Featured Article from Software Licensing

New Software Usage Patterns Demand Better Licensing and Entitlement Management

March 06, 2014

There was a time when software licensing was as simple as selling a commercial product on store shelves or via a download. Those days are long gone.

From software running in a virtualized environment to cloud-based, on-demand services, the rules of software licensing are changing rapidly thanks to the evolution of how people use and consume software. Licensing has thus been compelled to become ever more complex in order for companies to take full advantage of these changes and not cede market share to others.

Most software firms are failing to keep up with such licensing and entitlement management requirements, however, according to a new study by IDC (News - Alert) and Flexera Software.

The report found that 39 percent of the more than 750 independent software vendors (ISVs) surveyed said that they were having difficulty enabling customers to manage their own software entitlements. Roughly 30 percent reported difficulty protecting their intellectual property and efficiently rebundling and repackaging their code to create the necessary versions of their products to serve all associated market needs, and 28 percent reported difficulty supporting try-and-buy evaluation licenses.

Much of this is because firms choose the do-it-yourself route when it comes to licensing and entitlement. While homegrown licensing and entitlement solutions can be built and maintained, they are almost invariably less flexible and efficient as solutions designed specifically to properly handle licensing.

The study found that only 35 percent of software developers have adopted third-party technology for licensing, and only a quarter have done so for entitlement. This failure to adopt automated, third-party licensing and entitlement management is hurting the ability of vendors to adapt to changing usage patterns.

“Homegrown licensing and entitlement management systems are often not flexible enough to adapt to changing market conditions, and can leave ISVs at a competitive disadvantage,” noted Amy Konary, research vice president of software licensing and provisioning for IDC. “ISVs should consider moving beyond homegrown and adopt industry-standard technology that is designed to simplify and improve the license and entitlement management process and support flexible monetization options.”

The loss is felt particularly when it comes to virtualization, which 65 percent of respondents in the survey cited as a market opportunity.

Virtualization risk comes from the ease in which enterprises can create instances of an application for use in a virtualized environment, like a public, private or hybrid clouds, without paying for an additional instance. While software vendors might have a policy against such use, it is often hard to enforce with homegrown solutions.

Only 9 percent of respondents recognized the risk that virtualization poses to revenue, but the study found that 52 percent of ISVs reported customers using software in a virtualized environment without adequately paying for it. A full 29 percent said they did not even know if their software was being used in this way.

This is clearly a worrisome issue, and a good example of why more software vendors should go the professional route and employ software and entitlement management solutions.

One provider that has had substantial experience dealing with virtual licensing and entitlement solutions is Flexera Software, which sponsored the study.

“Creating licensing policies around virtualization is of little benefit to software vendors if they do not have the ability to enforce the policy,” noted Mathieu Baissac, a software licensing expert at Flexera Software. “The good news is that vendors have options. They can choose to prevent use in virtual environments altogether, ensuring no revenue leakage. Alternatively, they can monetize based on value by capturing customer usage in the virtualized environment and then charging for what was actually used.”

Best-of-breed licensing and entitlement solutions have solved the virtualization problem and the revenue leakage that can often result. Those that fail to use such solutions are clearly leaving money on the table.

Edited by Blaise McNamee
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