Software Monetization Featured Article

How to Manage Software Upgrades for Optimal Monetization

March 20, 2014

One of the biggest challenges facing Independent Software Vendors (ISVs) is how to efficiently and effectively monetize their intellectual property when they are upgrading their existing software. This has always been a complicated issue on a variety of fronts including pricing, tracking and compliance just to name a few. The good news is help is now available.

SafeNet (News - Alert) Senior Product Manager Julie Armstrong, had an insightful posting, Managing Software Upgrades for Monetization, on precisely this subject recently.  It was so valuable that TMCnet asked Armstrong to expand on her thoughts.

TMCnet: Having customers buy new versions of existing software seems a logical way to go, however, can you describe the downsides of doing this for customers and the ISVs?

Armstrong: If you charge the full amount for an upgrade, regardless of whether the customer has a prior release, there are a number of downsides:

  • There is no incentive to upgrade
  • You may see purchases taper off as a new release becomes imminent as users delay their purchase until the new release is available, especially if it has features they want to use
  • Licenses for earlier version may end up being “handed down” to other users that have less need for the newest version. This has an impact on new sales as well.
  • Customers may not see the value in paying full prices just to get a few new features, feeling they have already paid for the key features.

TMCnet: Entitling customers who have maintenance to new releases is a common practice, but how do you prevent the use of both the old and the new version simultaneously?  How can you make sure customers have access to entitlements for the new version, but prevent them from generating a new license on a new target without retiring the old version of the license?

Armstrong: This is where licensing enforcement and advanced entitlement management come into play. There are a number of approaches that can be taken. One would be to update the original entitlement to reflect the new version. By doing so the consumed licenses remain consumed and the user must “return” the old licenses in order to have access to the new one.

Another option is to generate “upgrade” entitlements that can only be applied on targets that have an earlier version of the product. This can be managed at either the entitlement or the licenses (key) level.

TMCnet: How do you generate new entitlements?

Armstrong: Generating new entitlements are a function of back-end entitlements management solutions. They can be generated just like any new entitlements, driven from an order, or processed directly within the entitlement management system based on the existence of an existing entitlement. some solutions offer the ability to generate licenses from a file and as a part of a complex upgrade process.

TMCnet: Can you manage the upgrade process without generating new zero-dollar ERP transactions?

Armstrong: With the right management systems, you can. There are a number of approaches and depending on current processes and current systems, ISVs may take different approaches. Some systems will transform entitlements for you based on rules. Others will allow the updating of existing entitlements using a file or web services from another system, perhaps your contract management system where maintenance contracts are managed.

TMCnet: What about those customers that let maintenance expire and then want to upgrade?

Armstrong: Again, there are a number of options. One would be to require the customers to retroactively pay the maintenance fee, plus some penalty to discourage delaying maintenance fees. Another is to simply require customers with expired maintenance to pay for a new license, which gets us back to the prior recommendation.

TMCnet: Do you automatically update the software license or do you wait for customers to come to you to request licenses for the new version? 

Armstrong: Again, I think the answer is different depending on product, technology, and customer base. You might automatically update the licensing but leave it to the customer to decide when to consume it. Or you may want to push the updated license and any updated software to the user. However, forcing an upgrade can have detrimental effect if the customer is not prepared, especially for business applications where changes can disrupt activity and integration with another system needs to be validated.

Armstrong also pointed out that all of this is not a one-way street by any stretch of the imagination. In fact, there are significant benefits that flow to the end customer, making this a win/win. As she noted, “The customer ends up being better informed and not stuck possibly with the time-consuming, manual and not as precise challenge of self-management. When thousands of licenses are involved with major software upgrades across an enterprise this can be costly and a use of IT resources that is better spent on more pressing items.”    

Armstrong also discussed in more detail the not insignificant challenge when it comes to upgrades regarding making sure old software is not creating a problem when new versions are introduced. Given the speed at which new applications are coming online this can be a real headache.    

For example, many older versions of software may not have the same enforcement solution as newer versions. Plus, there may be incompatibilities if older versions are not detected and deactivated. “This is where automated licensing that supports both cloud-based and premises-based software can be extremely valuable. ISVs know who has what, where and what version. They thus have visibility into the real-time status of licenses which is helpful not just in terms of monetization but also for assuring customers are having the customer experience they desire and are in compliance.”

As Armstrong further noted, “How do you ensure somebody does not use an older version? A robust license enforcement solution can ensure removal of an older version of a license before a newer version can be deployed, ensuring  compliance, and can even provide a grace period on returned licenses to ensure continued operation until the updated licenses are deployed.” She continued by saying, “This highlights why automation a good idea.  It reduces the cost of operations including support and customer service calls, and improves customer satisfaction.”

Cloud-based centralized software licensing gives ISVs greater visibility and control. While the license manager sits in the cloud, it can still track apps on the premise as well as in the cloud. It also saves them money by preventing multiple configurations of a single product. This translates into one new version that can be delivered to customers with features being activated or not activated on a tiered pay-as-you-go and pay-as-you grow basis without having to develop separate versions.

In short, cloud-based licensing solutions using a Software as a Service (SaaS (News - Alert)) model, such as that employed by SafeNet, really are a win/win.

ISVs get the control, operational efficiencies and compliance information they need to best track and monetize their products, and customers get not only fast and reliable delivery of upgrades but peace of mind regarding price and knowing that their end customers have the right tools they need to be more productive. This allows customers to better plan migrations to newer versions at their own pace and price according to their unique requirements. It is next generation software licensing that makes the development, deployment and use of new capabilities not just faster but better.  

Edited by Cassandra Tucker
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