Vendors Must Get Closer to Their Customers to Effectively Deploy New Software Licensing Models
For years CIO’s and software vendors alike have bemoaned the limited pricing 
options in the enterprise software licensing market. Per seat, per user, per server/farm/site – and that was about it.
But things are changing; SaaS, the cloud and virtualization offer a whole raft of new software licensing options which we are likely to see emerging over the next 12 months.
The new software licensing models do potentially offer savings for business. CIO’s have traditionally over-bought on software licenses for applications hosted in-house. The new models will allow CIO to purchase software licenses that are a much better fit for their actual needs. But accessing those savings is going to present some real challenges, at least at first.
Two of the new licensing models being most widely discussed are pay-per-use and subscription software licensing.
Subscription software licensing starts out by looking fairly straightforward. You decide how much access you need, then get discounts based on the length of time that you are prepared to commit for. All fine and dandy and easy to manage. Until that is you factor options like peak and off peak usage into your subscription pricing – a bit like your gym membership, or your electricity bill. Do CIO’s really have a handle on where their usage peaks and troughs are, and can they manage those to gain financial advantage in their software licensing deals?
Likewise with the pay-per-use software licensing model. Sounds like a great idea. But what is a “use”? Is it a logged-in session, a screen view, use of a particular feature? And are all uses created equal? For example, would we be charging the same for an hour spent creating an Access database, and an hour spent entering data into that same database?
The pay-per-use model seems like it offers the potential for much fairer pricing in software licensing, but there is a lot of work to be done before such a model can be effectively deployed.
On the buyers’ side, many corporates have hundreds of software licenses for applications deployed within their businesses. Creating systems to gather and analyse data on the useage of these applications is gong to be quite a task. But is is a task that will need to be addressed if as a priority if companies are going to benefit from the savings offered by these new software licensing models.
And for vendors the story is much the same. Jon Gillespie-Brown CEO of software licensing solutions provider Nalpeiron says: “When a vendor sells a software license, traditionally they know what they have sold, they probably don’t know what has been deployed and the almost certainly don’t know what is being used. Our licensing solution allows the vendor to see when software has been deployed and which features are being used. This kind of functionality in licensing solutions is going to become critical as new pricing models evolve and vendors need to get closer to their customers.”
Thomas Wailgun, reporting in Computer World on an interview with Amy Konary, IDC’s research director of software pricing, thinks these changes could lead to the emergence of a new role on the buyers’ side: Economist CIO.
SL.tv thinks that on the vendor’s side we are going to see a lot more openings for “customer champions” and a bonanza for the market research people!
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I largely agree with the article. Note that subscription license models and various forms of usage-based license models (known as “remix”, “token”, “rental”, “peak usage”, etc) are already in reasonably widespread adoption.
The real goals of license models are:
1) provide software the way your customer needs to buy it and use it. Remember, companies are in business to buy and use software to achieve business goals, and not just to buy cheap software.
2) Balance the flexibility of flexible usage models with the predictability of more reliable models. Some of the usage models described above are a result of creating license models to make this tradeoff.