Entitlement and Compliance Management: Talking Successful Software is a software licensing, device lifecycle and entitlement management resource for software vendors and high-tech manufacturers.
In 2011, Flexera Software really tightened tampering prevention in our InstallShield 2011 and InstallShield 2012 releases (shipped Feb 2011 and Aug 2011) as we had found cracked versions of InstallShield 2010 on sites in China and Russia.
Financial Impact Based on our estimates, we suspect that around 1,000 units of the cracked InstallShield 2010 were illegally downloaded; worth around $2 million USD (license only, assuming list price).
After applying FlexNet Publisher's Tamper Resistance, InstallShield units shipped to China increased by 127% year over year in 2012, breaking away from the previous year's decline in this region.
Takeaways
InstallShield is a great product. Many developers want it, not all of them want to pay for it. This is a reality that many other software producers experience when bringing their products into new markets
Hacks have quantifiable financial impacts.
Often we hear "those hackers wouldn't necessarily buy it, and that we should think of hacked copies as a marketing lead" (to paraphrase Bill Gates) but if you enter a new market with this mindset, the market will be built expecting to get your software for free.
The appearance of cracked versions of our software led to a decline in sales throughout the market. Applying tamper resistance led to a growth in sales for that market.
Although Flexera did not see a $2M increase in revenue by adding tamper resistance, we estimate 25-50% of that coming back
Compliance management (many times part of a company's software licensing policy) approaches vary greatly from producer to producer and, frequently, from product to product within the same producer. While the industry has gravitated to some common approaches there are diverse options available.
Strict Enforcement
Producer choses to enforce software license use and entitlements by implementing a licensing mechanisms that completely disallows access to software when usage exceeds licenses or only allows some limited amount of "overdraft" leeway
Provides a high degree of confidence for the producer
May inconvenience the customer if there is an immediate and legitimate business need for exceeding the license
Software Audit Only
Producer chooses not to use any enforcement mechanisms in their products, removing the barriers to software use by making it easy for customers to broadly use the software throughout their business
Producer examines of the customer's use, usually accomplished by dispatching a third-party to the customer's site to retrieve usage data and/or to observe usage in real time over a period of time
Advantages of this approach – allows both the producer and customer to discover any overuse of the software, so that fair additional compensation can be paid to the producer, if appropriate
Disadvantages to this approach, include: 1)high cost of maintaining and dispatching audit teams, 2) difficulty auditing the entire organization, 3) audits get settled for pennies on the dollar 4) most producers only audit 1-2% of their customers 5) customers perceive an audit as invasive and adversarial
Enterprise (All-You-Can-Eat) License Agreement
Producer provides software to the customer without stipulating specific restrictions on use (may include very limited or no enforced licensing)
Advantage of this approach is that it eliminates the need to monitor specific use parameters and address unanticipated fluctuations in those parameters
Disadvantage of this approach is that it may not reflect fair value, meaning potential revenue. For the customer, it may mean investing time in completing a true up and possibly paying for more software than is actually being
There are pros and cons to most traditional compliance management approach. Some approaches are appropriate under specific conditions but none of them are really perfect for all situations. In some cases, an audit may be too costly and/or intrusive. In other cases – such as when spikes in business activity give customers a legitimate reason for temporarily exceeding software license parameters – rigid enforcement mechanisms may be counter-productive and disruptive. As a result, we are seeing a growing trend towards compliance management solutions that offer trust but verify approaches.
Next time: Part 3 – Impact of Technology on Compliance Management
Read related software compliance management blogs:
Flexera Software is pleased to announce SoftSummit is on its way to Europe and promises to bring you the very best of SoftSummit delivered within a comprehensive 1-day agenda.
Targeting both software vendors and intelligent device manufacturers - these regional briefings look to address the challenges that application producers face and how leveraging Software Licensing, Entitlement Management and Software Delivery and Update soluions can grow their businesses. Hosted in 4 European locations : London, Stockholm, Paris and Munich, attendees will benefit from an agenda of topical presentations, interviews and roundtables addressing:
Best practices for achieving continuous entitlement and compliance management
Licensing and living in a hybrid world: on-premises, cloud, and SaaS
Commoditisation and protection of your intellectual property using licensing
Convergence of business models for software vendors and device manufacturers
Your customer’s perspective – forming lasting partnerships with the enterprise customer
Flexera Software product roadmaps and solution demonstrations
Special guest presenters include:
Amy Konary from industry analysts IDC – Reporting on the "Key Trends in Software Licensing and Pricing Survey"
Mr. Christian Schulz of Process Systems Enterprise Ltd – A customer’s account of their Software Licensing and Entitlement Management challenge
European Locations:
Thursday 7th March - London (Paddington), United Kingdom (English Language)
Thursday 18th April - Stockholm (Kista), Sweden (English Language)
Tuesday 4th June - Paris, France (French Language)
Thursday 6th June - Munich (Airport), Germany (English Language)
Agenda
These events are free of charge, with sessions open to Flexera Software customers as well as prospective customers.
9:30 > 13:30 - Customer and Prospective Customers Session
14:00 > 17:00 – Customer-only Deep Dive Session
14:00 > 16:00 - Prospective Customers “Demo-Lab”
The SoftSummit Regional Briefings feature an interactive format, informative speakers and networking opportunities that are trademarks of SoftSummit - presented in a smaller, more intimate setting.
But seating reservations are limited, so you must act now to secure a spot.
Recently I've been asked by several application producers (and newspapers) how we can help them with their App Stores. As someone who worked on an eCommerce site since early 1995 for a software reseller, I find myself scratching my head a little.
A catalog with icons/images, various search/listing mechanisms (free vs. paid, application categories, most purchased/highest rated, content segmentation (e.g., app vs. video), wizards based on past purchases), and a detailed page per application with ratings, reviews, additional images, etc.
Pricing. Typically it's just 1 single price, but with Windows Azure, that's changing (and other producers will follow)
Purchasing process. Credit card or PayPal.
Delivery process. Often pretty simple (download link in the UI). Amazon does allow PUSH to a number of registered devices.
Update automation. Notifying when new versions are available and providing the download mechanism.
Why App Stores as Defined Today Won't Work for Most Application Producers
The App Stores that I've surveyed (see above links) do some things quite well:
User account creation and device registration
Catalog, search, list management
Detailed catalog screen shots
Delivery
Update automation
However, I cannot see most application producers using the current App Stores. They lack:
Enterprise-style bulk purchasing (e.g., 100 copies of an app that can then be delivered to 100 different users)
Incorporation of channels and channel partners
In addition, today the App Stores are very "perpetual" oriented:
Apps are cheap
Users get all new versions of the app for "free"
Users do not have to purchase "maintenance"
Why eCommerce Solutions are Still what Producers Need
eCommerce producers such as Oracle (ATG), IBM (Websphere/ Sterling Commerce), Hybris (mostly in Europe), Digital River, Zuora (for subscription/pay-for-use billing) and many others provide all the things needed to make eCommerce occur (e.g., catalog, pricing, payment processing).
They can also achieve that "easy-to-use" model that App Stores provide, even on mobile devices:
Shopping is done in the eCommerce site
Customers get "Activation IDs" or other unique identifiers for each item purchased
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.
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?
Entitlement and Compliance Management: Talking Successful Software is a resource for software producers and high-tech device manufacturers in licensing and entitlement management.
