Featured Article from Software Licensing

Make the Most of Your Monetization Strategy

November 24, 2015

Shifting monetization models can be a tricky move, especially if the new monetization model is incremental the way that subscription-based pricing is.

For software developers, the promise of ongoing revenue via a subscription model can be enticing; subscription-based monetization typically delivers higher profits for developers in the long run.

In the short run, however, including a subscription model can be a scary proposition because it has the potential to undercut revenue from perpetual license software that delivers a big financial punch with every unit sold. The promise from incremental revenue is inviting, but will this incremental revenue actually offset the loss to perpetual license income streams?

“Application producers that are rethinking their software monetization strategy need a clear definition and comparison of software monetization models, they need to understand the business case for adopting or adding new models well as the pros and cons, and lastly, they need to realize the operational considerations and impacts,” noted a recent article on Flexera’s Software Monetization blog.

There are many questions that software developers must ask before a new monetization model is added. Specifically, developers should consider when the subscription period will begin and end, what’s the right price point so subscription-based licensing will make financial sense, how will revenue recognition change, how should legal agreements be adjusted, what approach will help add customers, and how should sales staff be compensated under the new model, among others.

In the case of a revenue dip from moving from a perpetual license to a subscription model, Flexera makes the suggestion that developers add instead of flipping licensing models. That is, existing products should not be moved from a perpetual license to a subscription model directly, or there might be a revenue dip at first. Instead, developers should add new software packages that take advantage of a subscription model, thereby avoiding any revenue cannibalization.

“A subscription license model is typically added to a portfolio of models to address new market needs, and doesn’t replace the perpetual revenue stream,” the Flexera blog noted.

Shifting or adding monetization models can be tricky, but with a little planning it can be well worth the effort.

Edited by Maurice Nagle
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