Editors’ note: Software monetization has advanced far beyond just preventing unauthorized use and distribution and is an increasingly crucial service that drives pricing and product road map decisions. Michelle Nerlinger, SafeNet’s vice president of marketing, discusses evolving trends in strategies around software monetization and how companies are improving revenue and market share through SafeNet’s solution.
SandHill.com: What is a software monetization strategy?
An effective software monetization strategy employs a variety of software packaging, control, tracking and management techniques to maximize an organization’s ability to monetize its offering. While the concept of a comprehensive software monetization strategy is a relatively new one, many of the software monetization techniques, such as piracy prevention and IP protection tools, are more than 30 years in the making.
SandHill.com: How has the strategy for using software monetization solutions recently changed, and what’s driving the change?
Michelle Nerlinger: The original approach to software monetization focused exclusively on control, both on preventing unauthorized use and distribution of software and on protection of the software code itself in order to prevent tampering, code theft and reverse engineering. The main drivers were all around protecting revenue and trade secrets.
As software portfolios got more complex and end-user consumption preferences began to evolve, control mechanisms needed to be more flexible. More flexible business models meant more complex business processes, and eventually the ability to manage these software portfolios effectively also became a huge challenge.
Which brings us to the present. Today an effective software monetization solution must provide software publishers ultimate flexibility when it comes to pricing, packaging and distribution models. This ensures that access to and use of an application is controlled while also offering an easy way to manage the ongoing customer entitlement experience and providing insight into how products are being used.
SandHill.com: How do the SafeNet software monetization solutions help companies increase revenues?
Michelle Nerlinger: We give software companies flexibility and better control over packaging, pricing and managing customer access to their applications. It gives them the ability to revoke or renew licenses, add features, enable post-pay models, etc. — and it’s seamless and transparent to the end users.
As an example, perhaps a company has one product with 15 features for which they charge a premium. Other markets might want bits and pieces of it and might be willing to pay a fair price for a tenth of the product. The company needs to flexibly package it. We help them by building a licensing packaging strategy at the feature level so they can turn features on and off with licensing.
SandHill.com: So this helps them build their product road map and determine pricing.
Michelle Nerlinger: Yes. As another example, an application might have 50 features but our tracking solution reveals that customers only use 35 of them. The company would want to decide whether or not to continue investing in them, positioning them a different way or making them easier to use.
Our usage tracking functionality gives them the data to drive marketing programs, renewal programs, and influence product road maps. Effective use of software monetization solutions gives software companies the ability to be more forward thinking.
As product portfolios get more complex, ISVs need to manage them. Many software vendors have insanely complicated back offices today with multiple licensing systems sitting on top of each other and manual, time-consuming processes that don’t provide consistent end-user experiences. They also can’t automatically feed data from their licensing system to their ERP or CRM system. Our product enables them for effective entitlement management.
SandHill.com: So this is another industry change driven by end users and the flexibility of the SaaS model?
Michelle Nerlinger: Yes, software publishers now realize that they are losing business, not because of the quality of their product but because they aren’t selling their product the way customers want to buy it. They know that customers have a lot of options and will pick another product if the software publisher doesn’t think about customer needs.
SandHill.com: What differentiates SafeNet’s product from other companies offering software monetization?
Michelle Nerlinger: SafeNet is the only vendor to offer a cloud-based software licensing and entitlement management solution. Only SafeNet offers customers the ability to choose whether or not they want a cloud-based or on-premises licensing solution and only SafeNet can offer customers a single solution for packaging, controlling, tracking and managing a hybrid (mixed cloud and on-premises) software product portfolio.
Additionally, our cloud-based offering features the most sophisticated usage tracking available on the market today. It takes licensing to the next level. It enables software vendors in a very clean way to implement APIs at the feature level to drive usage-based business decisions — tracking what users are entitled to, what they’ve used, what they’ve clicked on and what they’ve tried to use.
SandHill.com: Does your offering include a customized solution?
Michelle Nerlinger: We offer our entire, robust software monetization solution through two versions. One is an out-of-the-box solution that is attractive for midsize or smaller companies that want a plug-and-play solution. The other is a toolkit that is easy for customers to customize and brand.
SandHill.com: How does the product help software companies that have multiple issues?
Michelle Nerlinger: One organization’s primary driver could be to prevent piracy, making sure that customers only have access to the products and the features they’ve paid for.
Another organization may want the ability to monetize a product upon upgrade. This organization may feel that the best way is to distribute thousands of free copies of the software with the hope that 10 percent of them call to upgrade for a small cost. This organization doesn’t want there to be any barrier to entry.
A third organization might not want to control usage at all and wants to let anyone have access to every feature to be able to see who’s using what for how long, from where and when. This organization really just wants to collect usage data.
The API is implemented at the feature level to meet all three types of needs. Same product, same implementation process, but three totally different drivers of why it’s being implemented. Licensing solves all of those requests and totally different values are derived.
SandHill.com: Please provide an example of a company that dramatically benefited from SafeNet’s software monetization solution.
Michelle Nerlinger: One customer had just gone through multiple acquisitions. Each of those organizations had a different licensing system, and there were a lot of homegrown licensing solutions. This presented different customer experiences and different operational processes internally for how they fulfill every order placed on the various product lines that they acquired.
They didn’t implement any of our licensing technology. They implemented our entitlement management system on top of all of their disparate licensing systems. The cost savings was incredible. They eliminated at least two or three administrative heads supporting customer service that literally were just cleaning up mistakes and manually fixing processes. They created a completely standardized customer experience for all customers across product lines. And they saved significant costs on support tickets through automation.
SandHill.com: Do you have an example of how software monetization increased revenue for a SafeNet customer?
Michelle Nerlinger: One company started out as a basic open-source software application with thousands of users. There was no way to find out if someone would pay more money for it or if someone wanted an upgrade because once they gave it away they lost track of it.
They got to a point where they wanted to offer one set free to the open source community and maintain that. To get to the more advanced features of the application and take it to the next level, they wanted to be able to monetize that additional add-on module or those extra added-value features for which they would provide support.
During the first quarter that they had licensing implemented they increased their revenue by approximately 57 percent. This was as basic as implementing trial licenses. They just embedded licensing and gave away the product unless the end user wanted to access advance features. It wasn’t even enforced. It was a notification process. Implementing that means of control enabled them to know where the product was and to give the end user a way to contact them if they wanted to upgrade.
SandHill.com: What are the barriers stopping companies from adopting software monetization?
Michelle Nerlinger: Many people are still very focused on security, the control problem. They don’t see the added value that improved customer life cycle management, process automation and detailed usage tracking and reporting can have on the business.
Also, IT and product managers are busy. Licensing rarely comes to the top of their priority list. Licensing of products across a portfolio is rarely in somebody’s job description or somebody’s full-time job. Usually it has to trickle in through a product manager or a person who really wants it, and then that person has to be a champion within the organization and not let it get deprioritized.
Other people think that they aren’t quite there yet or that a software monetization solution is “nice to have” next quarter or maybe next month. A company might be bleeding money; but since their business doesn’t stop because of not having a licensing solution like it does when a software implementation goes down, it’s hard to make it a priority.
SandHill.com: What causes these kinds of companies to realize they have to make a change?
Michelle Nerlinger: Sometimes it’s the ineffective, costly back office.
Also, small companies don’t want to spend money so they have homegrown licensing solutions, which results in lack of control over piracy. At some point, a homegrown solution can’t scale or the licensing model isn’t flexible enough. And they definitely can’t do the usage tracking. To aggregate and manage the amount of data needed to track usage is completely overwhelming for a homegrown system.
A lot of organizations simply don’t explore third-party options until they hit the wall with their homegrown system. It’s a delicate balance from “We don’t have any money and we can maintain it ourselves” to “We have to rebuild it every year, it takes too many people to maintain it and it doesn’t have the features we need; so let’s buy it.”
Software monetization has moved far beyond its early days of a cut-and-dry security focus, which didn’t provide a user-friendly experience. Today’s focus on using software monetization techniques to increase revenues and market share is a fairly new concept. It is crucial for giving software companies the flexibility they need to provide products the way that companies want to buy software today.
Michelle Nerlinger is vice president of marketing for SafeNet’s Software Monetization group where she is responsible for defining and communicating product vision, growth strategy and go-to-market plans for the company’s award-winning Sentinel software licensing and entitlement management solutions. Michelle joined SafeNet in 2004 as a member of the corporate communications team. In 2007 she joined SafeNet’s Networking & Embedded Business Unit to lead global product marketing efforts for OEM & DRM product lines.
Di Freeze is editor at SandHill.com.