Software Monetization

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The New Challenges of Software Monetization - Packaging Flexibility and Transparency between ISVs the End-user

September 04, 2012

Despite a challenging economic climate, the software industry has continued to thrive largely because independent software vendors (ISVs) have been able to help their end users cut costs through flexibility in how the package and sell their software products.

IDC (News - Alert) expects software subscription revenue to grow at a 17.5 percent five-year compound annual growth rate (CAGR) to reach $108 billion by 2016, representing 24 percent of total software revenues by 2016.

Trends driving growth in the forecast include the adoption of software as a service (SaaS (News - Alert)) – or public cloud services – offerings, as well as the increased availability of subscription options, and the improved maturity of subscription offerings.

Actual subscription revenues in 2011 were slightly higher than forecast, exceeding expectations by $5.5 billion or 13 percent. This is the second year in a row that subscription revenues have exceeded growth expectations.

But today, many software providers are not fully monetizing their product and are potentially missing a big piece of the revenue pie without a successful software monetization strategy of which flexible packaging should be a critical element.

In a recent interview with TMCnet, Amy Konary, Research Vice President of IDC’s Software Licensing and Provisioning program, explained that the software vendors who are doing the best job monetizing their applications are the ones who understand the importance of product packaging flexibility and transparency between the software vendor and the end-user.

Flexibility, as Konary explained, is the cornerstone of an effective software monetization, and Michelle Nerlinger, Director of Marketing for SafeNet (News - Alert) agrees. According to Nerlinger, “The software applications offered by many organizations today can and should be sold into a variety of diverse industries. The issue is that not each industry or market segment will use a product in exactly the same way, frequent the same features, and see the same value provided by the application. Which is why it is so important that a software vendor is able to leverage flexible packaging options – without re-engineering – to find the right price, the right feature set, and the right value for every market segment, every time.” Nerlinger believes that this will result in maximum market applicability and therefore maximum profitability for software vendors.

When asked about determining the value of software Konary responded very similarly “The way the software is valued is based on the kind of company using it and what they are using it for,” she told TMCnet.

Nerlinger went on to explain that flexible software packaging is about much more than which features are bundled together at which price point. Flexible packaging must also take into consideration how a software vendor intends to allow customers to consume their applications. Most businesses are given the option to buy via a subscription as well as the perpetual licensing option where they can pay up front and use it forever. As cloud-based services continue to rise in adoption, a subscription-based model is more appealing to many companies, as it allows them to compete with business models offered by their cloud-based competitors without having to introduce a cloud-based service themselves.

Konary will address this topic at the upcoming SafeNet LicensingLive! Event being held Oct. 2-3 in San Francisco. Konary will speak at the “The New Look of Software Monetization” session.

Edited by Peter Bernstein

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