Entitlement and Compliance Management

Why Put Licensing In Products At All?

By Mathieu Baissac

I often get asked – Why put licensing in software products at all? What’s the business value?

My answer typically includes:

Software licensing...

• Enables new pricing and software monetization models
  • Allows publishers to implement a variety of different models such as  rentals, floating/ concurrent, pay-for-use, pay-for-burst, automated true-up
  • Enables the slicing and dicing of the application without changing code--creating editions, turning on features, enabling capacity, etc.
  • Enables flexibility, allowing publishers to charge differently by geographies and by markets
  • With software licensing, enterprises can buy the “Hugo” version if they can’t afford the “Cadillac” version and then upgrade and subscribe to the “Cadillac” version for a 6 month project
•  Helps keep honest customers honest
  • As a user, if there is licensing in the product, then it’s the publisher’s responsibility to ensure that I’m compliant
  • As a publisher, if there is licensing in the product, then I’m pretty sure that my customers aren’t accidently getting out of compliance

Given that more than 20% of enterprises state that they only used manual methods or no methods to track compliance in an IDC 2011 survey, we know that enterprises can use some help.

• Helps secure trials
  • Enterprises can try out new software
  • Publishers can provide trials securely
•  Captures contact information
  • During the activation process publishers can capture end customer contact information – typically these folks are closer to the real users than the purchasing agents captured during order management
  • Helps with upgrade notifications, product-specific notices, etc.
• Allows publishers to standardize hardware
  • Device manufacturers can standardize on the same hardware but use licensing to turn on/off different capabilities and capacities
  • Helps reduce manufacturing costs (passing on the savings onto customers)

What’s your perspective? Why do you put licensing in your products?

Software Defined Data Center – Step Towards Utility-Based Business Models

By Ripin Checker

The latest buzz at VMworld 2012 has been about the software defined data center (SDDC). Here's a recent informative blog from Steve Herrod, CTO of VMware, who discussed this in his keynote address at the conference. It's an interesting time right now, as the whole definition and role of networking is being redefined in the data center. In my previous blog—Software Defined Networking Enables New Software Licensing and Business Models, I highlighted some of the trends, technologies and companies that are driving this change.

Using the Gartner Hype cycle methodology, I put the SDDC solution somewhere between the "Technology trigger" and "Peak of inflated expectations" phases. In order to reach the "Plateau of productivity" phase, the intricacies (business and technical) between the players in the data center value chain need to be carefully determined.  Some of these intricacies that need to be resolved, not in any particular order, are:

• Product/Solution offering, differentiation, interoperability and fit in the SDDC
• IT management and service delivery in a very simple, flexible and agile way
• Holistic solution for new and existing use cases that can be handled by the SDDC
• New business models for consumption of services offered/hosted by the SDDC

The different players in SDDC must also be understood:

• Infrastructure vendors:   Provide compute, storage and networking products and solutions. Most of these providers also offer management solutions for infrastructure and service delivery. Some of the companies that come to mind are Cisco, EMC, VMware, NetApp, HP, Dell, Citrix, Intel, etc.
• Providers of service: Enterprise IT organizations or service providers that provide services for computing, storage and networking. Companies that fit this definition would be IT organizations of fortune 500 companies with their own data center offerings, as well as and  service providers like ATT, Verizon, Vodafone, Google, Apple, Facebook, Amazon AWS, and Rackspace.
• Consumers:  Enterprise employees, Enterprise/SMB companies that buy services from providers or end users that buy service from the cloud. Examples are anyone consuming digital content for a personal or business purpose over the cloud.

Looking at the players discussed above, there are two segments where I believe business model alignment is needed for SDDC to cross the chasm and reach mainstream in the market.

1. The first is the alignment among the different players in the "providers of service" value chain regarding the way services are offered and priced.
2. The second is the alignment among the "infrastructure vendors" with respect to  the pricing of their products and solutions

This second aspect of business model alignment was reflected on at VMworld 2012, focusing on VMware's licensing and pricing changes for VMware vSphere 5.x.  One big change that was driven by customer feedback and competition from Microsoft Hyper-V was the cancellation of the vRAM licensing metric.  Customers did not appreciate the "pay-as-you-grow" for memory based hypervisor pricing. The lesson learned is that the procurement and consumption model has to be clear, simple, and work seamlessly across the supply chain and multiple routes to market.

Therefore, the ultimate nirvana for SDDC will be when there is perfect alignment between the pricing of the service (compute, storage, network) being consumed and the pricing of products from the infrastructure vendors that make up the SDDC.  My observation is that service providers (IT organizations that want to offer a charge back mechanism to different departments or commercial service providers) should look at utility-based pricing models similar to those offered by Amazon Web Services (AWS). Another opportunity is to leverage learning from other industries, specifically utility companies like PG&E or Santa Clara water district. To help further the alignment, infrastructure vendors should pay attention to the increasing shift from hardware-based to software-based pricing models, along with introduction of new software licensing metrics like usage-based pricing.

At Flexera Software I have the opportunity to discuss new software business models with leaders at many of the companies that have or are developing products for the SDDC. I am curious to know your thoughts on how SDDC will bring new business models to the market.  Please drop me a line with your suggestions and comments.

Related Usage-Based Licensing and Pricing blogs:

• Overcoming Software Usage, Licensing and Compliance Management Challenges
• Usage-Based Licensing without Usage Data – Is it Possible?
• The Next Evolution of Software Licensing: Monetization of Usage Data
• True Pay-As-You-Go Software Licensing Model – Myth or Reality?

Are you at WMworld? Stop by booth number #2507 and let's chat!

If NASA can update the Mars Rover software, publishers should update their software too!

By Bashyam Anant

In a recent Wired article, NASA Pulls Off 160-Million-Mile Software Patch we learned that NASA had carried out a 4-day software update process for the software powering the Mars Curiosity Rover. According to the article, "the software required to help Curiosity land on the surface of Mars and the software it needs to drive around and avoid obstacles is completely different. Curiosity's hardware is pretty modest…it didn't have enough memory to hold the software for both the landing mission and the surface mission, so the software had to be swapped out remotely after landing." The article also explains how the NASA team carefully orchestrated the update process over 4 days and 160 million miles to ensure that the software update did not render the Rover useless.

NASA clearly has a sophisticated software update strategy. What are other software producers and device manufacturers doing to deliver software updates to end users? About 100 such publishers responded to our survey on this topic.

As the graph below shows, 12% of respondents do not produce software updates at all. Rather, they ship a full software release to address bugs and deliver enhancements for their products. We suspect that these respondents produce software which is updated infrequently or software for which the downtime associated with re-installing software is not an issue.

How do end users update your software today?

(N = 100)

 

 

47% of respondents deliver updates using rudimentary software download sites. These publishers are expecting end users to diligently check for software updates on their download site, make sure they find the correct software update for their product and version and be sure to install them. In short, these publishers are signing up for avoidable support calls and costs - a large fraction of support calls that publishers handle are eventually addressed by a software update. Clearly, an automated software update approach that delivers the right update to the right end user in a proactive fashion would avoid these costs. 17% of respondents and NASA got that idea – however, by building a homegrown solution for automated updates, publishers are veering into capabilities that are not their core competence.

Learn more about the software update process: Software Updates and the Customer Relationship – Eight Issues That Impact Retention, Profit and Your Ability to Compete

Growing Number of Software Vendors Focusing on the Chinese Market

By Mathieu Baissac

I recently had the opportunity to sit down with one of our partners and they shared the following…

Between Jan-11 to Oct-11, the software industry (including intelligent device manufacturers) generated total revenue of 1.497 trillion Yuan ($237B), an increase of 32.9%; and export value grew by 14.9%. According to industry findings and predictions, China's software industry revenue will exceed 4 trillion Yuan ($635B), an average annual growth of over 25% and export value will exceed 60 billion Yuan ($9.5B). The Chinese government will also continue to introduce relevant policies to encourage the development of software companies. China's software industry will continue to maintain a steady growth trend over the next few years.

And, according to IDC – this market is very internally market-focused:

More than 90% of the ISVs develop software products for the Chinese market and the Chinese government is encouraging Chinese ISVs to export their developed software products overseas. It is expected by 2015 that the exportation rate will account approximately 10% of the whole software industry. (IDC 2010)

Recently, I’ve spent a fair amount of time traveling to China to talk to these producers (3-4 times in the last 2 months). During these visits, I would present “why do licensing” (the slide deck I would typically show in the US/EMEA) – and in China I usually got these reactions:

• using licensing to monetize features – blank or bored looks
• using licensing to identify customers, and customer use – blank or bored looks
• using licensing to control/sell upgrades – blank or bored looks
• using licensing to enable new capabilities in hardware – blank/semi-bored looks

And invariably – in the Q&A section, I would get grilled with the one question “how do we prevent customers from stealing our product.” And it wasn’t good enough to just say “oh-that’s what licensing is all about.” The questions would go into deep technical areas around “how do you prevent them from”:

• generating their own licenses
• removing the calls in the application that check for licenses
• playing with clocks to get trials to work for long time
• modifying the licenses so that they convert trial/termed to new dates
• making licenses and using on another machine
• etc.

These conversations reminded me so much of the conversations in the early to mid-1990s with US-based software producers.

China—welcome to Software Licensing! Learn more about our approach to Piracy in the following posts:

• The Hidden Truth about Application Security: There are No Shortcuts
• Tamper Resistant Code Helps Thwart Software Piracy
• Virtualization is the Biggest Game Changer in Software Licensing in Many Years

Rest of world: if that’s China’s #1 question and you want to sell your solutions into China or other similar countries – see these same links. You’ll need them for a while.

The Year of the Ecosystem – Leveraging Software for Competitive Advantage and Revenue Growth

By Tu Le

Apple's ecosystem of software and hardware from iTunes to the iPhone has drastically changed the market landscape and it reflects significantly back on their corporate profits. Today it is not just about delivering a great product; to succeed you need to be innovative. In fact a great product may not even be necessary, but rather, what matters most is delivering a complete solution that is aligned to a powerful ecosystem.

In the past, many technology companies focused their efforts and success on product capabilities such as product features, branding, manufacturing, distribution, etc. to deliver the best product to the market. In contrast, today successful corporations such as Apple, Google, and Microsoft are all focusing on providing their own version of a single ecosystem that delivers the best user experience and solution through both product and service innovation.

This shift from product to solution matters to everyone, as we can see from the success of Apple's iTunes to iDevices—the masses want more than just a product and they are willing to pay a premium for access to the widest variety of media and software applications and they want an excellent user experience. Microsoft is another example where they are making some major product changes and shifts in strategy to accommodate a single "Windows" ecosystem – from PC to mobile to entertainment. What this means for the general consumer is s/he would be able to buy or consume any applications and services that can be used across all of Microsoft platforms – from Windows phone, to Windows PC, to Xbox.

Like Apple and Microsoft, here at Flexera Software we work continuously with software vendors and intelligent device manufacturers that are making the transition from product-centric to solution-centric offerings. Helping them establish profitable ecosystems that deliver a unified and excellent user experience. Helping them monetize and license their software and devices while supporting the complete application lifecycle—from initial purchase to download to installation to usage to updates and on through renewal—with powerful back-office entitlement and device lifecycle capabilities.

Related Blogs: 

• Subscription and Pay-As-You-Go Software Licensing Models Better For Accommodating Peak Demand
• The Software-Driven Transformation of Intelligent Device Manufacturers—A Teachable Kodak Moment
• Supercharge your Software Licensing Revenue & Digital Goods Revenue Streams
• We Couldn’t Agree More, Mr. Andreessen!
• New IDC Report Highlights How Licensing Helps Intelligent Device Manufacturers Generate Revenue from Embedded Software

 

Intelligent Hardware Manufacturers That Successfully Release Their Inner Software

By Michael Costa

I’ve met with a number of intelligent device (hardware) manufacturers recently. Many of them are getting very serious about bolstering their software business. To some, it’s a key growth strategy and for others it’s about survival. A big part of their R&D budgets are being spent on software development – sometimes more than half – and yet software revenue is paltry by comparison. With software gross margins typically 80% or more, and hardware margins shrinking steadily, few can continue to ignore creating a bona fide software business. Realizing that the software component of the overall system is undervalued is one thing, but doing something about it, even for world class hardware companies, is usually a challenge. Most need software operational expertise that they don’t usually have on hand. Some of the areas that need attention include:

• Aligning business needs to the software lifecycle

• Establishing a comprehensive software licensing and pricing strategy 

• Coordinating product structure to support packaging, up-selling and cross-selling

• Defining compliance and enforcement for customer categories, regions and product types

• Defining the prospect-to-support processes with seamless integration of customers and partners

• Integrating back office systems to create a great, self-service experience for customers

These areas might seem difficult, but there are subject matter and transformation experts like Flexera Software that can help to quickly address them. There is one other area that almost always overshadows all others – software governance. All of the areas listed above are vital and the transformation can’t succeed without addressing all of them, but they’re all for naught without adequate software governance.

Software governance is a cross-functional group of leaders in the company that manage the end-to-end software lifecycle – the development, implementation and management of the policies and processes associated with the operational aspects of a software business. Some traditional software companies don’t practice software governance very effectively, and they suffer for it. But for traditional hardware companies trying to monetize their software assets, governance is critical. Good software governance consistently differentiates those hardware companies that successfully realize a thriving, high margin software business from the ones that take their customers through an unfortunate series of trials and errors before giving up.

It takes a village. The software governance team represents many of the functional groups in the company – engineering, product management, sales, marketing, operations, IT, order management, finance, legal, partners and customer support. There’s no need to employ a large team, as long as the functional areas are covered. This group needs to be empowered to represent the interests of their respective functions – developing, reviewing and making decisions about policies and processes, managing the day-to-day implementation of those policies and processes and actively participating in exception and change procedures. This group owns the operational success of the software business – they’re empowered and accountable.

Software governance is vital because all functional aspects of the policies and procedures must be comprehended throughout. Any functional element that isn’t included causes the inter-dependent system to breakdown in the functional area that isn’t represented. Having represented functions make decisions on behalf of unrepresented functions is almost always a recipe for disaster. In some areas, depending on the policy and process involved, one unrepresented function can detrimentally impact the viability of multiple dependent functions.

At Flexera Software, we’ve observed an easy way to determine if software governance does not initially exist in a company. When we work with customers to perform an Entitlement and Compliance Management Assessment Overview – a best practice sharing and improvement opportunity workshop, that helps intelligent device manufacturers improve business growth, operational efficiency and the customer experience – most/all of the customer personnel that attend introduce themselves to one another for the first time. Fortunately, most of them go on to become the initial Software Governance Team as illustrated in Figure 1 below.

Figure 1: Establish Central Governance and Processes with Cross Function Participation

Related Topics – Webinar: Creating Customer-Centric and High-Performance Entitlement Management – learn how to maximize the revenue from your digital goods

Integrating Entitlement Management into Your Existing IT Infrastructure

By Brent Pietrzak

Most software producers already have systems in place to address Customer Relationship Management (CRM), financial management (ERP), and Product Lifecycle Management (PLM).  The PLM system assists the senior vice president of products in creating and bringing to market new products and product releases.   These product releases become available within the CRM system to address the needs of the sales organization and leadership to track accounts, opportunities, and campaigns all in an effort to generate bookings.  The financial management system turns the bookings information into revenue and balances the revenue against expenses to meet the needs of the CFO capturing entitlement information at a point in time.  

All of these systems are very good at doing what they were designed to do but none of these systems is responsible for capturing and managing the lifecycle of a software entitlement. For example, the purchase of additional quantities of software licenses or units is only ever captured in the financial system as an add-on event and is typically not correlated to previous purchases.  Likewise, trial software entitlements are often only originated from the CRM system without close ties to what has already been purchased and the conversion of the trial is not captured in the financial system—only the fact that the sale has occurred.  Similarly, the PLM system tracks products and the relation to specific releases of the product but not what versions of the product a specific customer is entitled or the relation of those versions to a customer's maintenance payments.

The right Entitlement and Compliance Management solution brings together the information from these three systems into a central location to help producers:

• Speed revenue recognition – the right Entitlement and Compliance Management solution supports the distribution of products and software licenses in an automated and seamless manner so that products and software licenses can ship until the end of the quarter, expediting revenue recognition via integration with the financial system.
  
  
• Reduce customer support costs – your Entitlement and Compliance Management solution should centralize the management of customer products and software licenses, regardless of the underlying software license generation technology, allowing customers to self-manage product versions and the associated licensing of the versions reducing the need for customer support intervention.  This is typically accomplished via integration with an existing customer support portal.  
  
• Increase sales conversions – the solution should seamlessly integrate with CRM systems such as salesforce.com to facilitate the downloading of trial products and proactively facilitating the exchange of key data between the prospect and account manager during the trial period.
  
  
• Improve renewal rates – your Entitlement and Compliance Management solution should centralize and track the order information from the financial system creating a holistic view of the customer's software entitlements and subscriptions, allowing the renewals team to become proactively aware of expiring licenses and subscriptions.

Managing software entitlements is difficult.  There is a lot of information that is constantly changing as applications move through their natural lifecycle.  An Entitlement and Compliance Management solution integrated into your existing IT infrastructure brings all of the relevant information together across this lifecycle to both enhance revenue generation and streamline internal operations.