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Implement a Recurring Revenue License Model

Recurring Revenue License ModelFor more predictable revenues, consider a Recurring Revenue License Model.

Software vendors increasingly rely on a recurring revenue license model and other pricing strategies to create steadier revenue streams. These strategies result in smoother and more predictable revenue growth which makes financial planning easier and increases business efficiency, maximizing value to shareholders.

A license manager such as RLM is an essential tool to implement these changes. It enforces license policies that promote higher recurring revenue.

Recurring revenue comes from three main sources:

  • Renewable license fees (subscriptions)
  • Annual maintenance fees
  • Fees based on usage (pay-per-use or consumptive models)

License Subscriptions

Increasingly, software vendors offer both perpetual licenses and license subscriptions. Subscription licenses are priced so that they provide a lower initial cost in order to attract new customers as well as customers who are trying to preserve short term cash. Subscriptions often seem less risky to customers too.  If the product doesn’t live up to expectations, then the customer has only limited financial exposure.

Subscription licenses are renewable licenses, usually annual, including software support and updates during the coverage period. The license is automatically terminated unless it is renewed.

Setting Prices
Prices for annual subscriptions are generally some fraction of the perpetual license alternative.  Many companies aim for a crossover point of 4 to 5 years after which the costs for the annual license begin to exceed the perpetual license fee plus the annual support costs. So, an annual license might be priced at 40% of a perpetual license.

The License Manager’s Role
Supporting the concept of term licenses are license expiration dates.  Days before the license expires, your software can display the number of days remaining. This technique improves customer satisfaction because the user is prepared for the renewal event. When the customer signs up for another term, new licenses specifying the new expiration date can be sent to replace the expiring license.

If you automate license renewal from within your product using an Internet activation solution, such are Reprise’s Activation Pro, the process is seamless.

Support RenewalsRecurring Revenue License Model

Software vendors who rely primarily on perpetual licenses can still use licensing techniques to enforce support renewals to generate higher renewal rates.  Customers are encouraged to renew their support agreements when license managers restrict access to desirable new releases.

A flexible approach is to specify a “latest release date” in place of the product version number in the license. This date represents the maintenance coverage period. In other words, it specifies the latest future software release date that can be supported by this license.  Of course, applications must be programmed to request licenses consistent with the “born on date” of its release.

Pay Per Use Pricing and Post-Use-Billing

Some software vendors offer yet another payment approach – pay per use or post-use billing.  What better way to stabilize your revenue stream than to charge based on actual usage?

License managers produce detailed report logs of license activity, recording data such as: product name, number of licenses granted, user name, host name, and duration.  With this information, you can periodically produce invoices that reflect your customers actual use. Popular license managers, like RLM, write the log in plain text so that it can examined directly. Also, the log is authenticated to ensure data integrity, and can be “anonymized” to address potential privacy concerns.

License managers that are deployed in the cloud, such as RLMCloud, collect the usage data for easy analysis and invoice generation.

Business Advantages

Recurring revenue models:

  • encourage steady, predictable revenue flow to the publisher
  • lower initial cost for the user, and faster approval cycles
  • allow for short-term rentals and faster new feature introduction
  • allow license policy to change at renewal time
  • Limit license exposure to overuse when machines are decommissioned or upgraded
  • let customers expense the budgeted license renewal fees
  • lessen price discounting pressure
  • Encourage tighter client-vendor relationship because support is bundled.

All other things being equal, companies with recurring revenue pricing are valued higher than companies who rely mostly on perpetual licenses. For these companies, revenue recognition is immediate.  It is also easier to weather a bad quarter or flat market. Bundling customer support in the license fee helps to retain customers and boost support renewal rates. Sales compensation can reward new orders at higher rates than renewals, but lower rates than perpetual licenses. Since end customers cannot opt-out of support, customer satisfaction is improved.

The Transition

If your company plans to shift from perpetual to subscription licensing models, expect lower initial growth rates. But, since new customer acquisition builds revenue incrementally on top of revenue base from renewals from previous years, after an initial period of slower growth, revenues will exceed perpetual-only models.

The mechanics of making the transition work may mean modifying your licensing code at the api level in order to handle automatic renewals. Also, your CRM system may need to be coupled more tightly to make sure that renewal orders and cancellations are reflected into your licensing solution. Remember, SaaS is not required for recurring revenue, the delivery model is irrelevant.  You can still sell desktop on-premises applications and gain from recurring revenue licensing models.

Policy in the License

 Don’t paint yourself into the corner – use Policy in the License.

When you think about adding licensing to your software, you want the licensing software to “do the work” of licensing. You don’t want to write special code to handle the various business cases for your licenses.  When you put the policy in the license, you remove it from the application code.  This makes changes down the road much easier.

Policy in the License

RLM allows you to request a license within an application without knowing what kind of policies are present beforehand. You need to do little to no manipulation of the licensing routines themselves.

With RLM, license policy is in the license keys, where it belongs. We call this “Policy in the License”.  So when your application requests a license, the license is granted is based on what licenses are found in the customer’s license pool.  This allows you to address ever-changing business rules by varying the type of license keys that you issue.

Keeping Pandora’s Box Closed

Legacy license managers open a Pandora’s Box by allowing applications to store arbitrary information in the license key. This is a mistake because it requires special programming in your application to retrieve, decode and process the data.   Your application then needs the logic necessary to implement the custom policy which the data specified. More importantly, this unfortunate design decision leads to the proliferation of incomprehensible license strings. Unpredictable license behavior across applications and across ISVs is the result. RLM supports new policies by enriching the syntax of the license to address new yet generally useful license policy options.  Here are a couple of examples of Policy in the License:

Token-Based Licenses

RLM has a simple yet elegant way to define one RLM license in terms of another. It is used in two common ways.

First, it can enable “token-based” pricing models where each of your products checks out a license for itself which results in license tokens checked out from a common pool.  Each product checks out a number of tokens equal to its relativpolicy in the licensee value. Any number and combination of products can be used so long as the maximum number of tokens in the pool is not exceeded.

This model works especially well for companies that sell suites of related products that are used to various degrees during a project. As the project advances from one phase to another (Design, Test and Simulate), the mix of products used reflects the demands of that phase of the project. So you don’t sell a certain number of seats of each product.  Instead, the user determines the mix based on his needs.

This model also allows you to introduce new products to your customers easily since the new products consume the same licenses (tokens) that are already installed.

The other main use of token-licensing is to enable license alternates. This is the case where you sell a single product that consists of many separately licensable components (product and sub-product model).  If you sell product bundles at a special discounted price, then customers can purchase a combination of both the bundles and the components of the bundles in order to match their requirements. If a component license is unavailable, then a higher priced bundle license, if available, can be checked out to satisfy the request as a last resort.

Overdraft licenses

A token-based strategy can also address overdraft situations. In this case, when all the regular licenses are in use, overdraft licenses are consumed instead. If required, the overdraft licenses can have shorter term expiration dates so that they can be used only during a predetermined time window. And overdraft licenses are reported separately in the report log, so they are accounted for appropriately.

No changes to your application are needed to support token-based licensing – “the policy is in the license.”

WAN Licenses – use time zones to increase pricing options

Your biggest customers usually connect their geographically dispersed sites via a WAN. When they do that, they can share your floating licenses across the globe. For a variety of reasons you may want your licenses used only within a particular geographical area. With RLM, you can assign a “timezone” to the license to allow use of your software only in those zones. You could charge a higher fee for licenses that cover a wider geographical range, and less for restricted licenses.

Again, no changes to your application are needed to support WAN licensing when you use “policy in the license.”

101 License Models – Floating License Models

A while ago, we wrote a blog post entitled 101 license models.  Since that time we followed up with posts on unrestricted license models and nodelocked license models.  In this post, we will explore the third set of license models described in that post – the Floating License Models.

The Floating License Models

To review, floating licenses are the most commonly used license models.  These licenses can be used by anyone who can contact the license server.  The floating license models provide the richest set of license control. The floating license models we talked about are these:

Ways to use floating license models

Floating licenses are not generally locked to any machine – although they can be. They are served by a license server which is itself locked to the host where it runs.  In other words, in general floating licenses work anywhere, but only up to the maximum concurrent license count imposed by the server.  Floating licenses are the most popular licenses used by software publishers since they allow the maximum flexibility in pricing as well as day-to-day usage by end-customers.

The traditional, or “plain vanilla” floating licenses are by far the most popular of all.  They allow a software publisher to sell more valuable licenses (often at a higher price) as compared to node-locked licenses.  For the customer, the added flexibility to use a license on any client on their network provides significant extra utility and value, when compared to licenses node-locked to each client.

The other models listed are generally variants of the traditional floating license.  By adding these attributes to the license, additional restrictions apply.  Often a publisher will restrict the timezone where a license is available, or the platforms on which the software is allowed to run.

named-user license is a special case of a floating license. It allows the customer to assign particular users to the licenses.  Over time, these users can be changed, but not too often. This gives the customer the flexibility of a floating license model, but restricts the usage to the names on the list only, not to the general user population.

Finally, license sharing (for example,  shared by host) allows multiple instances of the software while consuming a single license.  In the case of shared by host, multiple instances running on the same host would consume only one license.

We will explore the last two License Models (Token-based and Metered) in future blog posts.

Zeenyx Software Relies on Reprise

Zeenyx Software Relies on Reprise

Zeenyx has been using RLM in its product, AscentialTest, since 2009. They feel certain that they made the right choice right from the start. Their customers consistently find that RLM is both easy to deploy and administer. They appreciate the flexibility of their deployment choices. They are happy to see that the Reprise team continues to keep up with changing requirements by offering their RLMCloud solution. Zeenyx plans to provide RLMCLoud as an option in the future.

Currently Zeenyx uses node-lock, time-based licenses to support free trials. Almost all of their installations use the physical license-server model with a few exceptions where customers have chosen to use a hardware key so that they can deploy their license server on a virtual machine.

About Zeenyx Software

Zeenyx Software, Inc. provides an enterprise level Test Management System that encompasses test planning, development, data management, and execution. Founded in 2006, Zeenyx created AscentialTest, a next generation testing solution that eliminates the need for programming skills, allowing users to build robust, highly maintainable, and reusable tests. AscentialTest is helping Fortune 500 companies reduce the cost of testing by making testers more productive.

Home Brew replaced by RLM at Live2D

Home Brew replaced by RLM at Live2D.

As a small developer of graphics software, we were looking for a way to securely distribute our software globally. Our first option in 2013 was to develop our own “home brew” license management system.Home Brew replaced by RLM

We wanted to protect our product in a way that was robust yet fair to our customers.  However, developing such a protection system could drain too many resources that could have been used to improve our product. Even if we managed to develop a decent license management system, it would have required further development effort.  We would still have to handle maintenance, patching holes, and developing a user interface that could be used across our organization.

We started looking for a turnkey software licensing solution from an experienced company. After speaking with multiple potential vendors, RLM stood out for many reasons. The professional support and advice we received from Reprise addressing both technical and commercial issues was Reprise’s most notable advantage. For example, Reprise asked us which parts of our product we truly wanted to protect. We then realized that we were trying to address every possible scenario, however unlikely. This question led us to focus on what was really important to our business and to avoid pitfalls.

After four years, RLM has become an integral part of our business and will continue to be in the future.

FX Vendor Mootzoid switched to RLM

Mootzoid switched to RLM from “home-made licensing”

Mootzoid switched to RLM

In 2008 Mootzoid started developing and selling plugins. At that time, no software license manager was used because the number of customers and users was just too small to justify investing time or money into a software licensing system.

As the user and customer base grew, the need for a software licensing system became evident. Mootzoid developed a very simple in-house software licensing solution in 2010.

It worked well at the beginning.  However, problems became apparent after only a few months. Too much time was required to maintain and support this very limited proprietary software licensing system. Furthermore, larger studios and potential customers expressed their doubts about the ‘amateur’ licensing system.

Switched to RLM

In 2011 Mootzoid decided it was time to dump its in-house licensing and switch to a more robust system.  Mootzoid wanted a system that was used by other software development companies.  They also wanted a system that was familiar to systems administrators of larger studios. At that point, Mootzoid switched to RLM.

Adding RLM licensing to the Mootzoid plugins was done in one afternoon.  Acceptance by the customers was good. Studios expressed their satisfaction that the Mootzoid tools were now using something that fit better into their existing licensing process pipeline.

Since 2011 all Mootzoid plugins running under Window, Linux and OS X are using RLM.  The decision to make the switch has never been regretted.

About Mootzoid

Around 2008 Mr. Eric Mootz decided to stop freelancing and to instead develop and sell plugins for 3D applications under the name “Mootzoid”.

The first two plugins were a fluid solver and a particle mesher, both available for the Softimage platform only. In the years that followed, the plugins were continuously enhanced, were ported to other 3D applications and were used by increasing numbers of freelancers and studios around the world. During that time new tools were developed as well, including flocking solvers, particle renderers and versatile meshing plugins.

All tools have been used in many film productions such as TV commercials and movie projects. Several schools of 3D and universities in Europe, Australia and the USA take advantage of the Mootzoid free educational license model, using the plugins exclusively for teaching and research purposes.

Software Monetization – That’s Fancy Talk

“Software Monetization” – What does it mean to your business?

Industrial companies are increasingly using software as the driver of their future growth. Sustainable growth is fed by profits. But to grow profitably, you need to ensure that your software infrastructure has the proper licensing controls built-in, so that you can get paid for the fair use of your products.  This is what we mean by “software monetization”… turning your products, whether software or software-driven devices, into dynamic, profitable businesses.

Protect and Defend

The first step is IP protection. Adopt a technology that gives you a satisfactory degree of security to prevent unlicensed use, and to deter imitators (grey-markets) who would use your IP to compete against you. We all know that no software is totally hack-proof, but you have to make malicious attacks against your products non-trivial.

Control through SOFTWARE MONETIZATION

Once you have protection built-in, you can ensure that your customers fairly pay you for their use.  The best way to accomplish this is through tamper-proof licenses that specify the terms of use in the license. Licenses can define expiration dates, rights to future updates, where and how much of your software can be used, and license sharing attributes, among others.

SeamlessNESSsoftware monetization

Consider how your customers will obtain licenses or activate your software. Fully leverage near ubiquitous connectivity to simplify installation and authentication, whether it is through in-product activation or by supporting floating licenses by deploying license servers in the Cloud. Your choices should reflect how your customers use your products, as well as their own preferences. For example, some customers will insist on staying off the public Internet, so make sure you have a strategy for these cases.

Shake the Trees

Increasing profitability comes from both your current base, as well as new markets. Monetization means extracting revenue from existing bases by giving them choices of new feature bundles, and by scaling price to the value that they receive. New pricing models, such as monthly/annual subscriptions, token-based licenses, and usage metering may cast a wider net into your existing markets. Perhaps a super-low price point, or even a free version is a way to broaden your base. Conversely, there may be valuable features that you currently bundle that could be offered as an up-sell opportunity. Monetization also means delivering totally new products/features using the same licensing technology to derive new sources of revenue.

Product Lifecycle

Your customers are always on the move, and that means your licenses have to move with them. With software licensing, you have mechanisms for customers to self-serve. After your customers easily convert a trial versions into paid versions, they can later move licenses to a new machine, or add new modules, or upgrade to a new release. In all cases, access is in their hands, but you are always in control.

Software licensing also helps manufacturers simplify supply chains by reducing the number of unique physical devices needed to address multiple market segments while extending the useful lifetimes of these devices.

Business Intelligence

What if you could know which parts of your products were used the most, how often? With software licensing, you can gather and monitor actionable product usage data, not just to calculate an invoice, but also to gain marketing insight into how your product is used, and where to allocate precious development resources.

Software licensing services easily tie into CRM and E-Commerce/payment platforms for speedy quote-to-cash.  This means timely revenue recognition and an improved customer experience.

Build on the Shoulders of Giants

In-house development of software monetization tools offers little competitive advantage. Worse, it can derail engineers from development of new features where true product differentiation and competitive advantage lives.

Fortunately, today’s software developers welcome the paradigm shift toward designs built on a combination of licensed code and in-house application software. By acquiring a 3rd-party software monetization solution rather than building it, development organizations enable themselves to focus their efforts on delivering more innovative products more quickly within shrinking market windows.

Top 3 Software Licensing Models

This article discusses the Top 3 Software Licensing Models – subscription license, perpetual license and consumptive license.

Software customers and publishers negotiate pricing based on both the perceived value of the application and how the application will be used.  The software licensing model defines how the product will be used.  Let’s define the top 3 software licensing models.

Perpetual license – a non-expiring license to use an application. The customer has no obligation to pay for support or update services.

Advantages: Simple to deploy and manage. Customers may be able to expense the purchase as capital.

Potential downside: Difficult to securely handle machine upgrades and software redeployment. Publisher is locked into the old license policy for years.  Customers may end up using very old software versions to save money if they elect to forego maintenance.  This in turn could lead to poor publisher reputation when software becomes outdated. For the customer, perpetual licenses require larger initial outlay.  For the publisher, perpetual licenses require a steady stream of new license sales to maintain revenues. Pressure to discount is high.

Subscription license – a renewable license, usually annual, including software support and updates during the coverage period. The license is automatically terminated unless it is renewed.

Advantages: Encourages steady, predictable revenue flow to publisher. Lower initial cost for the user, faster approval cycle. Allows for short-term rentals. License policy can be changed at renewal time. Limits license exposure to overuse when machines are decommissioned or upgraded. Customers are able to annually expense the budgeted license renewal fees. Less price discounting pressure. Encourages on-going client-vendor relationship.

Potential downside: Increased license management overhead. Requires accurate record keeping to manage license life cycle.

Consumptive license – This license has a periodic fee based on usage. Payment can be before or after use. Example cases: overdrafts, utility-pricing based on time or work done, etc.

Advantages: Maximum license and pricing flexibility. Price most closely related to value. Encourages steady revenue flow to publisher. Lowest initial cost for the customer. The customer is never denied a license.  License policy can be changed at any time. Customers may be able to expense the license fees as they occur, perhaps monthly. Least price discounting pressure. Encourages on-going client-vendor relationship.

Potential downside: Requires most license management overhead. Reliable license usage reports must be created periodically, and mid-cycle to check against budget. Licensing must be integrated into CRM or accounts receivable systems. Customers may have issues with privacy.

Cloud-Based License Management

This Article Describes Cloud-Based License Management and in particular several problems solved by this approach.

Traditional floating licensing requires a license server installation on the end customer’s network. Although this deployment strategy is still the most common, you can improve the situation by moving the license servers into the cloud. Let’s look at the issues where Cloud-Based License Management can be of some considerable help.

The crux of the matter is that when you deliver licenses to your customer, you lose control. When you manage your customer’s licenses in the cloud, then you retain control. It’s that simple.

Some of the advantages of delivering licenses in the cloud are…

Customer Preference – Some customers don’t want to set up a license server. They feel this is the vendor’s responsibility. Most small customers don’t have in-house IT support. Licensing in the cloud eliminates the need to install and maintain the license server locally.

Reduce Support Time – Installing a license server can sometimes cause problems. Licensing in the cloud eliminates this task altogether.

Instant Revenue – The publisher can recognize revenue immediately. No more waiting around for the customer to track down the hostid of the server.

Use Anywhere – Your customer can run your software anywhere: on virtual machines, in classrooms, labs, at off-site training, and at trade shows, etc.

License Rehosting – Traditional floating licensing makes it difficult to securely rehost a customer’s license server when it fails or when it is decommissioned.  This is not an issue with licensing in the cloud.

Suspend/Reinstate Licenses – Traditional floating licensing also made it difficult to terminate or suspend licenses. With the license server in the cloud, you can easily deal with non-payment or lapsed subscriptions.

Modify license inventories – With cloud-based license management, it is easy to change license counts up or down, and handle version upgrades.

Usage-based licensing – Pricing software based on usage relies on accurate records. In traditional license server deployments, license usage data is collected at the customer site, making it difficult to collect. With cloud-based license management, the report log containing the usage data is on the cloud, not at your customer’s facility.

Always up-to-date – Your cloud-licensed customers take advantage of upgrades to the server software immediately when released. Backward compatibility of the client-side ensures this.

Failover Servers – Maximize license server up-time with automatic failover server setup, at multiple datacenters.

MecSoft Uses RLM to Improve and Automate its CAD/CAM Software Licensing

In early 2015 MecSoft Corporation started looking for a solution that would allow it to transition away from a hardware key (dongle) based licensing to automated software licensing for its popular line of CAD/CAM products. They needed to make the shift due to the expense and delay programming and shipping individual dongles.

The resulting lack of automation in the license fulfillment process also hurt their ability to provide customers with immediate access to its software applications. They also realized that they needed a software based licensing system that:

  • Could protect products and proprietary information.mecsoft uses RLM
  • Could be effectively integrated with their existing sales platform.
  • Was scalable to both current and future offerings and increasing sales volume

MecSoft looked at many different systems before finally settling on the Reprise License Manager (RLM). They decided to work with Reprise Software because Reprise offered a solution that:

  • Was mature and sophisticated which met not only our needs but also those of our customers.
  • Handled licensing scenarios that satisfied the existing demands of their product offerings, while also providing a viable platform for their future needs.
  • Provided excellent documentation and tech support that allowed them to get started quickly and adapt to the initial integration process.

MecSoft released its products using RLM technology in 2015. According to Mr. Joe Anand, MecSoft’s President, “The systems are functioning as expected and, I am happy to say that, with the help of RLM, we have successfully met all the goals that we set for ourselves when we started this transition process. ”

Our Future with Reprise

Mr. Anand continued, “We have also talked with Reprise about their newest internet-based network licensing system, RLMCloud, and are planning to incorporate this system into the next release of products. We are thrilled that Reprise has been able to provide us with their cutting edge of licensing technology which has allowed us to focus on our core competency while taking advantage of theirs. “

About MecSoft

MecSoft Corporation is a developer of standalone, as well as integrated CAD/CAM software solutions for both the subtractive (CNC machining) and additive (3D printing) manufacturing industries. With a focus on developing easy, powerful, and affordable CAD/CAM software solutions, its goal is to continue to provide manufacturing professionals with the best price-to-performance CNC and 3D printing software.