Voices from the Field: A Software Monetization Strategy

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  • Voices from t he Field

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    Software Monetizat ion Challenges from the FieldSoftware producers, whether large or small, face many challenges as they work to monet ize and protect their IP. They know they need to do it, but how theyll do it and where they should focus their efforts can be a challenge.

    To provide insights into what software producers are doing for software monet izat ion we recent ly sat down with Arnd Linnenlueke, an Account Manager with Flexera Software in Munich, Germany to get his thoughts on what emerging technology companies are doing for Software Monet izat ion.

    Arnd works with hundreds of emerging technology companies across Europe to provide solut ions to their software licensing, use rights management (ent it lements), software delivery and software updates challenges.

    Monetizing and protect ing your IP is important, but how should you do it and where should you focus your efforts?

    Arnd LinnenluekeFlexera Software

    Munich, Germany

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    Q: What are some of the most common Software Monetizat ion challenges that emerging technology companies need help addressing?

    A: One of the most common areas that these producers need help with relates to software licensing specifically, protect ing revenue and streamlining software licensing processes.

    Companies want to make sure they get paid for their software and offer new licensing models like subscript ion and usage-based models.

    The second part is a bit tougher as these producers grow, especially from $1M to $10M in revenues, tracking use rights (ent it lements) becomes a challenge. Many of these companies are using spreadsheets to manage ent it lements which becomes too complicated and error-prone. With more customers comes more complexity not just in turning licenses on or off, but in more complicated act ivit ies like re-hosts, part ial renewals and more.

    Q: Are there other challenge areas?

    A: Licensing-related challenges are very common, but not far behind are software distribut ion challenges. Many producers go straight to electronic software delivery, and interest ingly enough are interested in not only delivering software and software updates electronically, theyre also interested in implementing export controls, tracking which

    customers have downloaded which versions and updates. Finance teams are very keen on the topic of software delivery as they are concerned with revenue recognit ion and quote-to- cash processes, which are all direct ly impacted by software delivery.

    Q: Based on your experience, what are three t ips you can provide to help software producers as they navigate their Software Monetizat ion strategy?

    A: OK, sure my first t ip would be to make sure they have flexibility in their software licensing models. In part icular, many producers that start off will build their own licensing solut ions in a homegrown approach but realize those solut ions fall short when they need to offer new licensing models. One common example I see is when software producers first start out they use a simple node-locked licensing model. As the customer base grows and they want to offer float ing licensing it just becomes too complex to build and manage with their homegrown solut ion and the complexity only increases when thing like virtualized environments enter the picture theres just no way to manage that with homegrown solut ions.

    The second t ip would be to make sure you pay attent ion to managing use rights also referred to as ent it lement management. Without an effect ive ent it lement management process in place it becomes

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    all but impossible to have visibility into which customers are licensing which products and which version. This is key to ensuring that revenue is protected and that the producer is gett ing paid for what they ought to.

    Like I mentioned above, in the beginning most emerging software producers will use spreadsheets to track ent it lements but as they grow they need to know who act ivated what products so they can proact ively resolve issues and deliver updates. A recent example of this is where a producer sold a customer a licensing package with 10 act ivat ions. Since they only saw 3 of the 10 act ivated they contacted their customer and worked through their act ivat ion issues. Without an ent it lement management system, they wouldnt have seen that.

    Another key benefit to managing ent it lements effect ively is that they can get report ing on which customers are coming to the end of their maintenance cycle so they can increase the effect iveness of their software renewal cycles, upsell more software and more all of which help increase revenues.

    The third t ip I have for software producers is to make sure they focus on the end-user experience with their products. This aspect is often overlooked if the software producer doesnt think from their customers perspect ive. I remind producers all the t ime that their product experience starts with their first interact ion with the software, which is usually the act ivat ion process. End-users shouldnt be hindered with how to act ivate their license, or transfer their license to another user, and so on you want licensing to work flawlessly and transparent ly. End-user portals can go a long way in providing a superior customer license management experience, as they have a single place to go, any t ime day or night, to access and manage their licenses.

    Q: Are there any recent trends that software producers should be aware of, that perhaps theyre not thinking of today?

    A: There are several trends impacting software producers today virtualizat ion, subscript ion licensing, usage-based licensing (e.g. pay-per-use, pay-for-overage) but one that Id like to call-out is one that has become more and more prominent in customer discussions: How producers can give their customers visibility into how much software theyre using.

    Customers are asking producers to give them visibility into their licensing usage, so producers are responding by offering this data as an addit ional service offering Report ing as a Service.

    An example of this is with telecom companies, though there are many other industries needing this as well. Recent ly a telecom company (the producer) had a customer that was doing test ing of their mobile equipment. The producer implemented a floating licensing model, but testers were being denied access because they only purchased 10 test licenses so the subsequent users user #11, 12, 13 and so on were being denied access and were unable to do their test ing. So the end-customer wanted report ing from the producer to show how many were denied so they could adjust their licensing package up or down as necessary.

    While this story is commonplace recently I advise producers that this is nearly impossible to do with a homegrown solut ion - to track usage and provide that data back to customers in a usable, easy-to-understand format. We have a unique offering in that we help software producers make money from their software, but we also offer solut ions to help track and manage software usage.

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    Q: You mentioned homegrown solut ions where producers will build the software licensing themselves. What are some of the reasons you warn producers against building it themselves?

    A: There are many reasons lack of scalability, shift ing focus from their core competency, lack of expert ise in Software Monetizat ion.

    Most producers build software licensing into their products to respond to their immediate needs which is a very react ive approach. Maybe today they want to implement a seemingly straightforward node-locked, perpetual software licensing model. While that may work today, market trends and customer demands nearly guarantee that their needs will change. Many producers customers today are deploying virtual environments which means that the producer is losing money from accidental overuse and to build clone detect ion technology themselves to detect, deny and/or monetize is incredibly complex.

    In addit ion to virtualizat ion, there are new opportunit ies that may arise as the software producer grows maybe they want to offer usage-based licensing or subscript ion licensing and the list goes on and on.

    Another caut ion against homegrown licensing has arisen more recent ly as producers map-out their future plans from a market perspect ive to their internal capabilit ies. Since most producers are largely react ive in building their licensing needs they dont think down the road to future months or years so when the product management team comes to

    the engineering team in six months and says they need to implement a subscript ion licensing solut ion to establish recurring revenue streams, its simply not on their radar and they have to re-engineer what theyve built.

    This is where having roadmaps future plans of product funct ionality is crit ical. Flexera Software has roadmaps many months and years out into the future, so my customers take comfort in the fact that we have a plan were developing against so that they dont have to.

    Last ly, having roadmaps is part icularly important for intelligent device manufacturers that have not operated as software companies. Since their further from software they usually dont ant icipate software development needs as well. Its crit ically important for them to look to a leader like Flexera Software that has future plans developed and documented so they can align their near-to long-term plans with their software operat ions to ensure success now and well into the future.

    Next Steps:Contact us at www.flexerasoftware.com any t ime.

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