Software Pricing and Licensing Survey Results and 2012 Predictions. Amy Konary Research VP Software Licensing and Provisioning IDC

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Software Pricing and Licensing Survey

Results and 2012 Predictions

Amy Konary Research VP

Software Licensing and Provisioning IDC

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The Survey

ISVs and Intelligent Device Manufacturers

• Sample Size = 205

• 77% describe primary product as high-price/low-volume • 82% identify as software producer Enterprises • Sample Size = 97 • Wide range of industries • 54% $1B+ revenues • 55% 5,000+ desktops

Where is your company or division headquartered?

North America (United States, Canada, Mexico) Europe

Asia Pacific Region South

America/Central America

Where is your company or division headquartered? North America (United States, Canada, Mexico) Europe Asia Pacific Region South America/Central America

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The Survey - Enterprise Spending Profile

3 Q: Looking forward two years, will your software budget...

22.9% 20.8% 10.4% 7.3% 2.1% 1.0% 2.1% 1.0% 0% 5% 10% 15% 20% 25% 1-10% 11-20% 21-30% 31-40% 41-50% 51-60% 61-70% > 70% (%) of Software Budget for New Licenses

Source: 2011 Key Trends in Software Pricing & Licensing Survey, n=93

(%)

Decrease

Stay the same Increase

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The Survey - ISV Licensing Revenue Profile

Q: In the next 2 years, my company’s licensing strategy will...

(%)

Stay the same/no change Moderate changes Significant changes Dramatic changes 47.0% 7.2% 9.6% 4.8% 8.4% 2.4% 4.8% 15.7% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% Less than $10 million $11 - $30M $31 - $50M $51 - $100M $101 - $500M $501M - $1B + $1B Don't Know

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Software Industry Megatrends

5

1. Shift from Perpetual to Subscription

0 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000 2007 2008 2009 2010 2011 2012 2013 2014 2015 Subscription Maintenance License

WW Software Revenue Mix, 2007-2015, $M

Source: IDC, Fall 2011

6% 16% 58%

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ISV Survey- Perpetual Domination

• 79% of software revenues derived via perpetual, 15% via subscription

• In next two years, group expects:

– perpetual license revenues to decline an average of 10% – subscription revenues to increase by an average of 6%

$- $100,000 $200,000 $300,000 $400,000 $500,000 $600,000 $700,000

Year 1 Year 2 Year 3 Year 4

R e c o g n iz e d R e v e n u e s ($) Perpetual Subscription

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Software Industry Megatrend

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2. One Megatrend to Rule them all

Source: IDC, 2011

74%

of companies using cloud expect

to increase cloud spend in 2012 by

> 20%

US Businesses will spend

$36 billion

on cloud-delivered IT services in 2015

70%

of NA companies currently using public cloud

SaaS spending will grow by 105% IaaS spending will top

$33 billion

PaaS spending CAGR hits 48.5%

2011-2015:

82% of net new commercial apps

will be developed for cloud in 2012

30%+ of 2014 spending on enterprise apps will be via the cloud model

>80% of Global 2000 will still have 50% of IT onsite in 2020 33% 33% 28% Improve Business Agility Increase Scalability Cost Flexibility

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Two (Three) Approaches to Cloud

Deployments

• Designed for a market, not a single enterprise

• Open to a largely unrestricted universe of potential users • Customers buy at specific

level of abstraction (server,

application, platform)

• Single-vendor or multi-vendor

Multiple unrelated enterprises (shared)

Hybrid

• Enterprise’s cloud services portfolio includes both

private and public cloud services

• Some specific services are delivered in a combination of public and private models (e.g., private cloud “bursting to” a public cloud service)

Virtual and physical (non-cloud) resources and

applications

Private

• Designed for, and access restricted to, a single enterprise (or extended enterprise)

• An internal shared resource, not a commercial offering • IT Org is the “vendor” of the

shared/std service to its users

Resource Isolation

Single enterprise/ extended enterprise

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ISV- Metrics

0% 10% 20% 30% 40% 50% 60% 70% 80%

Processor Core Seat (per machine/per server) Seat (named user) Concurrent user

Usage metric Financial metric (revenue, royalty) Today +2 Years 9 -18% 34% -11% -8% 7% 98% 43%

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Metrics, Satisfaction, Customer Preference

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Processor Core Seat (per

machine/per server) Seat (named user) Concurrent user Usage metric Financial metric (revenue, royalty)

Today ISV Satisfaction (%) Customer Pref.

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ISV- Focus on Usage-Based Pricing

• Consistent with the results of last year's survey, with usage metrics experiencing the most growth

compared to other models. • Of the total survey population,

47% of vendors surveyed do not

monitor customer usage today. • Of the survey population that is

offering usage-based pricing

today or plans on offering usage-based pricing in the next two

years, 48% do not monitor customer software usage.

11 0% 10% 20% 30% 40% 50% Usage metric Today + 2 Years

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Software Industry Megatrend

3. It’s a Virtual, Multicore World

 In 2005, virtual machines represented 4.5% of server shipments; typically, there were three virtual

machines per physical server.

 By 2014, IDC estimates that VMs will represent

23.3% of server ships, with a density of 8.5 VMs per physical machine.

 As for the server market, quad-core x86 is now the standard, accounting for the majority of shipments.  IDC research indicates that six-core processors

are quickly gaining ground and are poised to be the new standard within 12–18 months.

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ENT Survey- Virtualization Adoption Profile

13 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Server virtualization (% of servers) Desktop virtualization (% of desktops) Hard partitioning (% of physical servers) > 80% 60-80% 40-60% 20-40% < 20%

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ENT Survey- Virtualization Management

Q: How do you manage software licenses in your virtualized environments?

Automated commercial license management software

Software provided by the (virtualization) vendor Automated homegrown software

Manual methods, including spreadsheets

We don’t manage software licenses in our virtual

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Software Industry Megatrend

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4. Focus on Software License Compliance

Source: IDC/BSA Study, 2011

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ISV and ENT- Audit Statistics

• Most of the ISVs surveyed did not perform any audits or reviews at all in the last year (60%) • Most ISVs that performed audits did 10 or less • For the vast majority of ISVs that performed

audits, the award was less than $100,000. The enterprise survey corroborated this data.

• The vendors listed by enterprises as providing audits within the last year included Microsoft, Oracle, IBM, and SAP.

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ENT- Tracking Usage

• Most customers track usage for compliance purposes, but 31% are tracking primarily to reduce shelf-ware

17 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Commercial SAM Manually, including spreadsheets Homegrown SAM Vendor-provided tool Do not track

How Usage is Tracked, Satisfaction Level

Response (%) Satisfaction (%)

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ENT- Over/Under

0% 10% 20% 30% 40% 0% 1-10% 11-20% 21-30% 31-40% 41-50% > 50% Don't Know Over Under

Q: What % of software license spend within your organization do you estimate is associated with applications that are:

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Enterprises- Compliance Challenges

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% N/A Very difficult Difficult No difficulty 19

Q: For which types of software is it difficult to maintain compliance?

65% tracking via SAM

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Enterprises and ISVs- Enforcement

0% 50% 100% 150% 200% 250% ISVs Enterprises ISVs Enterprises Network licensing 56.2% 47.9% Product activation 48.3% 22.9% Serial numbers checked

locally 28.1% 1.0%

Trust with audit 28.1% 15.6%

Dongle/USB 25.8% 0%

None 7.9% 0%

Vendor-supplied automated-monitoring mechanism with annual

true-up

7.9% 12.5%

Enforcement Preferences and Profiles

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Software Industry Megatrend

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5. 2012 Predictions

►Monetization models for Cloud will move to the forefront

 2012 will be a big year for private cloud services adoption and deployment

 Public cloud services adoption will grow at over five times the rate of overall IT spending

►Change will continue at rapid rate

 Even ISVs that indicate that current models are effective plan on making changes to their licensing in the next two years

 Approaches will help ISVs and ENTs adapt to challenges in

managing/tracking license compliance, add options that respond for customer preference for efficiency.

►Many things will stay the same….

 Concurrent user approaches

 Network licensing and product activation  Caution around certain aspects of Cloud

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Questions

1-617-202-9339 akonary@idc.com Twitter: @mizkonary Amy Konary Research VP, Worldwide Sofftware Licensing and Provisioning Research

IDC