E-Licensing Making an Impact on Software Industry

Macromedia VP Tom Hale speaks about how his company's licensing strategy is becoming more important than the product.

SAN JOSE, Calif.—More and more, evolving licensing models will determine the direction and success of the software industry, a top Macromedia Inc. executive said Monday.

Macromedia, which took great pains to describe the e-licensing model the company rolled out earlier this year, said that its activation strategy has been a success. In terms of revenue, however, the companys licensing strategy has been more important than its product.

"More and more, the business model is more important than the technology," Tom Hale, senior vice president of business strategy for Macromedia, said here at SoftSummit, a conference devoted to software licensing.

Activation has become the touchstone of the debate between free use, consumer privacy and the rights of software firms to actively prevent piracy of their products. The modern system of activation, popularized by Microsoft Corp.s Windows XP operating system, has since been emulated by companies like Intuit Inc., Macrovision and Symantec Corp.

When Macromedia rolled out its licensing strategy, about 25 percent of its customers provided negative feedback: "Really, really scary negative, cold sweat on brow, hands shaking type stuff," Hale said. "And, of course, we did this all in the context of Intuit."

Intuits inclusion of digital-rights-management software in TurboTax provoked a torrent of consumer outrage, most concerned with what they could or could not do with the software, and whether the DRM software, provided by Macrovision, would affect the stability of their system. Intuit has since said that future versions of TurboTax will eliminate activation and DRM; that software goes on sale this month, an Intuit spokesman said last week.

Instead, Macromedia tried to make public relations the focus of its own strategy, training all of its staff in the nuances of e-licensing, from sales personnel to technical support staff. The company also toned down its message. "We didnt lead with anti-piracy as our message," Hale said. "Instead, it was casual copying."

While Macromedia hasnt been able to exactly determine how much piracy it has been able to prevent, about 17 percent of the license keys submitted for activation have been denied, an indication that the keys were copied or forged. Tens of thousands of people tried to use the sample license key provided in the Macromedia whitepaper, Hale said, prompting laughter from the audience. While checking some of the more popular software piracy sites, the company found that the most popular referring phrase from Google was "Dreamweaver crack."

"Weve put our thumb in the dike, and were beginning to stop some of the leaks," Hale said.

However, the industry cant rest. As client hardware evolves, so must the software—and licensing models along with it. For example, Hale showed off a Nokia smartphone that used Macromedias Flash software as a front end for displaying world news.

"IDC says the software industry is mature. I think thats crap," Hale said. "The software industry is not mature," he said. Instead, it is in the doldrums, and the industry must innovate itself out of it, he added.

Software will have to be "atomized," Hale said, licensed down to perhaps even the individual feature level. In the meantime, revenues of new licenses will be sublimated by so-called "maintenance" or "annuity" revenues, as companies maintain or upgrade licenses. By 2006, fully half of a typical companys licensing revenue will come from annuities, Hale predicted.