Software Monetization Featured Article

A Closer Look at Software Monetization

September 12, 2016

A study by industry analyst firm IDC (News - Alert) found that 16 percent of the top 100 software vendors derive more than half their revenue from subscription licensing. This statistic shows a departure from the traditional software monetization model of a perpetual license.

“(ISV’s) must investigate and adopt new ways of monetizing software in order to respond to customer needs and take advantage of new opportunities,” noted IDC in the report. “Software vendors must offer a portfolio of flexible pricing options that allow customers to buy in the ways that fit their needs.”

For software vendors, this means software licensing models need to be transparent, more customer-focused, and aligned with the user’s sense of value and price. 

It is also important to provide the customer with unrestricted access to the software product and service capabilities no matter where they are located or what platform they may be using.

Then there is pricing. According to the IDC report, it is important to focus on both the pricing and licensing and to consider the customer experience when creating a pricing model. Things like how simple, flexible and transparent the pricing model is, how easy it is for prospects or customers to interpret the licensing policy, and how the underlying entitlement management system and billing system supports the pricing model.

“Customers like the low up-front cost of the subscription model as well as the enhanced ability to build a relationship with the software provider,” noted IDC. “In addition, many customers could never have afforded the software products if they were licensed under the traditional perpetual model.”

Of course, the subscription model is not without its challenges. Because the model does not allow for tracking, vendors are not able to monitor customer usage. Without this information, it is difficult for vendors to answer key customer questions about the advantages of charge-for-use models, future cost predictions (without historic data), and usage auditing.

Other delivery models are also being leveraged for good effect, including freemium, pay-per-use and outcome-based pricing.

Similar to subscription-based software pricing, pricing based on outcome or business objectives met by the software provide a compelling model for many businesses that are comfortable paying for software when it is clearly tied to a need. The key to this approach is being able to track data without seeming intrusive.

 “On-premise customers typically don't want to provide usage data to software publishers, but they are very receptive to using tools that provide insight into their own usage as long as the tools don't automatically report data back to the vendor,” noted IDC. “Developers must be clear with customers up front about what data is being tracked and how it is being used.”

Gemalto (News - Alert) has expertise in software authentication, security, and license management and has created a versatile portfolio based on its Sentinel family of products and services. The Sentinel portfolio encompasses the entire software monetization lifecycle and can accommodate any pricing model.

Software solutions including on-premise, embedded, cloud-based, and support for the complete range of business models from direct sales and channel distribution to software-as-a-service (SaaS (News - Alert)) are offered.

Gemalto also recognized the need to include flexibility in its solutions. Sentinel LDK and Sentinel RMS support a choice between hardware- or software-based protection keys, and the company's cloud-based solution, Sentinel Cloud supports a choice between software- or cloud-based license protection mechanisms.

The bottom line? As the shift in the software monetization model occurs, you need to be able to customize your product and service offerings to meet the evolving needs of your customers if you want to succeed.

Edited by Stefania Viscusi