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.