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SANTA CLARA, Calif.—Enterprises are not making a significant move to processor-based licensing despite the wide discussion over the past year about the value of these licenses prompted by the advent last year of multicore CPUs.
This is one of the key finds of the second annual study on software pricing and license policy sponsored by the Software & Information Industry Association, the Centralized Electronic Licensing User Group and Macrovision Corp. The findings were presented at this weeks SoftSummit conference on software pricing, licensing and management.
Only about 6 percent of enterprises that participated in the survey indicated that they preferred per-processor licenses. Instead, more enterprises and vendors are moving toward concurrent-user licenses, which have increased 11 percent to a total of 53 percent of the survey respondents.
Concurrent-user licenses allow a set number of people to use a software package at any given time. It is up to the buyer to monitor software usage to ensure that they are in compliance with the license terms and arent exceeding the total number of concurrent users they have paid for.
However, the survey also showed that license compliance is a major problem because 72 percent of enterprises reported they either tracked compliance through error-prone manual methods or not all. The result is that many organizations are likely out of compliance, the study found.
To improve compliance, 38 percent of enterprises are saying that they would prefer to work with some kind of digital compliance model rather than a self-tracked compliance model enforced by a written contract. This is a 6 percent increase over last years study.
The preference for digital enforcement is still greater than using the online log-ins required by hosted software-as-a-service providers, which are favored by only 12 percent of enterprises.
The study found that more software vendors are moving toward subscription-based annual or monthly licensing terms and fees and away from perpetual license terms. The number of vendors offering subscription terms increased 7 percent to 40 percent of the vendors surveyed compared with 60 percent offering perpetual licenses.
The study predicted that the number of vendors that offer software subscriptions will reach 60 percent by 2007. It also found the enterprises that that prefer to acquire subscription licenses increased by 7 percent to total of 43 percent.
The one license enforcement model that is clearly dead is the hardware dongle or USB device attached to the computer that enables users to install and run applications. The study showed that only 2 percent of enterprises supported using this antiquated method. Currently only 13 percent of enterprises are using this hardware-based method.
Next Page: Revising obsolete pricing.
New Pricing Models
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.
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 SoftwarePricing.com, 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.
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.