Enterprise Software Vendors Embrace New Licensing Models to Complement Cloud

Forty-three percent of software vendors now receive half or more of their revenue from the perpetual license model of enterprise software vending, according to a report from Flexera Software. The report Software Licensing 2016: Seismic Shifts – Shaky Foundations, released Tuesday, indicates that the ongoing shift in software pricing and licensing models is transforming the enterprise software marketplace.

In its tenth annual report, Flexera, which offers software monetization and management solutions for vendors, found that 70 percent of software vendors will change their pricing and licensing models within the next two years to increase competitiveness, increase revenue, and improve customer relations.

“Enterprises are rapidly redefining how they want to license and pay for business software. Moreover, technology is shifting so rapidly it is rendering old pricing and licensing models obsolete,” said R “Ray” Wang, Principal Analyst & Founder at Constellation Research. “Smart software producers are being proactive, viewing this dramatic shift as an opportunity to offer more flexible monetization models, capture market share and new revenue streams. Software vendors that fail to act risk being left behind.”

Installation practices are also changing, as 37 percent say less than half of their applications are delivered by a traditional software installation. Asked about plans to change their licensing policies to accommodate new technologies, in each case roughly half said they plan to change policies to accommodate cloud, SaaS, virtualization, and mobile platforms.

Almost three quarters of vendors (73 percent) say their pricing and licensing policies are effective, but their understanding of customer use may be lacking. Over half do not track customer usage, 45 percent do not audit customer usage, 55 percent lack customer usage tracking technology, and 42 percent say their customers face challenges just knowing what software products they are entitled to use.

Flexera sees a potential challenge for vendors as they try to match policies to enterprise customer practices they may not fully understand.

“The report illustrates the fluidity of the software marketplace and the rapidly changing customer preferences dictating how software is bought and sold,” said Steve Schmidt, Vice President of Corporate Development at Flexera Software. “To thrive in this environment software vendors must adopt an agile Software Monetization strategy and implement automation that flexibly supports multiple software pricing and licensing models. As the data suggests, many vendors are not yet ‘change-ready,’ and therefore are at risk.”

Cloud and SaaS models have been seen as a way to reduce unlicensed software use, and enterprises have been rapidly adopting cloud productivity suites.

Based on the report, vendors that gain enough insight into enterprise customer software use should be able to leverage that understanding to draw up and explain policies which benefit those customers, and therefore help to attract and retain them.