Software-as-a-service, virtualization, multicore and “the cloud”—not to mention the worst economic climate since the 1920s—have changed the way businesses deploy the applications they use. They want to pay as they go and eliminate the “shelfware” problem by licensing only what they need when they need it.
By the same token, these new technologies have changed the way software providers must license their products. With their customers having to do more with less, software providers must create packages that allow for use of the new technologies in a way that helps those customers gain greater flexibility.
“The days of [software] companies bullying customers into one-size-fits-all arrangements are over,” said Amy Konary, director of software pricing and licensing research at technology research firm IDC.
“A critical mass has built up, so customers are pushing back and saying, ‘We want to do a better job of aligning what we need with what we use.’ Pay-per-use models are high on the list of what companies are looking for.”
Virtualization has been a “game-changing event” for software providers, Konary said. “Their initial response was, ‘Wow, this is really complex. Our approach [to licensing for virtualization] would have to be so onerous that it’s not worth it.’ They would have to license software for the time it’s on a VM. But what if there are four VMs, then eight VMs?
“So vendors have come up with different editions,” she added, such as data center editions or enterprise editions that allow for unlimited or limited virtualization of the software.
According to Aidan Gallagher, CEO of Ireland-based software license protection provider InishTech, the older software providers “are coming under pressure by new entrants [into their markets] selling less configured software in a SaaS model. It’s starting to eat into their business. Startups are smart about how they build and sell their software. They’re building one product and selling it in lots of different ways.”
As software makers begin to market in different ways, consumers of that software are using it in different ways as well. InishTech, which was spun out of Microsoft (still a significant stakeholder in the company), said organizations have to manage the software on three levels: the instance of the software in the cloud, the configuration for using that software on the business level (either via subscription or user-based licenses), and role-based access.
“Things like Citrix and VMware have made it more important for customers to be able to pop software into any environment, then move it around and share it,” said Philip Rathle, senior director of product management at Embarcadero, which has created its own licensing grid for its products.
“With the need to quickly deploy and spin up teams, you’ve got to know who owns the license, how do you transfer it, and who’s got it?” With traditional licensing, Rathle said it was easier to simply buy a new license than it was to find and transfer an existing one. “But the market is calling for more visibility of license use. The market is holding software companies to a higher standard.”
While the creation of multiple editions is working for some software providers, it’s becoming important for the users of the software to determine the amount of virtualization they’re doing so as to acquire the proper license. “It’s been tricky for customers still figuring out how much of this they’ll be doing,” Konary said.
Experts in software licensing agree that it’s been tricky for customers even to determine how much software they license, how much of it is used, by whom, and over what period of time. And software providers traditionally have not helped with this, as perpetual, seat-based licenses generated important revenues.
But pushing the license management problem onto customers has created problems for them, according to Chris Holland, vice president of software rights management at SafeNet, which creates licensing solutions for software makers.
Different vendors have different standards and different terms, and IT administrators list this diversity in their top five challenges. But Holland does see the cloud changing this equation. In the cloud, he said, “It’s incumbent upon the provider to let you know your level of consumption.”
InishTech’s Gallagher said, “The end user shouldn’t care if the software is installed on the desktop, a dedicated server in a data center, a shared server at GoDaddy, on Hyper-V in the data center, or in Amazon EC2. That should be transparent to the licensing service. These are new, dynamic ways of doing business.”
Businesses today need help beyond managing their inventory of licenses; they need usage data they can compare with their software entitlement to get an accurate picture of software deployment in their organization, according to Steve Schmidt, vice president of product management at Flexera, which evolved from InstallShield and Macrovision, early players in the installation and license market.
“Enterprises say they’re having difficulty assuring they have the right number of licenses. It’s important for them to identify their licenses and see how they’re utilized to optimize for today and plan for tomorrow,” Schmidt said. “They want to make sure their spending matches their need…that they’re getting the most for what they’re paying.”
But so-called “pay-as-you-go” plans would invariably cut revenues for software providers, IDC’s Konary said. She used the example of Procter & Gamble, which uses 1,600 applications. She said they used the Flexera platform to look at their top 40 applications, how many of them were being used, for how long, and by how many people. In a year, P&G took US$30 million out of its budget, and the company was able to reallocate resources, she said.
Embarcadero’s Rathle pointed out that buying software products “a la carte” is an obstacle to spinning teams up quickly. “Licensing is bleeding into access control,” he said.
The company is joining the march toward giving its customers a license that accesses the entire tool box and lets the businesses set up their configurations, with billing to follow. This kind of centralized licensing enables users to launch what they need right off the server onto the desktop they want it on without worrying about installation and licensing conflicts, Rathle said.
SafeNet’s Holland calls this a shift from the countdown model to the count-up model. “The countdown model says, ‘I grant you the right to use this 100 times. At 95 times, you get a message asking if you want to buy more.’ The count-up model says, ‘I’ll give you the software, and at the end of the month, count the clicks you used, and then bill you.’ You don’t have to decide upfront the commitment you want to make.”
While customers clearly benefit from flexible licensing, what’s in it for software providers? “When you know what customers like about the software, and how they’re using it, that’s valuable information,” Konary said. “[Software sellers] can figure out how to prioritize what they develop and how they price it.”
Konary described the case of Ariba, a spend management company, which “totally changed the way they provide services.” Instead of simply throwing its software out into the world, Ariba is building a different kind of relationship with its customers, by being more prescriptive to help them find the software they need.
“[Software sellers] are looking at acquisitions differently. They have to make sure they’re building something their customers can use,” she said.