Sales & Marketing

Think Monetization Before Enforcement with Subscription Software Licensing Models

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If you are a software vendor, a subscription software license model can be an excellent addition to your product pricing portfolio. The subscription software licensing model can offer a lower cost of entry for your customer, making it more cash-flow friendly if they need to closely manage cash flow. The subscription license model is often accounted as an operational expense rather than a capital budget item for the buyer, which may also be appealing to your customers who prefer this method of purchasing software (this is popular with engineering software where software license procurement is viewed as a project expense).

And for the vendor, the subscription software license model offers the promise of a more predictable annuity revenue stream. This is quite appealing to a CFO who can plan and budget more accurately with known revenue streams. Of course, the subscription software license model isn’t always a fit for all software in all markets.

However, there are cases where we find that a subscription software license model is a perfect fit for the business, yet the software vendor is reluctant to adopt it. The argument I often hear can be paraphrased as, “Yes, it’s the perfect model, but we can’t have our software stop running because a license key expired. Our customer’s business can’t go down.” This is a case of backward thinking – there is an inaccurate technology view of the subscription software license model that affects its adoption.

If the subscription software license model is the right monetization and customer-friendly model, then it can and should be adopted. Next is the enforcement decision, which can be applied somewhat separately from the software monetization decision. It too, is a business decision and not a technology decision.

If your software is mission critical to your customer’s business, and if you trust your customer, then your compliance philosophy should be never to stop the customer from running, but to monetize this over-usage when possible. An enforcement mechanism, such as a license manager, does not actually stop software from running. The license manager simply informs the software that the license has expired, and it is up to the business policy coded into the application that decides on what to do.

There is an entire range of possibilities from simply messaging a customer that the software license has expired, all the way to the hard stop of an application. In fact, the business policy coded into the product can be designed to vary by a number of factors (mission criticality of product, product lifecycle, geographic region of sale, size of customer, etc.).

If your customer is running your software in a mission-critical environment, then simply give them a message that their license has expired. And be sure that the associated entitlement management systems are providing the business information that a license is about to expire so that a sales conversation can be arranged.

Subscription software models are a great way to grow market share and increase customer satisfaction. If it makes sense, adopt the software license model, and tune the enforcement mechanism to align with your compliance philosophy.

Cris Wendt is the Principal Strategy Consultant at Flexera Software.

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