Got the Software Licensing Blues? You've Got Company

Published: February 12, 2013

by Alex Woodie

Companies are clamoring for new and flexible software licensing models, such as subscription-based licensing and usage-based licensing, to replace outdated models, according to a new survey from Flexera Software. For years, enterprises have been growing increasingly dissatisfied with traditional models, such as perpetual licensing with annual maintenance fees. The good news is enterprise software vendors are beginning to listen, and have started giving customers what they ask for.

You don't have to go far to find a dissatisfied consumer of enterprise software. In fact, there may be one in your shop right now (it may even be you!). Any IT manager who has ever been confounded by the terms of use of a software product, frustrated with a vendor's audits, or challenged to match actual use of a product to what he paid for, will understand this peculiar manner of corporate IT pain.

For the last eight years, Flexera Software has been tracking the level of licensing discomfort on both sides of software aisle with its annual Software Pricing and Licensing Survey. In the 2012 survey, nearly 25 percent of enterprise customers said they were either unsatisfied or very unsatisfied with their "price to value ratio," which basically measures whether customers feel they're getting their money's worth.

This "software value perception gap" has been growing over the years, particularly as enterprises get a taste of new licensing models, says Steve Schmidt, vice president of corporate development for Flexera. "And you have the producers saying they think that their strategies are ineffective or very ineffective," Schmidt tells IT Jungle. "Both parties are dissatisfied with where things stand today. It is a problem in the industry."

The dissatisfaction comes from several problems with the licensing status quo. For starters, just the lack of transparency into matching software usage with software licensing causes heartburn in IT managers. Whether or not the customer is overpaying for software they don't use, or underpaying for software they do use, the lack of visibility into the matter is a problem. Flexera has an obvious interest in this matter, because it sells software asset management tools that help customers match licensing and actual use.

Beyond that, the sheer lack of flexibility in traditional software licensing models is a big concern. Enterprises have gotten a taste of the subscription-based licensing models that are used by SaaS and cloud-based firms, and they like it. That is forcing software companies to wake up and take notice of the changing times.

"We see that 42 percent of producers have reported changes in licensing and pricing strategies in last 18 to 24 months. We've also seen that 23 percent of them plan to offer usage-based licensing models in the next two years. That was up from 9 percent last year. So we do have data that shows that producers are interested in making changes to licensing models."

Schmidt notes that on-premise software vendors can adopt the subscription-based licensing models used by their more nimble SaaS and cloud brethren, even though they're delivering software the old fashioned way. "We've seen companies implement a subscription-based license model for software that's delivered on premise. That's done more and more frequently now," he says. "You can get the advantage and deliver the customer satisfaction of a subscription-based model without necessarily moving to software as a service."

In its survey, which is conducted with IDC, Flexera tracks dozens of different types of licenses, from concurrent-user to node-lock to device to named-user to token-based or site-based.

"I find it fascinating that the number of licensing models continues to grow," Schmidt says. "When we talk about the usage-based models, I think they will be incremental to the license models that already exist. And producers will end up offering all of the [different types] in the future, and we'll see even more variation--hence the need for a solution that enables the implementation of flexible licensing and also solutions for the enterprise that allow them to optimize their licenses for many different license models."

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