Entitlement and Compliance Management: Talking Successful Software is a software licensing, device lifecycle and entitlement management resource for software vendors and high-tech manufacturers.
Over the next several weeks I will be posting a series of blogs on software license compliance management, including:
Part 1 – Why Software License Compliance Management Matters Part 2 – Pros and Cons of Traditional Compliance Management Approaches Part 3 – Impact of Technology on Compliance Management Part 4 – The Increasing Complexity of Software Licensing Part 5 – The Growing Trend towards a Trust but Verify Compliance Management Approach Part 6 – Revenue, Trust, and the Customer Experience
Part 1 – Why Software License Compliance Management Matters
In 2011 IDC pegged the global packaged software market at $325 billion. At the same time, the 2011 BSA Global Software Piracy Study found well over half of the world's personal computer users—57 percent—admitted they pirate software. In fact, the commercial value of pirated software climbed from $58.8 billion in 2010 to $63.4 billion in 2011. Clearly application producers have a lot at stake when it comes to software license compliance management.
Business Relationships Depend on Trust between Buyers and Sellers The software industry has historically struggled with trust as it relates to the exchange of fair value. Many enterprise companies find themselves with unintentional overuse despite their desires and best intentions to avoid it. Regardless of the reason, piracy or unintentional overuse of software costs application producers billions of dollars annually. It's also a problem for corporate users who need to comply with contract terms as a matter of business ethics and compliance with corporate governance guidelines.
Selling and Monetizing Software with Licensing
Application producers provide the customer with an application based on an understanding of how the customer will be entitled to use that product across the organization. Application producers typically enforce how the product will be used with a licensing model that protects and monetizes their IP. Over time and depending on the markets and segments the producer serves, the producer may adapt a different licensing model based on changing customer needs or they may choose to adopt multiple licensing models.
Getting Software License Compliance Management Right Is Difficult The reality is that those companies that get compliance management right are able to optimize revenues while delivering an even better experience to their customers. And those that don't, risk losing revenue and alienating their customers in the process.
Next Time: Part 2 – Pros and Cons of Traditional Compliance Management Approaches
In Part 1, I talked about the imminent transformation of business models in the automotive industry. In Part 2, I will focus on strategies for growing revenue.
Ford Sync illustrates several strategies to grow revenues from a "platform + apps + services" approach. First, a single software product can be sliced and diced based on software features to create packages targeting specific consumer segments. This helps Ford create Sync offers at different price points based on customer need and willingness to pay, without having to incur manufacturing costs for a specialized hardware model for each need. For example, the "wifi hotspot" is available in one package but not in others. Simply put, this allows auto manufacturers to generate revenues from customers that care about such features without having to manufacture a hardware model. Second, you will note several services bundled in Ford Sync, some thrown in as part of a package while others that require a subscription. For example, vehicle health reports send engine diagnostic information to the Ford portal – this service included in all packages. Personalized traffic alerts and satellite radio, on the other hand, require a subscription plan. Lastly, features like HD Radio mimic iTunes in the sense that they use a "pay per song" model.
With such a "platform + apps + services" model in place, an auto manufacturer's revenue possibilities are really up to their imagination. For example, for consumers that don't want to pay for a monthly subscription for navigation services, they could offer the option to activate navigation maps of a particular region for a short duration just for the weekend. For entertainment, they could offer movies or video games for rent for the duration of a long trip. Auto manufacturers can also dream up additional services to deliver via the platform. Such as storing a vehicle's maintenance history in the cloud and making it accessible to a new owner should the vehicle change hands. Just like General Electric's TRUEngine program which helps GE engine owners "maximize your asset's marketability and ensure it receives the full range of GE's world-class support. Through our online TRUEngine database, appraisers and buyers can quickly confirm an engine's qualification status by Engine Serial Number (ESN)." Another example: Ford has partnered with an auto insurance provider to track and transmit mileage data which can result in better insurance rates for drivers[i]. Besides providing endless monetization opportunities and lots of recurring revenues, such imaginative services also grow customer loyalty, not just for the auto manufacturer but also its ecosystem, such as the Ford's insurance provider partner.
Like Ford, the electric vehicle segment has already embraced many of these ideas. Electric car manufacturers like BMW have partnered with car charging networks like Coulomb Technologies. The dashboard of these cars feature services such as showing drivers maps of charging stations and the ability to reserve a charging spot in them. Like roaming user profiles in the desktop and smartphone world, we conjecture that in future drivers would be able to record and store their driving profiles in the cloud and download them to any vehicle they happen to drive. Imagine logging into any car, and when you do, your seat adjustments, thermostat settings, favorite radio channels, games and more would be available.
It should be obvious by now that ubiquitous Internet connectivity of cars is the key enabler for "platform + apps + services" models. As Gartner[ii] points out, "A connected vehicle experience provides the opportunity to move beyond a vehicle-sale-centric business model and toward a variety of monetization opportunities focused on the sum of the automobile ownership, driving experience and user-related aspects."
We see a tremendous opportunity for automotive manufacturers to grow revenues by transitioning to software-driven businesses. The remaining question is how one goes about it. In our experience, a software-driven business transformation will require auto manufacturers to:
Re-think product packaging and business models based on how consumers want to use cars and related apps and services. As the Ford Sync example illustrates, car manufactures will need to segment their customers more and create tailored "platform + apps + services" offerings at different prices points.
Track and manage entitlements. Every driver and car could be configured differently based on the device platforms (e.g. dashboard system), related apps and services. Layered on top are the different ways drivers might have purchased apps and services, ranging from try-before-you-buy, subscription models, freemium models, pay-by-use, outright purchases and so on. All this can become quite complicated very quickly, but tracking and managing consumer entitlements is an essential pre-requisite to making "platform + apps + services" real.
Automate the entire app, device platform and entitlement lifecycles. These lifecycle processes include: app installation and activation; subscription management; firmware and app updates; device platform provisioning, configuration management, device monitoring and remote management; app upgrades and other changes to entitlements. Internet connectivity is a key enabler for automation of firmware and software updates, as it is for data uploads from and downloads to cars at the heart of many of these processes.
While it is easy to describe the above recipe, executing on it can be a daunting challenge especially since auto manufacturers have very little experience running software-centric businesses. Acknowledging these requirements and putting plans in place to address them is just what you need to unlock 10X financial returns and be the apple of your customer's eyes!
Read this Related Gartner Research Report:
Innovation Insight: Original Solution Orchestrators Extend Innovation in the Demand-Driven Supply Chain The manufacturing business is changing. To remain competitive and drive growth in the face of a demanding marketplace, device manufacturers are differentiating themselves by rethinking their business models and product strategies. Today, more and more manufactures are transforming their business models to be more solution centric, where software drives differentiation and value.
Google's driverless car, which was awarded a driving license in Nevada in May 2012, is a bellwether for the technology-driven transformation of the automobile industry. Observers are dreaming up possibilities as exemplified by "if you give a car the abilities of race car drivers (instead of the average driver) and combine them with "conservative software" used for standard driving then you can develop a safer driving experience." What if you were able to try out driverless features in your car for one month at no charge? If you liked it a lot, you could buy an annual subscription. When your subscription runs out, you could renew it through your smartphone. On a weekend, you might want to upgrade the driverless feature from "commuter style" to "race track style", and be driven at breakneck speeds on a racetrack.
Such possibilities are endless. At their core, they speak to the imminent transformation of business models in the automotive industry – from a business that is characterized by occasional vehicle sales today to the "car-as-a-service" future which creates an on-going relationship between auto manufacturers and consumers with recurring revenues from sales of apps and services. Note that Google's driverless features were retrofitted onto a Toyota Prius, and were enabled by a combination of hardware platform (e.g. laser radars), breakthrough software and Internet-enabled services, the essential ingredients of a "platform + apps + services" recipe driving the transformation of automotive manufacturers discussed below.
Until recently, comparing Apple to Ford would have been dismissed as a meaningless exercise. In this article's context, however, it serves as an indicator of the payoff that automotive manufacturers can expect should they succeed in replicating Apple's formula of "platform + apps + services" exemplified by the iPhone platform + iPhone Apps + iTunes content. The table below shows that Ford and Apple are roughly similar by revenue. But, Apple's market capitalization per dollar of revenue (3.1 in the table below) is 10 times that of Ford's.
The good news, though, is that these types of returns are very much within reach, and Ford, in particular, is already making progress in that direction. Ford Sync is an early example of a next generation vehicle information and communications system – a connected, software-driven dashboard in simple terms. Ford offers Sync in four editions based on levels of features, bundled services and optional subscription plans as summarized below:
Sync
Sync with Voice-Activated Navigation
Sync with MyFord
Sync with MyFord Touch
Handsfree calling
X
X
X
X
Entertainment
Voice-activated music search, Bluetooth audio streaming
X
X
X
X
Voice-activated radio tuning
X
X
HD Radio (pay per song)
X
Satellite radio (subscription)
X
X
Navigation
X
X
X
X
Subscription Services
X
411 business search, Personalized news, weather, sports, traffic alerts
X
X
X
X
Vehicle Health Report
X
X
X
X
Wi-Fi hotspot
X
Ford Sync illustrates several strategies to grow revenues from a "platform + apps + services" approach, covered in Part 2.
Next time:Car-as-a-Service – Part 2: Platform + Apps + Services = Strategies for Growing Revenue
For the last year, I've been talking to a large number of software vendors and device manufacturers about pricing their products using usage-based licensing models.
There seems to be an explosion of new licensing models being considered. I personally believe that this new approach will be the default pricing model within the next 5 years and therefore wanted to share some potential applications (to stir up the creative juices). I have kept these examples anonymous, as most of these licensing models have not been released in the market place yet (but soon)…
Marketing application vendor
Old: moving from user/size of database
New: # of emails sent on a monthly basis
Development platform/ hosted RDMS
Old: # of developers, perpetual license
New: # of gigs managed on a quarterly basis
CAD/CAM vendor
Old: perpetual license based on features/capabilities
New: # of drawings rendered in 3D on a monthly basis
Telephone equipment provider
Old: perpetual license based on features/capabilities
New: peak throughput # of text messages sent per month
Translation services
Old: each job was priced based on complexity, language, speed of job
New: # of characters translated by the month (regardless of all other factors)
Video data conversion provider
Old: hardware
New: # of megs converted per month
Project management vendor
Old: perpetual software based on size of hardware (# CPU cores)
New: # of active projects managed per month
Chip design software vendor
Old: perpetual software based on size of hardware (#CPUs)
New: # of designs compiled per month
Application converter
Old: perpetual software-per seat
New: # of applications "managed" for conversion & perpetual license for capabilities
Software development tool vendor
Old: perpetual concurrent # of users
New: # of users exceeding perpetual license per month
There seems to be some patterns:
Combination of "usage" (pay-for-use) and "capabilities" (pay perpetual or time-based for access to these services)
A significant reduction in what is being monetized (2-3 meters, no more than that)
Meters are aligned much closer to the value derived from the use (# of megs converted vs. #CPU)
All producers are providing a predictable/consistent pricing meter and a variable component so that CIOs/finance can budget
In many of my discussions with software producers relating to software licensing and machine fingerprinting, almost all are using hardware MAC address, the UUID (Universally Unique Identifier) of the motherboard and/or CPUID information. However, should software licensing be completely based off of the hardware MAC, UUID of the mother board or CPUID information? This process worked very well before the introduction of virtualization but now that virtualization has become more mainstream in the corporate and enterprise environment, software producers really need to reconsider how they are going to license their software.
Machine-based fingerprinting is a typical security model that almost all software licensing is based off (and still exists today). This model breaks down when applications and operating systems are being virtualized and running simultaneously on the same physical machine. Often times, these virtual machines are a complete replica of one another running on multiple and sometime across different data centers. It is however, fairly straight forward to detect and prevent the movement of a virtual machine through various licensing strategies including:
The ability to detect and deny running in any virtual environment
Proxy approach to gain access to the physical host identity
The use of a security dongle
External proprietary hardware
However, many of these approaches are not ideal solutions in an enterprise environment where mobility of virtual machines plays a key role and an integral part of enterprise IT operations. For example, they are not ideal for addressing:
Maintenance period without downtime
Disaster recovery requirements
High availability
Server migration and consolidation without downtime
Data center expansion
Workload balancing across multiple and heterogeneous data center
As virtualization technology becomes more mainstream across the enterprise environment, the ability to detect and determine whether a clone virtual machine exists across multiple network segments; but at the same time allow the mobility of a virtual machine is a challenging problem to solve.
Perhaps an ideal solution would be to allow the virtual machine to "call home" and register itself to a trusted source, typically the software producer back-office entitlement management system. This model would require network connectivity to the outside world that would allow the enterprise to move and make a clone of a virtual machine without being out of software license compliance. What are your thoughts on this approach, would this model work in your environment?
In keeping with our review of 2012, I also wanted to share with you the Most Watched Videos, the Most Read White Papers and the Most Viewed Webinars. "
After researching the most read Entitlement and Compliance Management: Talking Successful Software blog posts of 2012, we found that the most popular topics were on the subscription economy, software-defined networking, usage-based (pay-as-you-go) licensing, virtualization, software license compliance and SaaS. Not surprising, as all these topics and technologies will most likely continue to dominate the market in 2013.
I recently participated in our Regional SoftSummit Briefings in Cambridge, MA and Houston, TX. At both events I asked for a show of hands of Producers who share entitlement information with end customers using a web UI and much to my surprise, there were none.
In my experience, there is immense value for Producers to provide entitlement information to their customers online, easily accessible with downloadable reports, available 7x24.
What is an Entitlement vs. a License?
Before I list the benefits, let's all make sure we are using the word "entitlement" the same way. ISO 19770-2 defines an entitlement as: License use rights or rights to a service, as defined through agreements between a software licensee or user (and recipient of service) and a software copyright holder or service provider
I don't think that's quite right. I would add:
A recording of a license use right or rights…
Instead of worrying about academic definitions – perhaps we can agree on the definition by using an example:
Sales person has a special end-of-year sale – buy 1000+, get 50% off
Customer purchases 2000
Customer then takes that 2,000 and gets a license key for a number of departmental servers:
100 for Utah
500 for California
500 for 北京
300 for Europe
And the remaining 600 to be used later
The entitlement is the record that says: Customer A has rights to 2000 of thing X
The licenses are the 100, 500, etc. that are installed on various license servers.
The Value of Sharing Entitlement Information Online
By providing entitlement information and making it available to customers and/or partners, consumers of this information can answer questions like:
Producer sales person: Does Customer A have rights to this feature/product?
Channel partner: An upgrade is coming up – who is using the current version a lot so I can do training campaign?
Channel partner: Which of my customers have maintenance or subscription licenses expiring in the next 90 days?
Customer/enterprise IT manager: Wants to a plan next year's license budget - pulls a report to get feedback on use from all his constituents.
Customer/enterprise IT manager: Wants to plan next year's maintenance budget – pulls a report of all expiring maintenance entitlements.
Customer/enterprise IT manager: Is running out of licenses and wants to see which departments might have some under used licenses.
Customer/enterprise IT manager: Is planning that a division is going to be spun out as a separate company and wants to determine entitlement and license impacts.
Besides data mining advantages, there is one "unspoken" value:
It's much easier to hold a customer accountable to keeping compliant – if you (as a Producer) tell them what you think they have and make that available anytime they want
The Value of Not Sharing Entitlement Information Online
I can't think of a reason…. Are there any reasons you can think of?
Entitlement and Compliance Management: Talking Successful Software is a resource for software producers and high-tech device manufacturers in licensing and entitlement management.
