Featured Article from Software Licensing

A Truly Flexible Licensing Model Offers Choice and Variety

March 15, 2017

The software market has changed quite a bit over the last few years, and what was once a legacy on-premises market defined by capital expenditures and perpetual licensing models is steadily being transformed. Today’s software is often provided as a service or through a pay-per-use model that may be classified as an operating expenditure, a much more attractive prospect for many of today’s businesses. And this shift has given way to a flexible licensing model that accommodates and accounts for the variety of changes happening in the software space.

What actually constitutes a flexible licensing model depends on who you ask. A recent blog post from Flexera Software, a company specializing in software licensing optimization and monetization, breaks down the components of this emerging licensing model as well as how they may be applied to today’s software solutions. The company cites IDC’s (News - Alert) Future Scape report on “Worldwide Software Business Models and Monetization 2017 Predictions” to break down the changes happening throughout the industry.

According to IDC, 100 percent of organizations will have some type of migration plan in place by the end of this year to shift their spending from perpetual software licenses to subscription-based pricing. And that shift will obviously have a massive impact on all types of vertical markets, including hardware-centric industries like medical and networking. The main benefit of the subscription pricing model is its flexibility in enabling enterprises to use software on a monthly, yearly or as needed basis and then discontinue use. This is an ideal fit for SaaS (News - Alert) offerings as well as on-premises software and connected devices.

Consumption-based pricing is also on the rise, enabling enterprises to pay only for the software and resources they use. IDC predicts that half of software providers will offer flexible monetization options like consumption-based pricing by the end of this year. Aggregating historical usage data will be key as software producers try to determine what to meter and at what price point.

Outcome-based pricing is also gaining in popularity, correlating pricing directly to business value. Similar to the consumption based model, outcome-based scenarios meter things that are related to business outcomes, like revenue generated and invoices created. This can get tricky for software producers when their customers don’t want to share the metrics related to business value, which will hold back adoption of this pricing model. IDC forecasts less than 10 percent of organizations will adopt this model by 2018.

Ultimately, a flexible licensing model will take a variety of pricing models into account and come up with the combination that works best for software producers and consumers alike. This approach offers genuine flexibility and avoids an abrupt departure from the perpetual licensing model so many software companies and consumers have grown used to.

Edited by Maurice Nagle
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