Traditional software licensing models are being challenged by new hardware and software deployment options. Gone are the days when users had to own their hardware infrastructure. Gone are the days of getting approval for the purchase of big ticket items like servers, and desktops, configuring them, and maintaining them to run their perpetually-licensed software in-house.
We've been lucky enough to be around software licensing for 20 years; combined, we have over 70 years of software licensing experience under our roof. It's safe to say that in that time we've seen it all, and then some. Whether it's enterprise end users wanting the best tools to maximize the usage of their valuable software assets, or software vendors wanting that next creative approach to licensing and selling their software, we've been there and done that.
Thrive by making changes to your software licensing programs
Some pundits have said recently that the global economy is coming out of the recession. True or not, overall business activity is still comparatively slow. We think that a sluggish, yet growing economy presents an opportunity to exploit changes in how you license your software.
Of course many software vendors’ revenues were barely affected by the slump – good for them. But not all vendors are as fortunate. Every software vendor eventually experiences a slowdown at some point. When overall capital expenditures are declining it’s almost inevitable that software vendors will feel the effects too. In addition to redoubling your efforts to improve your core products, the key to successfully riding out a recession is to support an adaptable and creative set of software licensing programs.
Regular readers of this newsletter will already know that the best way to stay flexible is to integrate a license manager within your software. Here are some ideas for your marketing/sales teams to create new programs to help you weather the storm.
Streamline your Licensing Operations
Perpare yourself for growth by setting up a more automated licensing system can help you save money on labor costs, while improving customer satisfaction and increasing sales. When a prospective customer requests an evaluation of your product, you can send out an “evaluation key” that can be redeemed for a temporary license over the Internet that will be valid during the evaluation period. The best part of this tactic is that you know exactly when that license will expire, and perhaps when to contact the user to see if your product fits his needs. You then can either extend the evaluation by issuing a new “evaluation key” or convert the trial into a sale. For paying customers, you can allow them to self-serve their license keys using the same activation infrastructure.
New Pricing/Payment Models
Slow sales mean that it’s time to get creative with licensing. If you are now selling only permanent licenses, consider going to time-limited licenses, both to add recurring revenue and to avoid “giving away” value. Try selling annual licenses to reduce the upfront cost of your licenses. Price the annual licenses at a level that will increase your revenue over time. Also consider a pay-per-use scheme for those customers who prefer it.
Modularize your High-Value Components
Some software vendors use an economic slowdown to decouple some of their high-worth software modules from their basic product so that overall prices can be reduced while still capturing higher revenue from those customers who require the more expensive options. The lower cost of the basic version can open up new accounts and increase your market share as well.
“Productize” what you used to give away for free
We’ve talked to a lot of companies recently that are not, strictly speaking, software companies at all. It turns out that many technology companies often “throw in” software as a kind of “enabler” or loss-leader, focusing instead on collecting revenue from hardware sales or consulting fees. Let me suggest that wherever there is perceived value in these software applications, there is also potentially untapped incremental revenue.
Increase your Maintenance Subscription Rate
License Managers are very useful tools to ensure that your customers use only the software versions for which they have paid support fees. Try using the version number field in your licenses to encode a support-expiration date in the form yyyy.mmdd (2009.0531). Let a license manager compare it to the “release date” of each version so that your customers must remain current with their maintenance payments in order to access new releases.
Expand your Sales into New Regions
Use a license manager to restrict licenses by time zone or region to penetrate new markets at a much lower cost. Sales gains can be realized by charging a premium for licenses that allow use across wider geographies. Encourage additional license purchases from organizations whose software usage spans geographies.
Deepen Penetration within your Existing Customers
Often the best source of new license revenue is found within your existing customers. Not all users within a customer are the same. So try creating product classes that are specific to each different user type. A license manager makes it easy to build one binary that takes on different functional behaviors (“lite”, “basic”, “advanced” etc.), each one determined by the specific license key you issue. You can later sell upgrades by supplying an additional license key to turn on greater functionality. The pricing of these various classes of licenses should match the value that different user types ascribe to your software. Examine software usage patterns to create a balanced set of licensing options that appeal to the widest audience within your best customers.
Find a lower-cost Licensing Vendor
While you are looking for new revenue sources, you might also consider making changes on the other side of the ledger. If you are tired of paying excessive fees for your third party license manager, maybe it’s time to consider a lower cost alternative. Reprise Software is in the sweet-spot in this regard – providing a world-class license management system at a much more affordable price.
What's the real purpose of software license management?
Too often folks equate Software Licensing with the prevention of software piracy. That notion really misses the point. People are often surprised to find out the real reasons for software license management.
RLM’s Simple API makes executing tactical adjustments to pricing and licensing policies easy
In these tough economic times it is critical to have the flexibility to address complex licensing policies quickly and easily. In a previous article RLM’s ‘Policy is in the License’ methodology was discussed, explaining how the RLM license policy is largely removed from your application. Since the license policy is defined in the license keys, a single binary can support many license policies.. Once RLM is implemented, you can address ever-changing business rules by simply varying the type of keys that you issue. RLM can support a wide range of licensing options and policies. Many of these policies have been covered in previous articles and are summarized here (with link to original article):
- Trial and Evaluation Licenses are implemented using a license with an expiration date, and possibly a “demo” flag, to make your product accessible to would-be buyers. Since eval/demo/trial licenses can also be easily turned into full, “purchased” licenses, a trial version of your product is the logical first step in a successful sales process. Well-designed eval/demo/trial licensing programs will reduce your cost of sales, increase customer satisfaction and productivity, all while expanding your reach into wider geographies and attracting new types of users.
- Floating and Node Locked Licenses can be implemented as needed and depend largely on how your software is intended to be used, shared or unshared. Floating licenses are free to “float” across the network to users who need them. The license manager controls access to these floating licenses via a central server that enforces the maximum license count that you have set for this site. Node-locked licenses, on the other hand, are usually uncounted, allowing an unlimited number of copies to run on a specified host.
- NAMED_USER, or USER_BASED Licenses are a class of floating licenses that must be assigned to user names so that they cannot be used as widely as unrestricted floating licenses. With a named_user license, the license server can construct the list of users automatically as license checkouts occur, or the list can be entered/modified via the RLM web interface by the end-user administrator. Gives you more pricing depth.
- Token Based Licenses are among the more-advanced features that provide a license model to your customers 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. Token based licensing allows you to define product rights in terms of relative value between your products, or allow a user to consume a mix of your products up to a pre-determined level of value. This model also allows you to introduce new products into your customers easily since the new products consume the same licenses (tokens) that are already installed.
- WAN/Time Zone Licenses use time zones in the license file to increase your pricing options. Your biggest customers usually connect their geographically dispersed sites via a WAN. When they do that, they can potentially share your floating licenses across the globe. For a variety of reasons you may want your licenses to be used only within a particular time zone.
- Subscription based Licenses are supported using the start and expiration dates in the license file. Subscription licenses are priced so that they provide a lower initial cost in order to attract both new customers and those customers who are trying to preserve short term cash.
- Version based Licenses can be implemented to support versioning control by either version number or version release date. License requests beyond the version number or release date would be denied, presenting an opportunity to remind the customer that access to that version requires a new license obtained only via a support contract extension, again providing an avenue for maximizing ongoing revenue.
- Licensing on Virtual Machines is supported in RLM via a parameter in the license itself that controls whether it will or will not run under VM. Vendors can deliver both kinds of licenses to their customers – disabled and enabled – allowing them to, for example, issue short-term VM-capable licenses for testing and evaluation purposes, but disabling other licenses for long-term production deployment, or allow certain customers, but not all, to run their licenses on VMs.
The remainder of this article will briefly discuss a few other optional license fields. The following license keywords can be classified as ‘vendor defined’ options as they are not used by RLM to determine policy, but can be accessed by your application to further restrict usage rights or present information to the end-user:
- License Options field specification is used to encode options for the product. Do you have the need to restrict information access or usage within you application? Do you want to limit the number of database records that can be created or accessed, the number of accounts that can be open, the number of portals that can be accessed, etc.? This information can be entered into the ‘Options’ field and extracted by your application to further limit or define the applications internal processes.
- Contract field can be used to hold the customer’s purchase information or software agreement number. This can be displayed to the end-user to validate a support contract, etc.
- Issuer field would be used to identify the organization which issued the license, such as a third party distributor etc.
- Customer field can be used to identify the customer of the software and can be displayed by your application to the end-user. This can be an added incentive to keep honest users honest. It is unlikely that Mega South-East Airlines would want to use a license that was issued to Main St. Bank.
Even though it is wise when starting out to keep the implementation relatively simple, it is very important to have options to address the changes due to market pressure, economic stress or customer feedback. RLM’s licensing methodology gives you the flexibility to address the ever-changing business rules. Reprise Software’s experts can help you plan your optimal approach. Please feel free to contact us to discuss.
How do I harness the power of the license manager? What rights should I give to my customers? Let's first look at basic elements of a license that you can control, then look later at some other important parameters that can further refine your licensing policies.
Independent software companies are increasingly relying on innovative software licensing and pricing strategies to create steadier revenue streams. They are looking for smoother and more predictable revenue growth to make financial planning easier and to increase business efficiency and to maximize value to shareholders.
Software pricing and licensing experts agree that optimal pricing strategies are rooted in value pricing. This means that the customer and the vendor find a satisfying middle ground where the value that the user receives from the software is proportional to the price that he pays.
License Tracker Inc., a Reprise Software partner, has announced the availability of a free "Limited Edition" (LE) version of its leading license usage reporting tool for software vendors and their users.
If this title intrigued you at all, chances are you work for a company that sells software it creates, what many call an Independent Software Vendor (ISV). Most ISVs feel, rightly so, that they’re pretty good at writing software. And when the time comes to consider adding a license manager to their software (see last month’s newsletter article) some ISVs feel it best that they just write the license manager part themselves, and be done with it.
Let us suggest why that may not be the best course of action for most ISVs.
First, let’s look at the role of software development staff at an ISV. Their job is to create the products that their customers want to buy. Easy enough. But at what point does the ISV decide to use a third party product for some type of functionality? Well, only they can answer that, but here’s a suggestion: if the need for something new in your product goes beyond your engineers’ area of expertise, it probably makes sense to use a third party product for that cool widget, or license manager, or whatever you’re looking to add. Otherwise, your engineers will be distracted from what they do best–be it CAD, Oil/Gas exploration, animation, etc. Do you want some of your staff learning a new area of expertise when a valid third party market for that functionality already exists?
What’s the True Cost?
Obviously, a third party license manager has costs associated with it, both up front and/or ongoing. But clearly, an ISV writing its own license manager must balance those costs against the true costs of “rolling their own.”
The biggest portion of the true cost to an ISV of writing their own license manager is opportunity cost. As we point out above, an ISV’s developers are probably better at what they were hired for, likely some fairly narrow technical area relating to the ISVs core business, not license management.WWTD – What would Tiger do?
Does it make sense to pull an engineer off a core project and assign them to write the license manager? Does Tiger Woods spend time mowing golf courses? Sure, he probably knows exactly what to do, given that he knows a thing or two about a properly maintained fairway. But he’s probably better off improving his game by practicing and playing.
Similarly, an ISV needs to be able to respond when new product features are demanded by its customers. In this day and age, where “Internet time” is measured in days and weeks, ISVs can’t be distracted from their primary business.
More Hidden Costs
As if the above issues aren’t enough, ISVs also need to be concerned that end users may want a license manager that’s familiar, not Yet Another License Manager. They may not tell their sales rep the true reason, but not being comfortable setting up a proprietary license manager could certainly make a would-be customer less enthusiastic. And how well has that home-grown license manager been tested in the field? Besides soliciting feedback on the features in that next Beta release, better add requests for feedback on the license manager. Wouldn’t it make sense to use a license manager that’s already field-tested?
Not a One-Time Requirement
So let’s pretend an ISV does go out and write their own license manager. What about when a big customer requests support for that new 64-bit platform? Does the ISV take more internal resources to port (and test, and debug…) the home-grown license manager on the Latest, Greatest 64-bit platform? Surely this is an on-going extra cost. Same with costs the ISV would bear to have its developer update the home-grown license manager with new licensing features and license models. Wouldn’t a third party just add new features and models as part of its product evolution?
The Truth Is…
We talk to ISVs all the time who’ve thrown in the towel and want to use a third party license manager. They see the benefits of a competent third party. They like understanding the cost structure and would rather “buy” than “build” a license manager for all the reasons above.
How about you? Contact Reprise to discuss the benefits of using a third party license manager, or if you’d just like to start your evaluation of RLM.