The End of Licentious Software

Michael Vizard

Software licensing is a topic that a lot of people like to discuss, but seems to change very little. Customers would sorely love to have a more usage-based model for paying for software, versus paying a flat per-license fee. Some software vendors have endorsed the idea, but most find any number of reasons for keeping things just the way are.

It's not that they don't have confidence that their software is being used, it's just that usage-based licensing opens up a whole other can of software worms that most vendors don't want to deal with.

The first of those issues is the sheer size of the applications. If we all moved to a usage-based model, it would not be long before customers started asking about paying for only the portion of the software that was actually used. As we all know, most end users only invoke about one-tenth of any given application. If we change the model to one based on actual usage, it would not be long before customers were asking not to pay for the 90 percent of the functionality they never use.

This would then force vendors to repackage their software around a core component accompanied by a large number of modular components that would each have to be tracked separately, in terms of actual usage. That could be done, but it would lead to a lot of difficult conversations with investors about what happened to the revenue stream of the company.

Of course, one major upside of this approach is that systems would consume a lot less power. One of the reasons that systems consume so much power has to do with the amount of software that is loaded on the system. If we're running less software, less power is required. That too would substantially lower the cost of running a fleet of PCs.

It may be in the face of Green IT, combined with a push for more efficient licensing models from the customers, there might actually be some substantial changes in software licensing. With new capabilities from companies such as Flexera, which makes the technology that monitors and tracks software usage, many things are now more possible than before. The only real question is, do we have the force of will to implement them?

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Oct 29, 2009 7:22 PM Michael Procopio Michael Procopio  says:

A very thoughtful and provocative post. I presume by usage based you are meaning minutes of use or similar measure. That type of monitoring doesn't match my experience of what customers want. The problem I hear expressed from customers with metered usage is how to budget. It seems to me the same argument for unlimited minutes on cell phones - I can plan my expenses. (Unlike the $2000 bill a friend received when visiting Italy.)

I think there are ways to provide scalable, predictable pricing to customers. At HP Software and Solutions we try to do that by scaling the pricing by some factor like number of transactions monitored for our EUM products or number of nodes for our network management products or number of seats. With some products we let them pick the method of scaling.

With regard to loading up a system, another approach might be to allow customers to configure what they need and only bring those parts into memory, leave the rest on disk or the DVD.

I do agree we don't want to break up the software in many modules. We tried that once and the feedback was "you are charging us for every little thing - these should be included". So we work to maintain a balance in how we bundle feature going to market.

Keep up the good work!

Michael Procopio, hp.com/go/BSMblog, LinkedIn.com/in/MichaelProcopio

Apr 22, 2010 2:27 PM Dominic Haigh Dominic Haigh  says:

You are right - usage-based licensing does change the revenue flow for vendors. However, it can also bring some benefits:

- Builds a steady revenue stream

- Better understanding of what users actually do with your product

- Gives you access to the 'long tail' of users who could not afford a perpetual license for your product (e.g. consultants who use it on a project). It may make sense for your existing high-usage customers to stay with their perpetual or subscription license, so usage-based licensing can complement, not replace, an existing licensing strategy.

- Makes it easier for customers to bill usage to different departments or projects on which it is used.

As a license management vendor we are seeing increasing implementation of usage-based licensing, as illustrated in this FICO case study.

Dominic Haigh

Agilis Software



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