Matt Fisher, SVP Product Strategy, Snow Software
As businesses everywhere strive to meet their digital transformation goals of increasing operational efficiencies and seizing new market opportunities, they are increasingly turning to off-the-shelf software and databases.
In fact, global spending on enterprise software, including on licensing, maintenance and SaaS, is expected to reach $391bn by the end of 2018.
However, with this software often being used in ways not originally envisioned by its developers, vendors are having to regularly rethink the ways in which their solutions are licensed in order to capitalise fully on the value they deliver. While ensuring they are getting the most from their technology investments, it’s important that end users stay on top of these changes to avoid unwittingly introducing more cost into their business, or creating potential compliance risks.
For a better understanding of how subscriptions are likely to change, it’s helpful to have an appreciation of current monetisation models, and how technology will work in the future.
The advent of cloud-first, and even cloud-only, enterprise IT has required software vendors to rework their licensing models to capture revenue not only from the direct use of their solutions, but also from any indirect business value, such as the interaction between one solution with another, rather than with a human. To maximise their licence revenues, vendors must therefore find metrics that capture the full value of their software.
With traditional flat-rate ‘per device’ or ‘per user’ licensing plans no longer capturing the full value of their solutions, vendors are now looking at new ways of tracking and monetising their use. Some, for example, have moved toward a model of monitoring and billing based on the number of transactions processed or records created/edited; a move that, encouragingly for other vendors, has been met with little resistance from customers.
Discovering new use cases
Publishers are beginning to realise that their software isn’t always being used in the ways it was originally intended. Many database developers, for example, hadn’t, until fairly recently, realised that not all of the users accessing their technology were human. Indeed, these non-human users, which include robotic processes and other software, are creating use cases that simply weren’t considered when many applications and databases were first launched.As a result, vendors have been left on the back foot, having to find ways of monetising the increased business value their customers are realising from this ‘unorthodox’ usage.
Although this is expected to be more common as use cases become clearer, and customers become more willing to align their software investments with proven business value, assessing such value with regard to a licence is not straightforward. Software publishers are therefore required to work with their customers to identify the business value of their products. This is a mutually beneficial collaboration; end-users need developers to enhance their solutions to accommodate new use cases, while development of these features requires ongoing investment.
Evolution and complexity
The predominant licensing metric, once ‘per device’, is now ‘per user’, and is expected to further evolve to a form of hybrid licensing schema; one that that combines users, transactions and integrations. This iteration could potentially result in a type of ‘base’ licence for an organisation’s total user base;the integrated systems, which will often incorporate ‘non-human’ users and indirect access; and a ‘premium’ licensing metric based on vendor-defined transactions, and which could be charged in arrears or licensed in the form of purchasing up-front ‘credits’.
Of course, this will make licensing even more complex. But it will also allow end user organisations to better align their software agreements with business values, making it easier for them to understand the cost of business down to individual functions and processes, and adjust their investments accordingly.
To maximise the benefits of this hybrid approach, CIOs and their teams should start thinking like a publisher, and scrutinise how software is used across their business, focusing on how deployed applications align with core business functions, for example, and the key trackable transactions within those functions.
They can take steps to guard against any future surprises that may arise when licensing new applications, or renewing existing agreements with incumbent vendors. Commitment should be sought, for instance, that a vendor won’t enforce any new licensing metrics within a pre-agreed notice period, and longer-term agreements should include the opportunity to review and scale (up and down) at least annually.
It’s not easy to predict the exact form that software licensing will take in the future, but it’s reasonable to expect multi-layered agreements that take into account multiple metrics, and require greater collaboration between vendors and their customers.
Whatever the next evolutionary step, the end user organisation will ultimately need to take more care in managing its use of software, and in tracking its contribution to the overall business. Managing software investments must become part of an organisation’s overall governance and risk management functions, not only to avoid compliance risk, but also to ensure the organisation is operating efficiently, and using those investments to support core business functions. Only this way, will these investments help an organisation meet its digital transformation goals.