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Happy New Year! We hope
you enjoy the January '08 issue of
Options. It is full of
interesting software licensing topics.
Please feel free to
forward this to a friend
using the link at the bottom of the
page.
Thanks.
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Building
Your Pricing Model
Using a License Manager as a Pricing Tool
Question: Are you like many software
vendors who struggle with software
pricing? Do you want to maximize revenue
while pricing your software in ways that
make sense to your customers?
Deciding how to price your software
products is a challenge that does not a
have "one-size-fits-all" solution. A
software license manager, such as the
Reprise License Manager (RLM), is an
indispensable tool that can help you to
design and enforce pricing models that
are right for today's customers, while
giving you the flexibility to quickly
adapt to new opportunities as they
emerge.
A
License Manager Gives you Flexibility
and Control
When a license manager is properly
integrated into your software, it is
able to interpret and enforce virtually
an unlimited number of licensing and
pricing schemes. You implement your
licensing polices primarily by:
- specifying parameters in your
product licenses, and
- how your software handles
unsuccessful license requests (to
deny or permit use).
These two levers allow you to customize
your license policies by product,
customer type, location, etc. You don't
need to maintain unique "builds" for
each case because licensing is largely
controlled "outside" of your
application. This also means that you
are poised to quickly revise your
policies to match any new business
opportunities that crop up - without
having to involve your busy software
engineers.
Decisions, Decisions...
What's
a license manager to do?
What
should I license?
So, after you have decided how lenient
or strict your licensing policy is going
to be, you have to decide what to
license. Most
often applications are licensed as a
whole - using a single license, but in
some cases you may want to license
additional features for which some
customers will pay extra. This helps to
keep the price of your basic product
low, while collecting extra revenue from
only those customers who value the
advanced functionality. You may want to
take this concept a step further to
create multiple product "bundles" that
correspond to common user types, or even
support a tiered pricing model with
"Basic", "Advanced" and "Pro" versions
to add greater pricing depth.
Which
types of licenses?
Determining the right licensing model
requires an understanding of how your
customers will use your products. If it
is dedicated to a specialized niche
purpose, you can use a "named-user" or
node-locked license. On the other hand,
if the product is meant to be widely
shared or used collaboratively, you
might want to use floating or concurrent
licenses. If you support both types of
licenses, then you can usually charge a
price premium for the floating (less
restrictive) license. Price premiums
can range from as little as few tens of
percent to a factor of three or more,
depending of the type of software and
how it is used. In general, it's best to
offer multiple license types because it
helps you to expand your account
penetration by reaching more users.
What is
a "user?"
Defining the term "user" may sound like
a strange exercise, but its meaning may
have a profound effect on the scope of
your licenses. Getting it right means
that your customers will use your
software precisely as intended. For
instance, should the same user on the
same machine consume only one license of
your software regardless of the number
of copies he uses concurrently? Also,
should a floating license that is used
for only a short duration be allowed to
return to the license pool immediately,
or should the license manager impose a
delay to encourage the sale of more
licenses. What about multi-threaded
products? Should they consume a single
license? a license per thread? should
there be a limit to the number of
threads per license? As you can see,
defining a "user" accurately is
extremely important. When defined
properly in both your software license
agreements and within your licensing
implementation you avoid any confusion
with customers about the scope of your
licenses.
Should
licenses expire?
This basic question is at the root of
your pricing model. Obviously, if you
settle on using a subscription licensing
scheme, you'll want your licenses to
reflect the paid license period, but
even if you sell perpetual licenses, you
may want to limit the duration of the
license (start and end dates) so that
licenses require periodic refreshment in
the field. This can come in handy when
you make wholesale changes to your
pricing/licensing model at some point in
the future (including switching
licensing vendors) - knowing that at a
certain date, all old licenses will be
automatically retired.
Should
licenses match a specific product
version?
Although version numbers in licenses can
restrict which application version can
run, most vendors prefer allowing older
versions of software to consume newer
licenses, but not the reverse. Some
vendors creatively use license version
numbers to manage support contract
periods. For instance, a license that
specifies a version of "2009.0101" would
support any version of the application
released before January 1, 2009. New
licenses (with new "version dates") are
issued only to customers who renew their
maintenance. Used in combination with a
license expiration date, a license could
permit permanent access to the "latest"
verision released during the user's most
recent paid maintenance period - without
the license itself ever expiring.
Should
I support "overdraft" licenses?
One of your best new sources of revenue
might be enabling special premium
pricing for peak periods. Requests for
overdraft licenses will usually come
from your best and most loyal customers,
so you may assume that they will assign
a higher value to this type of license -
allowing you to price it accordingly.
It's win-win because you have solved the
customer's problem while generating a
pop in your revneue.
"Post-use" licensing models
Another new source of revenue might
be aimed at those customers who
would rather pay for your software
based on their actual measured
usage. Again, a license manager is
the perfect tool for this because it
can capture the details of the
customer's usage history allowing
you to build accurate invoices
weekly, monthly, or quarterly. You
could use a "post-use" model on a
customer by customer basis,
maintaining it as a revenue-positive
alternative to your traditional
licensing models that you use for
the majority of your customers.
We've only scratched the surface
here, so if you would like to
discuss how license management can
address your particular requirements
in more detail, please
contact us.
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RLM Customer:
Computational Fluid Dynamics
(CFD)
Simerics, Inc.based
in Huntsville, Alabama, develops, markets,
and supports a software product called "PumpLinx"
which is a Computational Fluid Dynamics (CFD)
tool for the three dimensional analysis and
design of fluid pumps. Simerics was founded
in 2006 and began shipping its product in
April of 2007.
The software is sufficiently accurate,
easy-to-use, and fast that it can be
used by designers as a practical
alternative to hardware tests. PumpLinx
allows engineers to improve designs, fix
problems, and integrate the pump into a
system in less time and with less cost.
(see inset of water jet pump). It uses
CAD data as input and is able to
accurately model the full range of pump
dynamics, including cavitation. Output
includes engineering data relevant to
the pump engineer, including flow,
cavitation, pressures ripples, loads,
torques, and power.
The software is aimed at industries that
design and/or utilize pumps, including the
automotive, hydraulic, aerospace, and
petroleum industries.
Simerics offers various license types for
PumpLinx including Commercial, Evaluation,
Distributor and Training License versions.
The software is also offered in multiple
configurations based on the functionality
purchased. They use the Reprise License
Manager (RLM) to control which set of
functions are enabled.
Simerics designed a custom RLM hostid based
on CPU type / HDD ID / Network card
addresses. It is used to ensure that the
software is used only on machines that are
licensed to run it.
The most important factors that Simerics
considered when selecting RLM were the
support of floating and node-locked licenses
on multiple platforms and RLM's reasonable
price structure for their new startup
company.
To learn more about Simerics and its
products, please visit their
website. |
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A Kinder, Gentler Licensing
Strategy
Give your customers the tools to stay
compliant
For the better part of the last twenty years,
software vendors have relied on license managers
to control their customers' use of their
high-value software applications to ensure
compliance with their license agreements.
However, vendors of higher-volume enterprise
software are starting to view license management
not so much as a service-denial mechanism, but
as a valuable built-in tool to help their
customers manage their own compliance and for
them to gain a more accurate understanding of
the extent of their software usage.
Balancing
vendors' and customers' needs
Let's face the simple fact that software
users just want to get their work done. In a
perfect world, software vendors don't want to
limit
a user's ability to access their software, but
at the same time vendors want to be fairly
compensated for that use. End-users generally
don't want to exceed their license rights
(especially now with tighter internal compliance
rules in place) but they often don't know what
those rights are, making it impossible to stay
compliant.
When software vendors deploy a strict
denial-of-service policy, users may at times
find their software unavailable when the license
server is not accessible or is not running
correctly. Fixing that situation may require
costly intervention from the vendor. Of course,
publishers can decide how strictly to enforce
their licenses by the way that their software
behaves when licenses are not available, but
what strategy should these vendors adopt to
strike the right balance between their needs and
those of their customers?
Letting
Customers Police Themselves
What's needed is an implementation
strategy for license management that provides
customers with all the parts of the licensing
system that enables them to control their
software usage without burdening those customers
who don't. A strategy like this is a win for
both end-customer and vendor alike because:
- Your customers do not need 3rd party
software to control usage - it's built in,
lowering their total cost of ownership
- The transparency of the system makes
clear to both customer and vendor what is
meant by "a license"
- Your customers have everything they need
to comply with your license agreement, so
they should never be out of compliance
- The "always available" license policy
saves you from the care and feeding of the
licensing system when your customers
move/change license inventory or network
- Detailed license activity logs can be
used to produce audit reports if necessary
How is this strategy implemented in RLM?
It's simple, really. When your software tries to
check out a license, it runs as normal except in
the specific case of "all licenses in use." Your
application might then ask the user if he wants
to continue running anyway even though he may be
exceeding his company's current allotment of
licenses. All other licensing failures should
result in a message to the user, but allow the
user to continue to run. This means that if the
licensing system is not installed, or is not
running at the time the user requests a license,
they will be able to continue to run.
Is this
licensing scheme for me?
Maybe, maybe not. The implementation
described here works best for products that are
encouraged to be widely shared within an
enterprise, such as desktop productivity tools,
utilities, framework and collaboration
products. Products with higher "per seat" value
might benefit more from the more common
(stricter) licensing strategy.
No single licensing implementation works across
all product categories, but a license manager,
such as RLM, is the best tool to provide the
flexibility to cover the full spectrum of
license enforcement models - from "very strict"
to "self-compliant," as we have discussed here.
If you would like to discuss which licensing
strategies might work best for your business,
please contact the experts at
Reprise Software.
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