In a recent report, it predicted that over 50 percent of enterprise software vendors were likely to modify their software licensing schemes, and place a greater emphasis on subscription-based services in the next year.
The study involved participants from both sides of the fence -- 100 vendors and 100 end-users.
Most vendors surveyed said that traditional licensing models were no longer suited in today's environment due to a fundamental shift in "customer dynamics". Two main factors driving this change are the management of software contracts and false expectations given to customers.
The study revealed that medium- and large-sized customers had an average of 40 software contracts under their belt, and 70 percent of these customers expect the complexity of managing these contracts to increase.
On managing expectations, IDC said there's a disconnect between current licensing models and business value. The research company believes that in order to reach a concensus on value, software vendors and customers "must shift away from adversarial negotiating tactics and work together to determine the most appropriate licensing approach".
All these findings, however, aren't new. More than two years ago, software maker Oracle predicted such moves but only recently acted on it. In January 2004, Oracle introduced user-based pricing for its outsourcing services ranging from a monthly fee of AU$17 to AU$207.
"As the IT industry evolves, you will continue to see new licensing models," said Jacqueline Woods, Oracle's vice president for licensing.
-Employee-based pricing is the next evolution of outsourced licensing options and reflects where Oracle feels the software industry is headed," Woods said.
And in the customer relationship management space, Siebel Systems followed the lead of Salesforce.com by recently introducing a subsciption model.
The same IDC study states that 43 percent of vendors believe that by 2010, a majority of sales will be derived from subscription services. However, only 26 percent of customers surveyed held this view. So, is this a case of vendors fulfilling a demand or creating one to demonstrate perceived value?
Managing software licences can be a nightmare but I'm not sure if a subscription-based service will ease the pain.
Do you prefer the traditional, perpetual licensing scheme or a subscription-based approach? What type of new licensing models would you like to see? E-mail your thoughts to edit@zdnet.com.au.
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This topic has been around since Adam was a cowboy. The major issue facing software developers/suppliers is the growing complexity of the basic software offering they are providing. And, this complexity has grown, not quite exponentially, but close, since the mid 70's.
The fixed purchasing type model has always failed due to the escalating on-costs of maintaining the software. I can recall in the 60's operating in a Data Centre that we overcame the problem by 'supplanting an estimated software maintenance cost into our Data Centre processing charges (based on a fixed % of the original software development cost) - there was simply no other way of maintaining any software we had written over the long term.
I believe that the subscription based approach is the only way to go forward, as, over time, most providers will be spending more on maintaining their software than writing new or enhancing their existing software.
The basic problem with the perpetual licensing scheme is that it assumes that the product is perfect - duh! And that it will never require fixing, correcting, etc.
Just remember that the last guy that was perfect got crucified.
Software developers today must develop a revenue stream to maintain the software that they develop. The key is to keep that subscription (say
annual) down to the bare bones and with cheaper initial dollar costs for the consumer.
I've even recommended to a few of the 'free' software providers like LavaSoft's AdAware program that they should have say a $5.00 annual update subscription charge just to cover their server costs.
Take the same approach based on the number of users using a large application where you'd charge say $25 per user and the number becomes meaningful in terms of revenue streams. If you've got 250,000 end users of your software (a miniscule number for any major application) that equates to $6.25 million of ongoing maintenance revenue for your software which hires quite a few programmer/analysts. At $80,000 each, that's over 70 staff. Taken over even a 5 year software life span, you've set aside over $30 million for your software maintenance budget.
As long as one keeps the subscription charge per user at a low enough level it remains below the radar so to speak and much easier to sell the initial offering - with a demonstrable service/maintenance plan self evident.
It's all about numbers and long term survival.