By John Lipsey
A value perception gap exists between software buyers and sellers that could explain, in part, the growing diversity of software licensing and pricing models being demanded by enterprises – and offered by application producers. According to Flexera Software’s 2012 Software Licensing and Pricing Survey, prepared jointly with IDC, many producers believe they are not getting the full value of the software they’re delivering to customers – and many customers feel they’re not getting enough value for their money.
According to the survey, nearly one quarter (24%) of application producers believe their software licensing and pricing strategies are either ineffective or very ineffective in capturing the true value they deliver in their products. Moreover, enterprises indicated most frequently they are either unsatisfied or very unsatisfied with the price-to-value of their ERP software (25%), database software (22%) and CRM software (20%).
The survey confirms a perception gap in the value of software that could explain some of the contentiousness between producers and their enterprise Flexera Software has seen first-hand that the manner in which some software companies package, price and license their software products does not necessarily correspond with how organizations use or value them.
The survey also points to changes in software licensing and pricing occurring across the industry that could close the software value perception gap. Application producers currently offer a wide variety of software pricing models, which reflects a corresponding diversity in demand for how enterprises want to consume software. Looking forward over the next 18-24 months, utility models (usage, time, number of transactions) are expected to be used by 23% of application producers (up from 9%), signaling increased interest in usage-based licensing and pricing. Such models have the potential to reduce or eliminate the perception gap as the amount an enterprise pays for software is tied directly to its actual usage.
Application producers are changing their software licensing and pricing strategies in order to strike the difficult balance between maximizing revenue streams and increasing customer satisfaction. 42% of application producers report that over the past 18-24 months, their software licensing and pricing strategies have changed. The most cited reason for the change was to generate more revenues (69%), up from 40% in 2011. Other reasons cited for the changes were to improve customer relations (44%), to accelerate sales cycles (35%) and to enter new markets (28%).
There is a wide spectrum of software licensing and pricing models that application producers can choose – from perpetual software licenses to usage-based licensing and pricing models. By building pricing and licensing flexibility into their products, they can very easily package and price their software tailored to the changing needs of their customers – and as a result both increase revenues and customer satisfaction. The survey shows that we are seeing this begin to happen – the result of which will ultimately narrow the software value perception gap that exists today.
Access the complete Software Licensing and Pricing survey results.