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Enterprise SaaS Vendors Need Flexible Licensing Models

February 16, 2017

Enterprise technology vendors selling software-as-a-service (Saas) solutions are in an interesting position. The SaaS (News - Alert) model has some inherent flexibilities and advantages from a pricing and licensing perspective, but also creates challenges over traditional software licensing models.

According to Flexera Software, a company that specializes in software licensing and monetization, most enterprise SaaS solutions are priced based on the number of users, typically for a one or three-year term. That puts the buyer in the interesting position of having to estimate how many users they will have during the contract term, allowing for fluctuations like company growth and increased adoption of the SaaS offering during the given timeframe. If that number should change, it puts both the enterprise buyer and the SaaS vendor in a tricky position.

Unfortunately, when enterprises end up using more licenses than they have paid for, a large percentage of SaaS vendors fail to notice and therefore end up giving away free product. Some vendors do put a cap on the number of users and simply don’t allow additional users accounts to be created, while others charge an additional fee for each user exceeding the negotiated number. Equally tricky is when enterprises end up using less licenses than they have paid for. The SaaS vendor typically wins in this scenario, but runs the risk of alienating the enterprise customer if they feel they have overpaid for the solution.

The reality is that most enterprises do end up purchasing more user licenses than necessary to be on the safe side, creating “shelf-ware.” A comprehensive software asset management (SAM) solution can track users and licenses, preventing enterprises from overpaying and underutilizing their SaaS solutions. SaaS vendors can be proactive about this situation as well, by implementing a different type of pricing model. For instance, in a traditional software sale, solutions are sold per device, whether they get used or not. This scenario also creates shelf-ware, leading some traditional software vendors to migrate to a floating or concurrent license model that tracks the number of users using an application simultaneously, regardless of the number of installations.

SaaS vendors can offer similar pricing, charging enterprise customers based on the number of concurrent users within the contract term as a baseline. Customers would also agree to pay for additional users beyond the baseline, either on an hourly, daily or monthly basis. Vendors would also offer visibility into the number of users and show their customers trends and audit trails to ensure accountability.

By creating more flexible and elastic pricing models, SaaS vendors can glean more value from the pricing and licensing of their offerings while also giving their enterprise customers more agility and value.

Edited by Maurice Nagle
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