Entitlement and Compliance Management

Transitioning from a Hardware to a Solution-Centric (hardware + software +services) Business Model – Part 2

By Ram Visvanathan

In Part 1 of the blog, I talked about the imperatives that drive Intelligent Device Manufacturers (IDMs) to turn to software and services for their revenue growth and introduced 5 key challenges that these companies face, which were:

1. Business model differences
2. Inflexible operations
3. Non-compatible policies
4. Internal system capabilities
5. Organizational culture

I also detailed out in Part 1 the first two challenges. In this blog I will detail out the remaining three challenges and suggest a few ideas that can help IDMs in their transition.
  

3.   Non-compatible policies. Policies are framed to support the needs of a business model. Hence many of the policies of hardware companies fail to satisfy or even are at conflict with the needs of the software business. For example, as marginal cost of software is nearly zero, compensation and bonus structure in software companies are skewed to disproportionately reward top sales performance. A common policy for sales compensation between hardware and software would risk losing the software sales people by paying lower salaries. 

Besides managing existing policies, new policies that relate to software lifecycle events for e.g. software compliance enforcement policies (when would you deny software access, how would you respond to extra usage, do the policies vary across customer segments, geography etc.,) need to be developed. 

The diverse nature of the two businesses needs policies that can support them.  The organization should undertake a careful analysis of the combined businesses to identify the ones that can be standardized, those that need to be different and those that need be newly defined.

4.   Internal system capabilities. The ERP and CRM systems of hardware companies are designed neither to track software licenses and versionsat customer sites nor to manage entitlements for different software lifecycle events. Besides, the foundational capabilities required for supporting new software business models like managing bundled offerings, enterprise contracts, billing based on usage, recurring invoicing and sophisticated revenue recognition and allocation mechanisms are not well supported by traditional ERP systems.

I find that these poor system capabilities affect IDMs' top line and bottom line by inhibiting their ability to launch new products and business models, increasing operational costs and impacting customer satisfaction. While this is an issue for many software companies as well, I find that IDMs try to bend their internal systems a lot more until they break.


5.   Organizational culture. Software companies not only experience shorter product lifecycles but also experience rapid evolution of business models. Hence developing a viable software business is a continually moving target. To support this rapid change, the culture of software companies is more collaborative that enables them to co-exist in an ecosystem with other partners while at the same time they are also likely to have a more top down management approach to facilitate quick decisions.

The culture of many IDMs is at odds with that of software companies and poses significant challenges as they try to grow organically. This challenge is even more pronounced if they embark on an acquisition path. Even IDMs that have a successful track record of integrating acquisitions find these hurdles manifesting into longer lead times, significantly higher integration costs and less than expected benefits.

Companies embarking on a journey to become more solution-centric should be aware of these challenges. Although the path may be difficult and the waters rough, significant rewards exist for the one who traverse. A ship is safest at the harbor, but that is not where it is meant to be.

At Flexera Software, our products and services focus on helping IDMs from a strategic, operational and technological perspective as they navigate through the rough waters. For more information, read the related white papers: Ten steps to optimizing your software licensing revenue and How IDMs are using embedded software to grow revenue

Look forward to hearing your experiences and thoughts.

 

Car-as-a-Service – Part 2: Platform + Apps + Services = Strategies for Growing Revenue

By Bashyam Anant

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:

1. 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.
2. 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. 
3. 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.

[i] http://www.nydailynews.com/autos/ford-state-farm-save-drivers-money-car-insurance-telematics-technology-article-1.1090341

[ii] “Predicts 2013: Mobile, Cloud and Information Fuel the Automotive Era of Smart Mobility” Thilo Koslowski, Gartner, November 2012

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Car-as-a-Service - Part 1: Transformation of Business Models in the Automotive Industry

Transitioning from a Hardware to a Solution-centric (Hardware + Software + Services) Business Model - Part 1

Car-as-a-Service – Part 1: Transformation of Business Models in the Automotive Industry

By Bashyam Anant

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

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Google's Driverless Car | Shocking Effects & Information

Use Embedded Software Licensing and Entitlement Management to Fight Hardware Commoditization and Competition

By Matthew Dunkley

Over the years I have had the opportunity to work with many device manufacturers across many prominent industry sectors.  And today, more than ever, the commoditization of hardware and ever increasing competition (in a truly globalized world) continue to be key challenges faced by many device manufactures.

There is a close correlation between these trends and the types of questions I am asked by such device manufacturers:

• "How can I increase market penetration?"
• "How can I drive new revenue streams and support new commercial models?"
• "How do I stay competitive?"
• "How do I protect what I have now?"

Typically I reply by asking questions about the company's products and business models, before explaining how embedded software licensing and entitlement management may be able to solve some of the challenges, including:

• Reducing manufacturing complexity and costs by producing one model of a device and using licensing to turn on/off device capabilities, capacity and software; and then selling it in many ways
• Supporting and introducing new licensing and pricing models and metrics like pay-as-you-grow to address the needs of diverse customers

This often leads to many more questions, including "How does that work?"

To help explain and demonstrate, I have created this video to help show how embedded software licensing and entitlement management can manage device capability and capacity.  In this simplistic case, by provisioning licenses for additional axis of movement on a robot arm, controlled by an intelligent device. The controller has many similarities to industrial controllers (32 bit processor, feature rich peripherals, Linux operating system).

Watch the video: Monetize and Enable Device Capabilities with Embedded Software Licensing: A Demonstration

 

How are you using embedded software licensing and entitlement management to fight commoditization and competition?

 

Transitioning from a Hardware to a Solution-centric (Hardware + Software + Services) Business Model – Part 1

By Ram Visvanathan

A recent trend that we have seen across Intelligent Device Manufacturers (IDMs) is that customer needs, competition and commoditization are forcing them to turn to software as an enabler of future growth.  These companies do so either by monetizing their embedded software or by developing stand-alone software that complements their hardware.  However, these companies face significant challenges as they transition from hardware-centric to a solution-centric (hardware + software + services) business model.   

The key challenges are: 

1. Business model differences
2. Inflexible operations
3. Non-compatible policies
4. Internal system capabilities
5. Organizational culture  

Business model differences.  Hardware and software business models are vastly different.  While traditional hardware models typically involve a point sale and minimal recurring revenue, software business models have a high percentage of recurring and follow-on revenue through renewal of software licenses, enablement of additional features or through support contracts that provide rights to upgrade and update software.  It is common for software companies to have a revenue model that is recurring and derived from services to existing installed base (sometimes > 50%), while the revenue model of many hardware companies are related to initial product sale.

Inflexible operations.  The best strategy and plans are likely to remain just that if those cannot be executed.  It is common to see great ideas of product management, marketing or sales fall flat because of the operational complexities.  The challenge is more pronounced for IDMs that want to support both hardware and software business models.  These companies should focus on 3 aspects:

1. Simplifying customer facing operations:   The operations of hardware business, from manufacturing to marketing, are centered on the ability to identify hardware as a discrete unit.  This hardware-centric view creates several hurdles in the software realm.  For example, we have worked with IDMs that require customers to provide their serial numbers as part of the order process.  This not only adds to internal operations complexity but also causes hurdle for sales, channel partners and customers and may even deter a sales.  Organizations also need to develop capabilities for customers to seamlessly manage the different software lifecycle events (like purchasing additional licenses, re-hosts, RMAs).  It is here that most IDMs fail in their execution.  The following quote from a channel partner of a multi-billion dollar IDM in the telecom equipment space sums it well "It takes an act of God to get five additional software licenses"
   
2. Strengthening back-office operations:  Supporting a combination of hardware and software business models require sophisticated capabilities to execute the combined hardware and software supply chain.  In addition to supply chain orchestration, IDMs should gear up to seamlessly execute complex revenue recognition, attribution and the divergent policies associated with hardware and software. 
   
3. Agile Operations:  The realm of software is dynamic and new methods of packaging, licensing and monetizing software are rapidly evolving.  We find that organizations typically have to support a range of software business models that vary along the following dimensions: 
   
   1. Time (perpetual, subscription, term, etc.)
   2. Unit of Measure (hardware centric - per CPU, per device to usage centric – utility, pay as you go models)
   3. Delivery mechanism (from on-premises to company hosted to 3^rd party hosted)

To support these diverse business models, IDMs need to have operational capabilities that are not only robust but also agile.  The question of "Can elephants dance?" is not a luxury these companies can afford.  They have to.   

In Part 1, I covered the first two of the five challenges that I had outlined.  In my next blog, I will cover the other three challenges and suggest a few ideas that can help IDMs in their transition.

 

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Device Manufacturers: Adopt the Holy Trinity, Go Intelligent

By John Lipsey

The challenges facing device manufacturers are enormous: Increased competition from new players on the world stage have a commoditizing effect across the spectrum - from medical devices and telecommunications equipment to oil and gas machinery and building automation. Complex supply chains, devices becoming a commodity, and rising fuel and transportation prices are driving manufacturing costs up and margins down. And rapidly evolving markets and changing customer needs require a heightened flexibility and nimbleness that most old-line manufacturers simply don't have.

Flexera Software’s Vincent Smyth believes that “Going Intelligent” provides manufacturers with a solution – enabling them to regain their competitive footing, lower costs and more flexibly tailor their products to meet customer demands.  What’s the formula for going intelligent?  Intelligent Device = App-enabled Hardware + Flexible Licensing.

Read the full article Device Manufacturers: Adopt the Holy Trinity, Go Intelligent.

Consumerization of Industrial Technology

By Bashyam Anant

Consumerization of IT is a recent phenomenon where enterprise IT departments are beginning to allow employees to access corporate applications from personal devices such as iPhones and iPads. In similar spirit, we are beginning to see consumer devices, in particular, smartphones like the iPhone, transform the way industrial technology is deployed and used. In this post, we will disscuss examples from medical devices and point-of-sale systems that illustrate the trend and the issues they pose for incumbents and new entrants in these markets.

In the medical equipment business, startups like Alivecor and CellScope are transforming smartphones into mobile diagnostic tools. Alivecor's heart monitor, for example, consists of a sensor, an iPhone app and a cloud-based application. The sensor snaps on to an iPhone (watch demo) and is placed on the patient. It then transmits heart signals to the iPhone app, which then transmits the data to the cloud application for associating the reading with the patient's medical record, for analysis or for printing an ECG. At this time, the device is commercially available as a veterinary heart monitor, pending FDA approval for humans.

Figure 1: Alivecor iPhone App for Heart Monitoring

CellScope uses optical attachments to turn smartphones into "diagnostic-quality imaging systems for healthcare, consumer skincare and education". One of their apps is a clip-on otoscope which helps pediatricians or parents take pictures of a child's middle ear and store or share the pictures, enabling ear infections to be diagnosed and treated remotely, all by using just a smartphone with an optical attachment and an associated app.

Square has transformed point-of-sale systems by following a similar pattern. Square allows a business to accept credit card payments using a card reader that plugs into a smartphone's headphone jack. Square's android or iPhone app then transmits the payment to the business' cash register in the cloud for reconciliation and analysis.

Alivecor, CellScope and Square are disrupting incumbents in their markets by disaggregating the value of industrial equipment (e.g. ECG monitors or point of sale systems) into sensors (e.g. card reader or heart sensor), smartphones and software. Incumbents that sell proprietary hardware devices in these markets are at a cost disadvantage (since they have to produce hardware while new entrants require only a smartphone) and will also be perceived as locking customers into proprietary hardware.

Because the new entrants make money on software and/or transactions, they now have to worry about protecting their IP against software piracy, managing the software lifecycle associated with their apps (e.g. software delivery and software updates), managing customer software entitlements (since each customer might have different rights to the software) and tracking and charging for usage, if they make money on transactions. Read these related posts for information on these topics:

Intelligent Hardware Manufacturers That Successfully Release Their Inner Software

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

The Internet of Things and Machine-to-Machine are on the Horizon—Are you Ready?

Share your stories of industrial use cases being transformed by smartphones.

Theoretical: Licensing in Cars

By Mathieu Baissac
 
As a thought exercise, I’ve been playing with “how could your car” use software licensing. Here are some ideas I’ve stumbled on – some are real and some are totally made up. It’s a fun exercise, which could be applied to other intelligent products that we use in our daily lives. 

Turn capability and capacity on/off

• As a car manufacturer – standardize powertrains/engine – use software to differentiate between models
  • We are seeing more and more hardware/device manufacturers standardizing on one hardware form with all capacity available and then use software licensing to enable the capacity.
  • Same could apply to cars: imagine – all the BMW car engines are the same, they just license the “200 horsepower” versus “500 horsepower” model.
    
• Experience a faster car for the weekend
  • Once standardization of the powertrain/engine is done, then one could imagine upsells – “convert your ‘in city’ car to ‘muscle’ car for the weekend for $x per day.”
  • Instead of renting the car, you just get a termed software license uploaded to your car.
    
• Purchase movies/entertainment in the car console for your kids
  • Now add a marketplace in the car – so that the kids can purchase (or rent) videos or games right in the car entertainment console.
    
• Activate a particular country or region map for the weekend
  • In Europe, your car is typically only loaded with your country’s map. If you want to go to Italy for the weekend from Germany, you could imagine “licensing the map of Italy for $x per day.”

Track usage

• Track use pattern to determine insurance
  • This has been done already – but now imagine that it’s provided by the car vendors. You pay for your car and your car insurance all-in-one.
    
• Car owners share their cars (car share) – charging by the trip to cover costs/insurance
  • There are several sites that encourage car owners to share their car. It’s all “trust based” –now use the same technology used for your car insurance to track/charge individual car sharers.
    
• Parents of teenagers access car usage data to find out how their child drove Saturday night
  • Find out if your son (or daughter) drove too fast, how many times they slammed the brakes and how many passengers were in the car.

 
What other ideas—real or farfetched—can you think of “how your car could use software licensing” and how it might make your life easier or better yet…more interesting?

Related articles:

• The Next Boom in Mobile Devices Is the Car

• Gadgets: New Connected Devices Put Smartphones in the Middle

Mobile Market Underscores the Criticality of Applications for Intelligent Device Manufacturers

By Bashyam Anant

Our analysis of the mobile phone market underscores the criticality of applications for the success of intelligent device manufacturers. The Table below compares two smartphones: Apple  iPhone and Nokia Lumia. The two phones cost about the same to manufacture. But, the iPhone is able to command a $200 price premium over the Lumia. While Apple’s brand is part of the reason, the iPhone’s application ecosystem, which dwarfs Lumia’s, is also a big contributor.

Besides differentiating mobile phones, mobile applications by themselves are a $10B market[v], further proof of their importance for mobile phone manufacturers.

As exemplified by Apple in mobile phones, it is essential for intelligent device manufacturers to develop an application strategy and ecosystem as hardware differentiators fade in favor of application-driven differentiators in many markets. Manufacturer attitudes such as those exemplified by “If it’s made out of steel, it has value. If it’s software, you give it away” are rapidly becoming not just outdated but disastrous to business success.

Read more blogs about Intelligent Device Manufacturers:

• The Year of the Ecosystem – Leveraging Software for Competitive Advantage and Revenue Growth
• Intelligent Hardware Manufacturers That Successfully Release Their Inner Software
• Smart Device, Smarter Services
• Embedded Systems Best Practice: Standardizing on a Common Software Licensing Platform
• 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
• New IDC Report Highlights How Licensing Helps Intelligent Device Manufacturers Generate Revenue from Embedded Software

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[i] [ii] “Inside Nokia’s Struggle to Battle Against Apple’s iPhone”, Wall Street Journal, May 31, 2012

[iii] http://148apps.biz/app-store-metrics/

[iv] http://allaboutwindowsphone.com/news/item/14554_Windows_Phone_Marketplace_pass.php

[v] “Internet Trends 2012”, Mary Meeker, KPCB presentation, May 2012

 

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!