By Olivia Cahoon
As more independent software vendors (ISVs) accept cloud deployment options, proper monetization is essential. Software monetization tools ensure software infrastructure possesses the proper licensing controls for software and software-driven devices to be priced fairly.
Here, we discuss the challenges and benefits for ISVs moving to cloud deployment.
License Management Challenges
Unlike licensing to desktops and on premises use, cloud licensing requires ISVs to manage its client base in a different manner, which often requires cloud-specific licensing technology.
“With a data-centric cloud, such as Platform-as-a-Service (PaaS) or Infrastructure-as-a-Service (IaaS), the ISV’s software is installed in the customer’s cloud and runs without any of the familiar desktop licensing control technologies, such as machine binding or dongles,” says Marcellus Buchheit, CEO/president, Wibu-Systems USA. Only cloud-specific licensing technologies can be employed because the software operates in a complete virtual world.
Maureen Polte, VP, product management, Flexera, believes it’s imperative that ISV’s operational systems support new cloud subscription processes and traditional on premises perpetual models. Additionally, ISVs should track software usage regardless of deployment models while managing customer and use rights.
“Software operations and the customer experience should be managed consistently for traditional and cloud products. That’s nearly impossible to do with homegrown solutions,” she argues. ISVs that support cloud deployment are better suited with a purpose-built software monetization platform that handle new cloud subscription processes and on premises models.
From a customer perspective, ISVs should assure customers that applications (apps) and data will be available in the future while moving to the cloud. “According to an IDG Research survey, nearly half of IT leaders believe that risks associated with Software-as-a-Service (SaaS) are greater than those of traditional on premises software. And, one-third say they have subscribed to mission-critical SaaS applications for which the provider ultimately failed to meet expectations for support,” says John Boruvka, VP, intellectual property (IP) management, Iron Mountain.
Polte believes one of the biggest challenges for cloud deployment is the shift to more complex pricing models because ISVs monetize offerings differently. For example, she says that in addition to a per-user pricing model, ISVs may also price for data storage, resulting in multiple dimensions that require usage tracking. To track compliance, prevent overuse, and protect IP, ISVs implement licensing and subscription control mechanisms. “Based on usage insights, they can proactively engage with customers to move to high-tiered offerings.”
In addition, there is a need for more agility in the way product features are bundled into various offerings. “Rather than hard-wiring different options directly in their SaaS application, they should use a software monetization platform to enable or disable different options or features on demand,” adds Polte. ISVs can then bring new offerings and options to market quickly without bottlenecks in development.
From a monetization standpoint, moving to the cloud offers a range of advantages including customer preference, modification of license inventories, and usage-based licensing.
Bob Reynolds, director of sales, Reprise Software, says that licensing in the cloud eliminates the need to install and maintain the license server locally. This is especially beneficial for customers that don’t want to install a license server and for customers that don’t have in-house IT support.
Software prices are based on usage, which relies on accurate records. License usage data is collected by traditional license server deployments at the customer site. Reynolds says it’s difficult to collect data from traditional deployments, however, cloud-based license management records usage data on the cloud for easier access.
By offering SaaS, cloud vendors receive recurring revenue and benefit from lower costs for deployment. With the proper deployment, subscribers are more likely to remain loyal to the provider and add additional services as needs arise. Boruvka says SaaS vendors need to ensure they are trustworthy and safe—enabling effective competition.
Buchheit agrees and adds that cloud deployments reduce costs in upfront end user capital expenditures. It’s easier to manage newer licensing methods in the cloud because of the guaranteed internet connection. “With cloud software, there is no need to have a call center for phone activation or non-connected software. Any changes in the software setup can be performed instantly due to the guaranteed internet connection between customers and the license manager,” he explains.
This also aids how software suppliers in the cloud measure customer value. “They can really understand how customers use the product and define the key value it delivers,” says Polte. The cloud enables measuring the way in which customers adopt offerings.
By measuring and tracking consumption, cloud suppliers know the lifecycle of their customers and forecast subscriptions and renewals. Customers benefit as well by gaining instant access to new features. “They shift costs from capital to operational expenditures that are more predictable. There is less concern for paying maintenance to shelf-ware since users always have access, and often there’s more visibility into how much is used than with traditional on premises software,” offers Swift.
Considerations for the Cloud
To grow profitably, ISVs ensure software infrastructure has the proper licensing controls built in for efficient software monetization. Reynolds identifies several considerations for ISVs moving to the cloud in terms of monetization including protection and control.
He believes the first consideration for moving to the cloud is IP protection. “Adopt a technology that gives you a satisfactory degree of security to prevent unlicensed use and to deter imitators who would use your IP to compete against you,” he explains.
According to Boruvka, ISVs should also consider the shift from one time licensing billing with annual maintenance and decide how to move to a subscription model. He suggests ISVs consider cash flow. “Many SaaS companies will require one to two-year contract commitments with incentives if fees are paid up front, and then, monthly recurring or the like.”
Whether IaaS, PaaS, or SaaS, ISVs maintain licensing control for efficient app monetization in the cloud. Buchheit says it’s relatively easy to manage licenses since ISVs maintain control of the licensing system. However, if customers demand a data-centric cloud run in the customer’s cloud, it can become more difficult to install a traditional licensing control system. “Dongles cannot be used nor is there a way to establish a stable license binding mechanism in the virtual cloud,” he explains.
Reynolds also believes that ISVs should consider increasing profitability from a monetization perspective. By extracting revenue from existing bases, ISVs give users options for feature bundles and prices scaled to the value they receive. He says new pricing models like monthly and annual subscriptions, token-based licenses, and usage metering tend to cast a wider net into existing markets. Low price points and free versions also broaden customer base possibilities.
Regardless of deployment model, Polte suggests ISVs create a single user identity across all product offerings. “Your product offering includes other system touchpoints beyond your core cloud SaaS application,” she explains. Helpdesk ticking systems can use the same identity that accesses SaaS products—enabling consistent user experiences.
Trends Affecting Monetization
While cloud deployment offers several advantages, there is still a risk for companies to leave behind the cloud and move back to on premises software’s solutions. Boruvka suggests ISVs be honest about costs and how subscribers access data. “Software deployed in the cloud is not automatically the best fit for the enterprise and the developer,” he admits.
ISVs are reluctant to deploy apps into the cloud for fear of hackers stealing or manipulating their IP or data. Buchheit says recent events surrounding numerous, well publicized breaches of cloud-based data underscores ISV’s hesitancy. Secure licensing implementations have a big impact on cloud-based monetization.
Reynold identifies another notable trend a as ISVs integrating application licensing with order management and e-commerce solutions.
A variety of vendors target ISVs looking to monetize cloud-deployed IP.
Flexera’s software monetization platform allows ISVs to manage subscriptions, customer entitlements, and channel partners for on premises and cloud applications. The solutions are powered by FlexNet Licensing. Flexera’s software monetization automates the subscription lifecycle and provides ISVs with product insight and usage information for developing products.
Gemalto’s Sentinel Cloud is a cloud-based licensing and enforcement solution for pure-play and on premises technology companies. It leverages the cloud’s potential to define, provision, control, and track service offerings. The solution offers business model versatility, real-time data collection, and license compliance enforcement.
Reprise Software offers RLMCloud, a cloud-based solution for hosting ISV’s customer licenses. The solution provisions and manages customer license servers and installs and manages licenses from a browser without the need to install license server software into customer systems.
The Wibu Systems CodeMeter CmCloudLicense is a cloud-specific licensing solution that stores software licenses in the ISV’s cloud space and allows publishers full control. Buchheit says the software checks the cloud license via the internet and runs it if a suitable license at the CodeMeter CmCloudLicense is available and valid.
While not monetization software, Iron Mountain offers solutions that protect ISVs against cloud deployment concerns. Iron Mountain’s SaaSProtect Suite of Services focuses on business continuity for subscribers and disaster recovery for providers. “You can address subscriber concerns by safeguarding their information with the level of SaaSProtect protection that best fits your customers’ needs,” says Boruvka.
ISVs that accept cloud deployment options offerings benefit from customer preference, modification of license inventories, and usage-based licensing. To get the most from the cloud, it’s important that ISVs consider cloud-specific licensing technologies.
Nov2017, Software Magazine