A CXO’s Guide to
Software Licensing,
Monetization...
...and the Cloud
A discussion about the business issues,
opportunities and risks associated with
Software Licensing and the Cloud.
Written by: Jon Gillespie-Brown, CEO, Nalpeiron
Sources: IDC Research, Gartner Research, Software CEO and LinkedIn forums, Proformative, NetSuite, Sand Hill Group, Intacct
As the Software business changes,
we are all faced with questions and
decisions about how to deploy, sell
and manage our Software
Cloud computing is driving a huge
amount of change in software firms’
pricing models, sales and marketing
approaches, sales cycles and
reporting
With outsourcing your non-core
activities like Software Licensing
come many benefits. Remove the
distractions of trying to beat casual
software theft by lesser methods
3
4-5
6
The benefits of using a cloud-based
infrastructure have immediate positive
easing effect on the ISV’s operational
complexity and its costs
A survey of 500 ISVs on Hosted
licensing vs. home-grown in-house
licensing
Why use Hosted Licensing vs. other
types of home grown or commercially
available solutions
7
8
9
A discussion about the business
issues, opportunities and
risks associated with Software
Licensing for finance staff and
senior management.
•
Significantly reduce operational and IT procurement costs
•
Drive business growth with improved BI
•
Secure additional revenues through revenue recovery
•
Revenue gains with Sales/marketing automation
As the Software business changes, we are all faced with questions and decisions about how to deploy, sell and manage our core assets - our Software-based intellectual properties.
Traditionally, Software Licensing has been all about “protection” and “counting” in an effort to reduce the downside risk of piracy along with managing customer entitlements and getting paid accordingly.
The future, however, is all about offering the end user with a myriad of additional options in purchasing and consuming Software. This puts many “traditional” Software ISVs under considerable pressure to change their older and less agile licensing methodologies to adapt to a changing world.
The IDC 2010 Key Trends in Software Licensing and Pricing survey reveals that cloud computing is on the minds of software producers, who are planning on a significant market shift towards private and/or public cloud-based models. A total of 60 percent of publishers indicated that their licensing will need to adapt to the Cloud over the next two years, and 30 percent expect that the change will be significant.
SaaS and on-demand models—are now driving much of the software industry’s growth.
Cloud computing is changing the software industry dramatically—and quickly. A survey by Intacct reveals that the adoption of cloud computing—along with SaaS and on-demand models—is now driving much of the software industry’s growth.
The survey found that more than half (54 percent) of the executives believe that cloud / SaaS / on-demand models are the clear leaders as to the method by which most customers will want to purchase software during the coming years.
The IDC survey confirms the key characteristics of the cloud, including scalability, self service provisioning, integrated design and simple adoption, provide significant benefits—reducing overall costs, improving quality, simplifying access and the ability to automate key processes.
The survey also highlights increased complexity in terms of licensing entitlements, usage and optimization that both ISVs and enterprises will have to manage. ISVs will need more sophisticated processes to manage entitlements and ensure compliance in this more complex environment. While both sides are getting there, the survey reveals that they have a long way to go to integrate the necessary tools and processes to ensure smooth operations in the cloud.
The future for
Sales models and
the Cloud
Intacct study participants stated that traditional software companies are currently investing heavily in the cloud market - both in re-tooling to build cloudbased offerings and in adopting cloud-based systems for their own internal use. Given the growing maturity of the SaaS market, most would think this a fait accompli for vendors; but in reality it is a lot more difficult to execute than it is to propose. The “revenue before expense” model of licensed software is a lot easier to swallow than the deferred gains offered by the SaaS model and highlights the necessary change in mindset and expectations, but the gains are undoubtedly there...
Focusing on the needs and satisfaction of customers remains critical to vendor success - perhaps more important now than ever. In fact, 37 percent of executives surveyed say meeting customer needs is the most important factor for long-term success as a software vendor (see chart, Source Sand Hill Group).
Intacct CEO Reid said that during the recession, customers were more focused on how to get ready to grow when recovery comes. Now that the recovery is here, customers are focused on optimizing operations for new opportunity while minimizing cost and risk.
Reid also said his company is seeing an intense focus on rapid time-to-value. “Customers are looking for immediate solutions - taking 6 months, or 18 months to deploy is too long.” All this requires ISVs to quickly adapt - and that means your license management systems must be able to do the same.
What is top of the CFO technology
“wish list” today?
What technologies do CFOs want to invest in? For a combined 65 percent of choices, BI ranked as the technology with the highest demand according to Gartner research.
This requirement is driven by the need for information to make strategic business decisions, and also taking risks like changing business models, pricing policies and all the incredible changes that come from moving to SaaS.
Traditional licensing systems starve management of critical metrics and data - the survey shows this must change. This availability of business information is in stark contrast to modern ways of selling software like SaaS where the need for deep analytics is paramount. This means that if you are running an in-house licensing scheme or using old style licensing technology, you don’t get the top of your wish list, and you need to make changes in order to run your business more effectively both now, as well as when you migrate to SaaS. What’s also worth noting is that if you have any SaaS ambitions you must change the use of BI radically - it will become the most important tool to success rather than the least used and understood.
The need for BI is a driver for many senior managers to argue the case for adopting new business models and also to choose vendors of licensing and similar technologies to offer capability to capture and generate useful business data as required. 70 percent of enterprises report that tracking software license usage is important, one-third of the software publishers that have or plan to have usage-based pricing do not track usage at all today - not even manually. A total of 43 percent of publishers indicate that either they do not monitor software usage or they do not know if they do. (Source: IDC)
Cloud computing is driving a huge amount of change in software
firms’ pricing models, sales and marketing approaches and sales
cycles, management reporting and internal measurement and other
operational aspects of the business.
Swim before you can jump
The savvy CFO will want to bridge the future rather than jump in and take the
massive risks associated with changing business models.
...so what steps can an ISV take to get more “SaaSy”?
For most ISVs, as well as their own users, the transition to the Cloud brings enough promise to jump in with both feet. Indeed, 65 percent of managers surveyed by Proformative recognized that SaaS could reduce their company’s operating risk.
So as an ISV, does it make sense to work with other partners who operate in the cloud? In this case, it is a definite yes, and taking the first steps to working with partners like Nalpeiron will make the transition much easier. Why will it be easier? First of all, you will de-couple the licensing from your core products, allowing you to segment your product set and decide if some, all or none of your products can be transitioned to SaaS.
Second, unlike using your own in-house licensing or other providers, with Nalpeiron you will be able to “bridge” to the future as you can keep the older licensing business models as well as offer new ones like SaaS! You don’t have to take all the risk of moving wholesale. Instead, you can use an external partner to help manage the process of carefully testing what works for your business.According to the research, the primary reasons many CFOs have adopted and embraced the Cloud and SaaS-based applications include the following:
The up-front cost savings in choosing a SaaS based versus a conventional application can be substantial. No need to Purchase Hardware, Support, And Software.
The ability to effectively react to and embrace change can determine the success and long-term viability of a company. Access to best-in-class technology that allows a company to “pay as it goes” and only incur expenses as it utilizes resources is very compelling in any economic environment.
A significant barrier to any initiative that goes across departments or borders is effective collaboration. A full 71 percent of respondents to the survey that have entered the Cloud report increased collaboration and greater confidence in their systems. The ability to share accurate information and collaborate in real time 24x7 facilitates effective collaboration. The inability to communicate, collaborate and make decisions in a time-sensitive manner kill many strategic initiatives that look brilliant on paper.
Cloud-based applications can significantly reduce the hours financial and IT professionals spend on IT-related issues like software upgrades, cumbersome security administration, software training, software downtime, etc. As a result, these professionals are able to focus more time on what makes them most valuable to their companies: driving efficiencies and top-line revenue growth. Of companies operating in the cloud, 69 percent reported higher ROI as one of the greatest benefits realized of cloud computing and SaaS.
Reduced CAPEX and
Cost of ownership
Pricing Flexibility Based
On Needs
Opportunity For
Collaboration
Top Line Revenue Growth
Through Efficiencies
This means mixing old and new licensing systems, and the need for a careful research project on what works for existing and new customers as well as the organization as a whole.
As a first step to the future, one option is to switch your licensing to a SaaS provider so that you can start to see the benefits of Saas yourselves! This may seem obvious but many CxO’s don’t even know that they can stop using outdated, inflexible and extremely costly in-house or legacy software licensing technologies as these have become so embedded in their older processes.
Old style licensing requires you and/or your user base to acquire, manage and maintain lots of hardware in the form of licensing servers plus the associated licensing costs from the vendor.
Moving to Nalpeiron means no more up-front licensing or server infrastructure costs – and can mean far lower customization and integration expenses, since SaaS systems are designed from the ground up to be Web-based and user-configured and customized.
More importantly, it also removes the majority of the IT people costs to manage the software and infrastructure around it. This is a tremendous shift given how much of IT spending comes in the form of administration and support—Gartner estimates the percentage to be upward 60 percent.
Adopting SaaS-based applications affords a company the opportunity to avoid both CAPEX and OPEX costs associated with traditional applications even as it gains direct access to specialized world-class business applications and IT expertise.
By outsourcing your non-core activities like Software Licensing come many
benefits. Now you can remove the distractions of trying to beat casual software
theft and your team can get on with making the best software on the planet.
Meeting customer demand for more flexible sales models
We all know about SaaS and other business models that are growing rapidly in the software space but they are simply another business model with the same basic innovations and customer base traditional ISVs serve. In other words, not everyone has to switch to the new SaaS trend to satisfy their customers - they can still happily deploy their software as an on-premise server or an installed application but they can change the basis upon which they charge for it.
Switching business models from the older style perpetual model to usage or subscription based charging has nothing to do with the delivery mechanism. With a powerful and flexible licensing system you can quickly switch your business model and entitlements basis without changing the rest of your operations and back end infrastructure.
The IDC licensing survey also reveals an increasing demand for more flexible licensing models, which in turn is going to fuel the demand for more sophisticated application usage tracking tools. 22 percent of publishers currently offer usage-based pricing (up from 15 percent in 2009), and over the next two years it is expected to rise to 41 percent).
M&A and licensing issues
The objectives of many ISVs as they grow is to acquire new businesses or to be sold in an M&A transaction. Having an in-house or multiple licensing systems can hamper the ability to integrate business systems and slow down the M&A process or block it all together due to issues with switching out that technology. Using a recognized vendor can help you avoid this issue in the future.
Why use a Cloud-based
Licensing Solution?
Subscription-based pricing
Pay as you go, on an annual basis, unlike conventional systems where you have to make a major up-front investment in licenses, hardware and software. You benefit from better cash flow and far greater IT flexibility.
Ease of access at anytime, and from
anywhere
Cloud computing is “always on,” making it easy to grow your business and support remote workers and locations, or support a highly mobile sales or service team, because people can access the cloud any time, day or night, from any browser, desktop or mobile device. You, your distribution channel and your end users can all access the service 24x7, anywhere in the world.
High availability
Cloud software architectures are designed from the ground up for maximum network performance, so they frequently deliver better application-level availability than conventional, on-premise solutions.
Unlimited scalability
The Nalpeiron Licensing Service has been designed to scale up or down and evolve according to your needs without additional infrastructure. There are virtually no limits to how many users you can have or the number of licenses that can be activated. Nalpeiron has years of experience with millions of end users managed by our technology.
Outsource
No need to setup, deploy, manage or maintain licensing servers.
Lower risk
You can reduce the risks of licensing staff leaving or the system stagnating
Focus on your competency
No need to keep up with the crackers and hackers, or the constant technology changes - let Nalpeiron take the burden of software licensing, freeing you to focus on your core business instead
Flexibility
You remain much more flexible without fixed capital costs and unnecessary staff. No need to keep expensive resources in house for non-core functions.
Low overhead
Upgrades, maintenance and system administration take place in the cloud and are managed by Nalpeiron, so you don’t have to spend nights or weekends supervising a new version upgrade or a failed server.
Fast deployment
You can be up and running within days, instead of months.
Use the Latest Product Version
On-demand software allows you and your end users to enjoy the benefits of Nalpeiron’s latest features and benefits without requiring you to worry about handling the complexity of software updates.
Measure and report license activation and
usage
Get a clear picture of the products and features actually being activated and used. Use captured data to generate competitive advantage and increase sales.
Benefits of cloud-based
license infrastructure
According to Nalpeiron customers, when over 500 were surveyed,
these issues were the key reasons for moving away from another
vendor or from home grown licensing.
Flexibility
By far the most popular reason to switch out home-grown licensing is to provide the business with far more flexibility in offering its customers new business models, ways to buy and to make these changes fast and easy into the future.
Nalpeiron will allow you to instrument your business to offer both older style and completely modern business models, along with the capability to analyze and change over time based on the market requirements and competitive threats.
Reduce the business risk
Licensing is integral to the success of your Software business and therefore getting the right supplier to support your long term objectives is critical to reducing risk to your business. Nalpeiron offers you the safety of an external supplier whose sole focus is on producing licensing solutions that offer you and your users 24x7 service. We are the experts in the complex mix of technology, encryption, servers and platforms that allows us to take care of your needs allowing you to focus on your core business.
Our technology is battle tested with millions of users, across 8 languages, 100 countries, and Win/Mac/Linux platforms. For years Nalpeiron has improved and refined its copy protection and piracy protection algorithms – a capability that is far superior to even the largest ISV.
In addition to offering expertise and resources to reduce your risk, we also offer an Escrow service to remove the business risk of outsourcing.
Improve your speed to market
In today’s rapidly moving Software market, being able to release and ship products quickly and without delays to the set project schedules are critical. We all know hitting the ship date is a real challenge.
Out sourcing non-core functions like Licensing can help de-couple this critical functionality from the Software development process internally, preventing issues with delays from other parts of the business.
In addition, if you choose a partner who offers a solution that is easy to integrate and fast to implement with your own programming efforts, you can ship with a few extra days of engineering time rather than months with in-house teams or more cumbersome technologies.
As well as making it easy to implement, you need something that works out of the box and that uses standards to allow you to connect all your internal systems quickly too so that operations don’t slow down your delivery dates.
Finally, setting up the entire supporting infrastructure and training on it can take months with issues around servers, bandwidth, SLAs, databases and all the required connectivity. A hosted solution can eliminate all of these issues and allow you to simply skip three to four months of delays to your project.
Hosted licensing vs.
Automatically capture revenue leakage
Increase sales by tracking license infractions and automatically marketing them using the Nalpeiron “overdraft” facility
The Overdraft facility presents an automated way to “catch” users who will either deliberately or accidentally abuse your software license terms – providing you with additional sales opportunities!
The Overdraft facility is a great way to expose and capture license abuse while offering users “softer” policing. Softer policing is important, especially with business customers, as it avoids many of the issues associated with software license management and it shows a level of trust to your customers. Use this unique tool to identify overuse and automatically capture new revenues.
Using a Nalpeiron solution you will be able to instrument your Software to allow you to capture, control and manage usage data like never before. In addition, your staff will be able to create and produce useful reports on the way your software is consumed, how much piracy you are suffering, what your sales cycles are, who your hottest clients are, when to have sales focus on what part of the customer base and hundreds more critical metrics.
The opportunities to effectively plan and build a strategy are now all at your fingertips, all in the cloud when you need them and all easy to set up and manage by finance, sales and marketing staff.
Plus many more features and benefits.
Built-in automated marketing tools to
drive revenues
Use the power of the Nalpeiron ActiveMarketing™ automated tools to increase product marketing flexibility – now you will have real-time data and reporting, automated email marketing and the ability to push hot leads to sales - all built into the Nalpeiron Licensing Service.
You probably have read about the value of adopting a modern supplier with a SaaS business model giving you all these benefits over legacy software products offered by our competitors. In addition to all the SaaS benefits, here are some of the reasons that customers have chosen Nalpeiron over our competitors:
• Nalpeiron is technically superior
In many cases our customers simply find our platform offers a far superior technical solution to their needs. The Nalpeiron Licensing Service covers all major platforms (Win/Mac & Linux), 8 languages, an extensive API to connect everything and totally flexible way to sell and manage your software.
• Nalpeiron offers a fast ROI
Saving engineering, operational and capital costs over an in-house or competitive solution. Nalpeiron usually shows ROI in months, not years. Our hosted solution also offers a transparent and cost-effective pricing plan.
• Nalpeiron drives revenue
As well as offering the obvious means to control licenses and boost revenue that way, Nalpeiron also offers a complete range of marketing tools that focus sales on hot leads, offer product marketing useful reporting, and allows marketing to create new sales from automated systems to tap revenue leakage and more.
• Nalpeiron offers a modern way to license your software
Nalpeiron offers you the choice to outsource all of the difficult and expensive infrastructure associated with licensing. This is the modern way to run a Software ISV, allowing you to focus on your core business while Nalpeiron hosts the licensing.
Nalpeiron is a very flexible software platform (SaaS) that addresses our
customers requirements in a simple and easy to implement way.
It also adds value in many ways over an old style licensing system.
Hosted licensing vs.
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The Nalpeiron Software Licensing Service™ is a comprehensive platform that enables software publishers to create a range of flexible ways to sell and market their software, with coverage for all the major platforms and the ability to choose whether to deploy software licensing infrastructure in the cloud or on-premise. Nalpeiron is one of the strongest and most robust complete solutions on the market that supports millions of end users with strong but friendly ways to monetize your software.
