Economic Downturn and New Technologies, Such as Cloud Computing, Driving Changes in Software Licensing Models

Software vendors and their enterprise customers, increasingly challenged by the current economic downturn, are looking for better strategies to derive more value for their organizations through software licensing and pricing, a survey has found. While not surprisingly some of those strategies diverge between vendors and customers, many are complementary and serve to strengthen the positions of both.

Key findings:

--  Cloud computing driving further market flux: In a sign of significant market change, the majority of software vendors (60 percent) believe that their licensing will need to change in some way in the next 24 months to adapt to cloud computing, with around 30 percent expecting that change to be significant. Back-end licensing and entitlement management will need to accommodate cloud computing as well.

--  Software Pricing Models - Divergent preferences, converging strategies: While software vendors offer both seat (per machine/server) licenses (65 percent) and concurrent user (floating/network) (62 percent) pricing models, enterprises most prefer concurrent user (floating/network) (59 percent) software pricing models and usage-based models (16 percent). Vendors are responding, with 41 percent planning on offering usage-based models in the  next two years, up from 22 percent currently.

--  Monitoring usage - critically important: Only 40 percent of software vendors are using tools to monitor customer usage, and just over half of those companies that have or plan to have a usage-based pricing model in the next two years are using tools. One-third of companies that have or plan on implementing usage-based pricing do not track usage at all -- not even manually. On the enterprise side, 71 percent of companies agree that tracking software usage is important, citing software cost reduction and ensuring compliance as their primary reasons.

--  Disconnect between confidence and compliance: While 85 percent of enterprises responded that if audited, they are at least somewhat confident that they are in compliance with all of their software license agreements, when pressed, that confidence is not justified. 53 percent of enterprises also responded that at least some of their software license spend is associated with applications that are overused and therefore out of compliance; 85 percent responded that at least some of their software license spend is associated with under-used software, or shelfware.

--  Continuing trend to pay only for actual usage: In a continuing trend towards software licensing and enforcement mechanisms focusing on actual usage, 46 percent of software companies use network licensing as a means of enforcement, up from 28 percent a year ago.

--  Poor usage tracking driving acquisition of licensing management tools: 18 percent of software vendors believe their customers don't understand their software usage and entitlements, and 21 percent don't know. Likewise, vendors themselves either don't have technology in place to know what products, product versions or platforms their customers are using (33 percent), or they don't know (10 percent). Not surprisingly, 46 percent of the vendors cite the need to deploy technologies that better track licensing as a priority over the coming year.

Comment from Amy Konary, Director of Software Pricing and Licensing Research at IDC: The 2010 survey highlights a continued need for more sophisticated usage and entitlement tracking. The majority of enterprises believe that they are either underutilizing or out of compliance with their vendor software licenses, which equates to a significant opportunity for license optimization. Software vendors have also identified opportunities to better serve their customers and improve efficiencies, with 20 percent more companies planning on offering usage-based models within the next two years and 46 percent citing the need to deploy technologies that better track licensing.

About the survey: Flexera Software, a provider of strategic solutions for Application Usage Management to application producers and their customers, conducted the 2010 Software Pricing and Licensing Survey among 234 software vendors, high-tech manufacturers and enterprise IT executives and managers. The survey was prepared jointly with IDC.

Contact: http://www.flexerasoftware.com