New Pricing Models

By John Pallatto  |  Posted 2005-10-12 Print this article Print

Instead, 80 percent of enterprises want to use either product activation technologies (45 percent) or network licensing (35 percent) to enforce license terms. The study estimates that by 2007 57 percent of software vendors will use product activation and 47 percent will use network licensing. Currently, 25 percent of vendors are not using any licensing environment methods, but the study predicts that this will drop to about 11 percent.
To read what software users think about Microsofts Windows Server System pricing policy, click here.
The findings are an indication that it is time that software vendors started thinking seriously about changing obsolete software licensing and pricing policies, said Jim Geisman, CEO of, which provides information and consulting services on pricing issues. The first thing that software vendors should do is consider "getting rid of your hardware-based licenses because it is a dumb thing to do," Geisman said. Instead, Geisman recommends introducing limited-term licenses that offer lower risk to vendors and to customers compared with long-term perpetual licenses. This approach can lower the entry price and broaden the market to a wider ranger of buyers who might not be able to otherwise afford the software, he said. Geisman contends that using limited-term licenses also allows vendors to increase invoice frequency, which improves cash flow. Giving customers additional options and choices adds value to both the vendor and the customer in terms of opportunities for new sales or additional services or features. Click here to read industry watchers views on Microsoft bundling its anti-virus and anti-spyware product into Windows. Software companies have to pay more attention than ever to their pricing strategy because industry maturation, consolidation and globalization have slowed industry growth down to about 5 percent or 6 percent a year, equivalent to gross domestic product growth, said Ken Berryman, principal consultant at McKinsey & Co. Software companies have to "improve tactical pricing performance to rapidly identify market changes" to take advantage of opportunities and to avoid pricing that puts them out of sync with customer demands and business conditions, Berryman said. "Any target price range has to be evaluated over the full product life cycle grounded by whatever the economic cost" to deliver the product, he said. This includes being prepared to make price adjustments in midlife and even late in the product cycle to maximize revenue, he said. Check out eWEEK.coms for the latest news, reviews and analysis about productivity and business solutions.

John Pallatto John Pallatto is's Managing Editor News/West Coast. He directs eWEEK's news coverage in Silicon Valley and throughout the West Coast region. He has more than 35 years of experience as a professional journalist, which began as a report with the Hartford Courant daily newspaper in Connecticut. He was also a member of the founding staff of PC Week in March 1984. Pallatto was PC Week's West Coast bureau chief, a senior editor at Ziff Davis' Internet Computing magazine and the West Coast bureau chief at Internet World magazine.

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