networking Index: Global Mobile Data Traffic Forecast Update, 2010-2015 revealed that usage data from consumers to enterprise applications is driving the traffic of the Internet. For example, total raw byte transmission throughput is on average between .24 exabytes (1EB is equivalent to 1,000,000 terabytes) per month today and expected to grow to 6.3 exabytes by 2015 – a 26-fold increase over 2010. A majority of this usage data contributed is from the advancement of embedded and software applications.

The future trend suggests more companies will be looking beyond the traditional software licensing models to help grow top-line revenue and to reduce revenue leakage. Various usage models from per user, per storage capacity, or per throughput, are unfolding in new products and services every day.

Check out these related blogs on virtualization, cloud and usage data models and trends:

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

• Virtualization is the Biggest Game Changer in Software Licensing in Many Years

• Think Monetization Before Enforcement with Subscription Software Licensing Models

• True Pay-As-You-Go Software Licensing Model – Myth or Reality?

• Ready, fire, aim. Full speed ahead with virtualization.

What's your Cloud strategy? Are you monetizing data usage? What business models are you using to create more recurring, predictable revenue streams?

Usage-Based Licensing without Usage Data – Is it Possible?

By Mathieu Baissac

If you are like most software or intelligent hardware companies, you are either offering or seriously considering licensing your products on the basis of usage. Sure, for most, perpetual licensing will not disappear anytime soon, but market forces and the long-term financial performance of your business make usage-based licensing inevitable and desirable.

So what is the definition of usage-based licensing? IDC defines usage-based licensing as:

Usage based pricing/ Pay-per-use (PPU) software pricing provides enterprises with an annuity license model where cost is based on metered use of a software resource.

• Cost is determined by a periodic measure of resource utilization
• An agreed upon metric is used as a proxy for value, and a system or process is put in place to track usage of that metric
• Cost scales up or down according to resource utilization.

Other features of a PPU pricing model can include an up-front flat-rate charge and the possibility of fees/rebates associated with over- or under-utilization.

Is that how you think of usage-based licensing?

Why Enterprises Want Usage-Based Licensing
Enterprises are asking more and more frequently for a "pay for what I actually use" model. They want to be able to use any product, at any time, as much as they want (little or large), whenever and wherever they need it without having to pay for software or hardware that they don't use. Publishers are looking to meet these requirements with "usage-based" licensing. From an enterprise perspective, the value is obvious: no shelfware. Of course, the enterprises don't want "surprise" bills – and consequently "usage-based" pricing will need to have predictability in them (see True Pay-As-You-Go Software Licensing Model – Myth or Reality? on this topic). From a Publisher, the value is more subtle and subject to a future article.

Why Vendors and Enterprises have Traditionally Stayed Away from Usage-Based Licensing
For the vendor, updating their software to generate usage data and developing the infrastructure required to process that data is a difficult undertaking. In addition, the reality is today some enterprises are not willing to let vendors collect and process product usage data. With that said I have seen and talked with a lot of enterprises that are open to sharing the usage data as long as it is aggregated and anonymized, so I believe this objection will become less important for the enterprise.

Can You Offer Usage-Based Pricing Without Collecting Usage Data?
I believe the answer is "Kind of…but not really." So what do I mean by that?

Until there is a solution for on-premises software that (1) allows collect ion of any amount of usage and (2) shares it with the vendors (as the SaaS offerings do already), vendors are really not able to offer "true" usage-based licensing. However, some vendors have simulated usage-based licensing by implementing models where (1) the data collected must be the minimum necessary to support the usage-based "like" model – no more and (2) the data is not sent from the enterprises' facility.

Some software vendors use token models – where, instead of providing fixed configurations of product, time or consumption, each product and usage parameter combination consumes a fixed, predictable number of tokens that enterprises can track and periodically replenish. Solutions like this have been in practice in the technical EDA software market over the past 12-15 years. Again, these usage-based "like" licensing models are in place today and enable vendors to offer products the way enterprises want to buy them. So, you may be asking yourself, how does the token model work?

1. Instrument your software or hardware with electronic licensing that includes the ability to draw down a token based on the primary model parameter(s) – start and end dates for time-based, disk space utilization for storage, bandwidth or channels for networking, etc.
2. Provide your enterprises the ability to efficiently request, activate and account for token use. For example, given prior contractual and purchase agreement, your enterprises can access a web site to request a specific configuration of licenses of different types and granularities, quickly activate those licenses and keep track of expiration dates and accumulated expenses. This web site couples an entitlement management solution with a billing system.

Another approach is to use a draw down token. For example, I've talked to a vendor who wanted to do "500 minute cards". The application would track the minutes and decrement until there is no more using our software.

You can simulate "usage-based licensing" without having to collect anything from the enterprise's site—a viable solution for some, but not a "true" usage-based licensing model.

What are your thoughts on usage-based licensing? How do you define it? Are you offering "true" usage-based licensing?

Software Licensing Implications of Moving Applications to the Cloud

By John Lipsey

The Cloud is one of the biggest trends occurring on the IT landscape – and it is accompanied by tremendous opportunities and challenges.  As companies move their applications to the Cloud they encounter politics around pooling and sharing of resources; fear of giving up control and software licensing challenges.  But as expertise grows, best practices are emerging for a formulated approach to the Cloud. Key steps include planning, design, delivery, assurance, delivery and optimization.

In this video CA Technology’s vice president of strategic solutions, Andi Mann, discusses the challenges organizations are facing as they migrate to the Cloud, and the best practices that are prerequisite to success.  Critical in all of this is software licensing, and the need for understanding what licensing flexibility is required to enable safe, secure and compliant Cloud migrations.

 

Andi Mann, Vice President of Strategic Solutions, CA Technology

The Software-Driven Transformation of Intelligent Device Manufacturers—A Teachable Kodak Moment

By Bashyam Anant

As someone who gets lost almost daily, I felt it was time to get a GPS device. I asked around for suggestions - almost everyone recommended that I get a smartphone (like an iPhone) with a GPS application. I was surprised that no one recommended purpose-built GPS devices from Garmin or Magellan. Later in the day, I came across "When Tactics Become Strategies: Lessons Learned from the Kodak Camera Exit" (Christopher Chute, IDC, February 2012). This research note describes why Eastman Kodak decided to exit the digital camera market after nearly a decade of investment and patches of market success. The dynamics of many device markets are changing rapidly as exemplified by GPS devices and by Kodak. Intelligent device manufacturers would be well-advised to re-think business models and strategies to survive and thrive as we discuss below.

Before we go on, some background on Kodak. Kodak invented the digital camera in 1975. In the past decade, Kodak powered digital camera innovations. Kodak EasyShare was an "inexpensive digital camera with a docking station that would drive a simple PC application once plugged in, allowing consumers to store, email, print, or upload images to its Kodak Gallery online service" (Source: IDC). EasyShare One was among the first WiFi-enabled digital cameras with a touch screen. Kodak also drove price points below $100. These innovations made Kodak the top-selling US digital camera brand in 2005.

How is it possible that Kodak went from such heights to exiting the business in February 2012? IDC's article provides some clues. Kodak focused almost exclusively on compact digital cameras (or "Built-In Lens Cameras"), which account for 87%^[1] of digital camera shipments. Compact digital cameras are a mass-market product compared to "Interchangeable Lens Cameras".  Cheap cameras were part of Kodak's DNA. In fact, Kodak had invented "throwaway cameras" decades earlier and had sustained that business through photo printing and film roll sales. Kodak had banked on digital cameras driving growth of photo printing equipment and services where Kodak dominates. However, consumers, as it turned out mostly shared (via social media and mobile phones) rather than print digital photos. This meant that the promise of photo printing volume and revenues never materialized. Combine that with cameras under $100 by themselves being not too profitable and Kodak had no choice but to exit the market.

While the full story is probably far more complex, we believe that Kodak has important lessons for all device manufacturers. One trend that all manufacturers should be aware of is the increasing preference for multi-function devices over purpose-built devices. In fact, growth of compact digital cameras, which Kodak focused on heavily, is being stunted by camera-enabled smartphones (which also facilitate consumer's desire to share images). At least some consumers prefer a multi-function smartphone over purpose-built digital cameras. Not surprisingly, CIPA^[2] notes that unit shipments for compact digital cameras in 2012 will decline compared to 2011.

The only way to cope with multi-function devices is to become a part of that ecosystem. What if Kodak had come up with a way to deliver digital camera capabilities as pure software that could be embedded into smartphones? Besides addressing its profitably issues, such a strategy would have opened up a much larger market. The implication of multi-function devices is that device manufacturers need to stop thinking about the device form factor as the only way to deliver value and think of ways of expressing device capabilities as software. Forward-thinking device manufacturers are already doing this in both the consumer and industrial device markets. Garmin and Magellan sell GPS capabilities as devices as well as iPhone and Android apps in the consumer market. Citrix NetScaler is an early example of a datacenter device that is also available as pure software.

A software-based strategy, such as the one implied by multi-function devices, also requires device manufacturers to re-think business models. Kodak seems to have fixated on selling cameras and related equipment and services as the only way to make money. In our experience, manufacturers similar to Kodak are re-vamping their monetization approach as well. For example, a maker of cameras used for industrial applications (e.g. building security) charges for analytics enabled by their cameras. For example, their software can alert building security if there is sudden activity in a given area of the building. They also charge more for High Definition features compared to Standard Definition features.  

Other articles in this blog cover more strategies to drive a software-driven transformation of intelligence device manufacturers.

^[1] Source: "2012 Outlook on the Shipment Forecast by Product-Type Concerning Cameras and Related Goods", Camera & Imaging Products Association (CIPA).

Why SaaS Software Needs Licensing Too

By Mathieu Baissac

SaaS software is often seen as the panacea that simplifies all licensing terms and agreements—except, it's not true.

As the product manager of an enterprise back-office product that was sold as both an on-premises and SaaS solution for more than 10 years,  I worried about licensing all the time:

• Our back-office solution was sold as modules and we used software licensing to turn on/off the modules.
  • Our solution was worth $100s of thousand—it was critical that we protected our software IP from piracy and overuse
  • We wanted to create just one code base—yet it was important for customers to only see menus for features they had purchased and not see those they had not purchased
  • We changed our module definitions every 2-3 years—we needed to make sure customers had access to the right modules as they were redefined
  • We often previewed a new capability to a particular customer—we needed to provide the customer the ability to try it out before release for a limited time and give feedback

  These are all licensing issues.

• We offered different meters on our price list which customers could select: # of particular transactions, dollars processed, # of users, # of gigs downloaded, etc.
  • We added new meters over time
  • We switched customers from one meter to another
  • We captured enough information and displayed it to them to "prove" our invoices were correct

  These are all licensing issues.

I'm sure we could have handled all these situations as one-off licensing issues, as they came up—instead, we choose to implement intelligent licensing. By "intelligent licensing" – I mean that we could change licensing behavior (items above):

• without changing code
• as an operational process instead of a technical/engineering process
• in a few minutes
• without huge overhead in our code

As traditional software producers will discovery quickly when they get into SaaS—they're going to need software licensing for their SaaS offerings—just like they did for their on-premises solution.