Software Monetization

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SafeNet and SIIA Survey: Where Software Publishers are Losing Up to 50 Percent of Revenue

March 21, 2013

Intellectual property (IP) issues along with cybersecurity concerns seem to dominate the headlines these days. When it comes to IP, whether it is about who is suing who over infringement, or as was the case with the recent decision by the U.S. Supreme Court concerning whether copyrighted materials lawfully purchased overseas can be resold in the U.S. without the reseller getting permission from the IP creator, we live in an era where IP can’t help but be a focus of intense industry attention. There is just way too much at stake.

However, an area of the IP landscape that typically does not make headlines, but involves a significant amount of money, is the struggles independent software vendors(ISVs) have in monetizing their efforts without disrupting their business. The nature of the challenge is highlighted in a new joint study by software monetization company SafeNet and the Software & Information Industry Association (SIIA).  More than 600 software developers and 200 enterprise software end users were surveyed and the results showed how as a result of not implementing the right licensing models and security ISVs are, “losing revenue, seeing diminishing profitability and increasing the risk to their brand and overall reputation.”

ISVs are putting a lot at risk

As the survey exposed, ISPs through a combination of inflexible licensing models, insufficient software protection, and inadequate operational procedures are leaving a lot on the table as well as subjecting themselves to a host of risks. The numbers are food for thought. Highlights of the survey include:

• Licensing flexibility: 53 percent of ISVs said they would have higher revenue if they had more licensing flexibility.
• Revenue and Brand Reputation Increasingly at Risk:  48 percent admitted that competitive IP theft had a significant impact on their business.
• Back-Office Dysfunction Leading to Operational Inefficiencies and Revenue Loss : 46 percent report that dysfunction in their back offices has had a significant impact on their business with 60 percent admitting that they struggle with back-office licensing processes.

In commenting on the survey results SafeNet (News - Alert) SVP Prakash Panjwani stated that the survey results, “Highlight the tremendous need for a change in how software developers approach and execute their software monetization strategies…Developers need solutions that address the four key elements of software monetization—effective packaging, access and compliance control, back-office automation and management, and usage monitoring. By adopting a comprehensive approach to software monetization, organizations can not only protect their critical IP from piracy and reverse-engineering, but help drive revenue and profitability as well.”

Licensing flexibility

The issues with limited flexibility of licensing models are a key cause for ISVs not being able to fully monetize their IP. 61 percent of ISPs said they struggle with the ability to price and package their applications at the feature level.  In fact, 49 percent said re-packaging offerings without engineering involvement is a challenge, and they struggle to support the license models their customers are demanding. This was confirmed with the finding that inflexible licenses were the biggest software licensing headache with 35 percent of end-user respondents.

Revenue and Brand Reputation Increasingly at Risk

The granularity of the survey on this subject is also a revelation that should serve as a call to action for ISVs. 42 percent of ISVs thought that lost revenue due to software piracy had a significant impact on their business. And, as the study notes, this was “not unexpected,” considering that:

• 70 percent of respondents reported challenges with piracy prevention
• 63 percent reported challenges with reverse-engineering protection
• 51 percent reported challenges with code-tampering prevention.

The end user side of things is also not a pretty picture.  End users have concerns about the business impact of software misuse—more than 60 percent report having some unlicensed software in use within their organization last year. It was noted that this behavior is reinforced by ISVs responses where 74 percent worry their software may become compromised; only 58 percent employ license compliance enforcement mechanisms. Maybe most disturbing is that only 46 percent employ IP protection tools.

Back-Office Dysfunction Leading to Operational Inefficiencies and Revenue Loss

This is an area which historically has been one that has not gotten much attention since back-office inefficiency tends not to be the priority that it should be. Along with the overall finding that ISPs now recognize the need for operational efficiencies as a prime source of revenue leakage awareness of the problem has not translated into action with only 31 percent of respondents saying they have integrated entitlement management processes.

The list of operational challenges is formidable. It includes: entitlement management generation; delivery, and/or activation; end-user support and/or self-service; end-user provisioning. Again the end user perspective is interesting because they are having issues as well with 32 percent saying the process associated with lost license keys is their biggest licensing headache, and with only 28 percent saying their vendors offer customer self-service tools.

Other challenges

As with so many other areas involving business process automation and workflow management, the survey found that ISV success is being hampered by a lack of good business intelligence, i.e., the ability to track who is using their software—as well as when, how, and to what extent. The survey found that 68 percent of ISPs struggle with usage visibility.  Reality is software monetization planning requires actionable insights on feature usage, end user information, and entitlement status.  

The bottom line

It should be noted that there was some good news in the survey. The old saying that with awareness comes power is evident in ISV respondents’ overwhelmingly acknowledgement that an effective software monetization strategy would help them maximize the value of their IP. In fact, 67 percent said such a strategy could boost their revenue by up to 25 percent, and an additional 18 percent think it could boost revenue by 26 percent or more.

The bottom line focus is also evident in the list of important software monetization features ISVs are seeking from their vendors. Security remains at the top of the list, but it is followed closely flexible packaging/bundling functionality, automated provisioning and enforcement, and minimizing the burden on engineering.

“The industry finds itself at a critical tipping point as software publishers look for more innovative and effective ways to maximize the value of their IP,” said Rhianna Collier, VP of the SIIA’s Software Division. “They need to better align their software monetization strategy with their business objectives and drive those strategies very early in the product development cycle. That way, they can develop software packages to meet their customers’ current and future needs, and build licensing into their software and back-office systems.”

Finally, along with the survey, SafeNet has an interesting blog that is worth reviewing, Exploring the Four Aspects of a Comprehensive Software Monetization Strategy. It details what ISVs should be considering in the development and implementation of an effective software monetization strategy that maximizes their revenue potential and at the same time decreases their risks.

Edited by Brooke Neuman

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