Software Monetization Featured Article

Why Software Monetization is so Relevant Today

September 22, 2015

There is never a bad time to think up ways of making more money. This is equally true whether you’re introducing new products and value-added services, or maintaining revenue from current or legacy products. At a high level, the goal of software monetization is to optimize all opportunities and revenue streams.

At a granular level, it is a means of protecting a business from competitive theft, unintentional misuse, reverse engineering, and unauthorized copying. It also ensures that you are duly compensated for the fruits of your labor by enforcing customer compliance with the terms and conditions of the license. In addition, making more money relates to the speed at which you get paid – the transition from quote to cash – and how quickly you can respond to accelerated changes in a disruptive market. Making more money involves a number of business processes, such as back-office integration, that can reduce support costs and improve customer satisfaction. Such aspects go beyond the traditional revenue considerations of growth, protection and mitigating revenue leakage.

All of these are exemplified when it comes to how independent software vendors (ISVs) are maximizing software monetization in an increasingly software-centric world, where almost every vertical market is seeing a shift in value from pure hardware products to those that are controlled by software.

With that in mind, we decided to check in with Ansgar Dodt, VP Worldwide Sales, Software Monetization, Gemalto (News - Alert), for his take on how the customer buying cycle is changing, and how the shift in value from hardware to software and value-added services, is driving the ways in which ISVs protect and monetize their intellectual property.

TMCnet: Software monetization for ISVs is arguably more relevant today than ever before. Why do you think that is?

Dodt: Back in 2011, Marc Andreessen (then board member of HP) articulated his views on “Why Software Is Eating the World” in an essay for The Wall Street Journal. It has since become somewhat of a mantra – and justifiably so. You need only look at the total value of products and services to see that the share attributable to software is accelerating.

Software is becoming more important not only in traditional spaces, such as the back office, but also in the hardware space. In fact, competitive differentiation is now driven by software and the agility with which you can introduce new business models. So much so that tech companies today are deploying around 70-80 percent of their engineers in software-related activities.

What this means, in effect, is that the value of software monetization lies not just in the ability to automate business processes, but also in the ability to leverage usage data. Software isn’t just eating the world – it is feeding the creation of sustainable differentiated value ecosystems.

TMCnet: The B2C market is seeing a revolution in the way we consume software, thanks to the Internet and the methods used to deliver, track (usage and compliance), update, secure, and even package software. Why do you think this isn’t the case for B2B?

Dodt: Your observation is correct. In B2C it works. We all are used to the new, predominantly subscription-based business models. They make it easy for us to obtain and use the application. For ISVs, these business models greatly reduce the initial investment costs, improving accuracy, security, and producing recurring revenue streams. What’s more, they are trackable and agile in terms of providing updates, renewals, and giving customers precisely what they want. In addition, due to the Internet, there are no complex and costly sales cycles. Everything is faster, less costly, and easier for all concerned.

I would estimate that B2B is three to five years behind – light years in the software industry. In fact, we are arguably at a tipping point as companies are under significant pressure to provide the same business models and-user experience that we have come to expect from B2C. 

The challenge, of course, is that B2B is fundamentally different than B2C. In B2B, you have to go to multiple different places and there are many more direct relationships to establish and maintain. The requirements are much more sophisticated – you need to buy for hundreds of sites or users. A lot more usage information is needed to justify the expense. In fact, this is where we see ISVs having a greater opportunity to differentiate themselves by providing easy delivery and plenty of information.

TMCnet: If B2B is so behind, where does that leave us?

Dodt: At Gemalto, we are seeing vast differences in the ways companies – even competitors within the same verticals – approach software licensing and entitlement management as a means to competitive differentiation. For some companies transitioning to next-generation offerings, software monetization is not even on their radar, while others are already on their second or third iteration. I should note that in B2B terms, there can be 10 years between early adopters and latecomers. 

As a result, we are currently at around 20-30 percent adoption of next-generation solutions, despite findings that early adopters outperform latecomers. That said, there are many obstacles that can prevent a company from taking the leap.

TMCnet: What are some of them? 

Dodt: Looking at it from a geographical perspective, the main challenge is that everybody thinks they are different. North America is leading, followed by Europe and Japan in second and third place respectively. For instance, in Europe, companies would rather optimize what they have. They also have a not-invented-here problem.  Indeed, in many organizations, they feel they are doing just fine the way they are, and as a result, they tend to reject facts that point to the contrary. Hence, the challenge – and I want to be careful about making generalizations – is that cultural, organizational, and now generational issues hold things back, which is why adoption rates are not at the expected levels. We are starting to see a much-needed shift in leadership as generations raised with software take over, moving away from “business as usual”.

TMCnet: What does all of this mean from an ISV perspective?

Dodt: The biggest “aha” moment came about seven years ago when cloud started to take off. IT departments were used to controlling all of the data. It took some time for customers to get over their initial fear of moving to the cloud, be it security-related, loss of control, etc. However, what we are seeing now is that customers who say they only want on-premises software will jump ship if the alternative is attractive enough, or if the competition gets there first. In many ways, this is forcing ISVs to change with the times, both in terms of how they deliver their products and services, and how quickly they do so.

The great news here is that Gemalto is giving ISVs the tools they need to protect their IP and better monitor usage of their software (across people, devices, and organizations), regardless of whether the software is on-premises or in the cloud. This has not only given them peace of mind regarding things like theft, reverse engineering, and compliance, it has also improved time to market and speed in the market. What’s more, by providing greater visibility into usage, Gemalto has transformed the customer relationship, enabling customers to pay for only what they use. Technology has made the ISV and customer experience better and faster, and this looks set to improve even further.

TMCnet: Are there any additional benefits to software monetization technology, beyond security, usage tracking, and the other benefits you’ve outlined?

Dodt: Yes. Everything needs to happen instantly. Most people just want to place their order. The sales cycle is different and ISVs need to adjust and take advantage of this. 

TMCnet: Any advice to readers on developing a software monetization strategy?

Dodt: Focus on a single customer’s needs. Sell in a variety of ways. Customization now impacts all aspects of a business. Selling services as part of a properly developed and executed software monetization strategy can deliver a substantial revenue boost.

TMCnet: How about a few thoughts everyone can take away and hopefully remember? 

Dodt: The big ones are:

  1.  You need to know what markets you want to serve, with what products and product bundles, and with what business models. In short, have a detailed view of your go-to-market strategy, tactics, and key performance indicators. Become more granular and responsive.
  2.  Software licensing and entitlement management should be used as part of a holistic strategy in order to gain a competitive edge. They must be able to integrate with a host of other systems, such as CRM and ERP, which is precisely what Gemalto does. The goal is to establish product leadership, operational excellence, and customer intimacy.
  3.  Consider moving over to new usage-based business models. While not for every company in every instance, the benefits of compliance and agility – being more responsive to customer needs – can be significant.

TMCnet: To bring this full circle . . . why now? 

Dodt: Perhaps the best advice about having a sense of urgency is to compare your company to leading B2C software vendors and leading websites like Apple’s (News - Alert) App Store or Amazon, and compare your user experience with theirs. 

You can hear more of Ansgar’s insights into the importance of software monetization at LicensingLive! 2015, to be held on October 12-14 at the Juniper Hotel in Cupertino, California.

Edited by Dominick Sorrentino