2011 key trends in software pricing & licensing survey

2011 Key Trends in Software Pricing & Licensing Survey

Sponsored by Flexera Software

2011 Key Trends in Software Pricing and Licensing Survey 2

2011 Key Trends in Software Pricing

& Licensing Survey Sponsored by Flexera Software

Overview of Survey Findings

The 2011 Key Trends in Software Pricing and Licensing Survey of 348 participants, prepared with assistance from

IDC, found that:

Perpetual/Subscription

Application producers derived 79% of their software revenues from perpetual licenses, 15% via

subscription.

Application producers expect perpetual license revenues to decline an average of 10% over the next two

years, and subscription revenues to increase by an average of 6% over the next two years.

Metrics

The number of application producers that are pricing based on a usage metric (number of uses, time

used and number of transactions) is expected to double in the next two years, from 22% today to 43%.

This is consistent with the results of last year's survey, with usage metrics expecting to experience the

most growth as compared to other models.

Of the total survey population, 47% of application producers do not monitor customer usage. Of the

survey population that is either doing usage-based pricing today or plans on doing usage-based pricing

in the next two years, 48% do not monitor customer software usage.

In terms of hardware-based metrics, the number of application producers offering processor-based

metrics is expected to decline by 18%, while the number of application producers offering processor core

is expected to grow by 34%.

The most common metrics used today, per seat and concurrent user, will remain relatively flat in the next

two years, with an 8% decrease in per seat offerings and a 7% increase in concurrent user offerings.

Enforcement

The most common means of enforcement is network-based licensing and product activation. According

to enterprises, these are their favored approaches as well.

These means of enforcement will also increase by the greatest margin in the next two years (48% and

54%, respectively).

Most enterprises (53%) rely primarily on software asset management for tracking, management and

reporting of their software licensing/usage today. 20% are doing this manually, relying primarily on

spreadsheets.

The most common primary reason that customers are tracking usage is for compliance purposes;

however 31% are tracking usage primarily to reduce shelfware.

http://www.idc.com/


Of the ways that customers track usage, the highest satisfaction rating is for vendor provided tools, with

90% of customers that primarily use that approach indicating that they are satisfied. The least favored

approach—manual/spreadsheets — registers only 22% satisfaction.

Enterprises believe that it is harder to maintain compliance for infrastructure (not applications) software.

The primary reason for difficulty, according to customers, is that licensing is too complex.

Audits

Most application producers did not perform any audits at all in the last year (60%)

Most application producers that did perform audits did 10 or less.

For the vast majority of application producers that performed audits, the award was less than $100,000.

Our enterprise survey corroborated this data.

The application producers listed by enterprises as conducting audits within the last year included

Microsoft, Oracle, IBM, and SAP.

Licensing Effectiveness

55% of application producers think their current licensing strategy does a good job of capturing value.

And 70% in that population plan on making additional licensing strategy changes to capture more value

in the next two years.

Application producers with concurrent licensing were most likely to rate their licensing/value equation as

being effective (77%). In addition, 40% of enterprises listed concurrent licensing as their preferred

approach, the highest percentage of any category.

Application producers with processor-based licensing were most likely to rate their licensing/value

equation as being ineffective or very ineffective (60%).

Entitlements

Most application producers (62%) believe that it is difficult to somewhat difficult for customers to

determine which products they are entitled to use and what they are using.

Survey Background

The 2011 Key trends in Software Pricing and Licensing survey was conducted by Flexera Software with input from

IDC‘s Software Pricing and Licensing Research division under the direction of Amy Konary, research vice president -

software licensing and provisioning at IDC. This annual research project looks at software licensing, pricing and

enforcement trends and best practices. The survey reaches out to executives at application producers and

enterprises who use and manage software and devices. Now in its seventh year, the survey is previewed at the

annual SoftSummit® Conference and made available to the industry at large each year.

http://www.softsummit.com/


Methodology and Sampling

In total, 348 respondents participated in the survey, including 98 enterprise executives and 250 application producers

(defined as software vendors and intelligent device manufacturer) executives.

Enterprise Demographics More than one-half of the enterprise respondents were from larger enterprises of more than $1 billion in

revenues, and more than a third were from companies with $3 billion in revenues or more. 45% were from

North America, 38% from Europe, 13% from Asia Pacific, and 2% from the Middle East.

Application Producer Demographics

The largest segment of application producer respondents (47%) came from companies with under $10

million in revenues. The remainder were divided relatively equally across all revenue levels. 72% were from

North America, 21% from Europe, 6% from Asia/Pacific, and 1% from the

Middle East.

Which of the following best represents your annual company revenues?

Less than $100 million $101 - $999 million $1 billion - $3 billion > $3 billion

Do not know

Which of the following represents your annual product licensing revenues? Less than $10 million

$11 - $30 million

$31 - $50 million

$51 - $100 million

$101 - $500 million

$501 million - $1 billion

Over $1 billion

Do not know


Individual Findings

Pricing Flexibility and Value

Usage-Based Pricing Remains Popular, but Seat-Based Pricing Gaining Popularity

The most popular software pricing model for enterprises (40%) is concurrent user (floating/network) licensing

(down from 60% last year). However, the demand for usage-based pricing remains significant at 17%.

Seat-based licensing models (per machine/server and named user) have gained popularity, with 30% of

respondents preferring those models, compared to 9% in 2010.

What is the software pricing model you prefer for enterprise class applications?

Processor

Processor core

Seat (per machine/per server)

Seat (named user)

Concurrent user (floating/network)

Usage metric (number of uses, time used, number of transactions) Financial metric (revenue, cost, royalty)


Application Producers Continue to Offer a Wider Variety of Software Pricing Models: Application producers continue to offer a growing variety of pricing models in response to greater demand by

customers. More are offering seat (per machine/per server) – 70% in 2011 vs. 65% in 2010, seat (named

user) – 34% in 2011 vs. 27% in 2010, concurrent user (69% this year vs. 63% last year) and financial metric

(12% this year vs. 6% in 2010). There have been slight decreases over last year in the number of

application producers offering processor, processor core and usage metric models. Over the course of the

next two years, we can expect to see a large increase in the number of application producers offering usage

metric pricing models (43%).

0% 10% 20% 30% 40% 50% 60% 70% 80%

Pro

cessor

Pro

cessor

core

Seat

(per

machin

e/p

er

serv

er)

Seat

(nam

ed

user)

Concurr

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user

(flo

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ork

)

Usage m

etr

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(num

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of

uses,

tim

e u

sed,

num

ber

of …

Fin

ancia

l m

etr

ic

(revenue,

cost,

roya

lty)

Oth

er

(ple

ase

specify)

Which pricing models do you offer for your packaged software or intelligent device today? Product that is

priced per…

0% 10% 20% 30% 40% 50% 60% 70% 80%

Pro

cessor

Pro

cessor

core

Seat

(per

machin

e/p

er

serv

er)

Seat

(nam

ed u

ser)

Concurr

ent user

(flo

ating/n

etw

ork

)

Usage m

etr

ic

(num

ber

of

uses,

tim

e u

sed,

num

ber

of tr

ansactions)

Fin

ancia

l m

etr

ic

(revenue,

cost,

roya

lty)

Oth

er

(ple

ase

specify)

Looking forward in the next two years, which pricing models do you expect to offer? (Select all that apply).

Product that is priced per…


Revenue Generation & Customer Satisfaction Driving Changes:

42% of application producers indicate that they have changed their pricing and licensing policies over the

past two years to make them more flexible. The top two reasons for this shift have been to improve

customer relations (46%) and generate more revenue (40%). Accelerating the sales cycle (27%) was also

cited as a key reason for broadening pricing and licensing policies.

Both Enterprises and Application Producers Are Largely Satisfied with Current

Pricing Models:

The survey asked enterprises to rate their satisfaction of pricing for database, middleware, ERP, CRM,

engineering and desktop applications. The applications eliciting the highest satisfaction (responses of ‗highly

satisfied‘ or ‗satisfied‘) included desktop applications (44 respondents) and engineering/technical

applications (38 respondents). Those eliciting the lowest (responses of ‗unsatisfied‘ or highly unsatisfied‘)

included ERP software (19 respondents) and database software (18 respondents).

0% 5%

10% 15% 20% 25% 30% 35% 40% 45% 50%

Genera

te

more

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Impro

ve

rela

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with

custo

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Accele

rate

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Decre

ase

develo

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en

t cost

Not

applic

able

Oth

er

(ple

ase

specify)

Did providing more flexible licensing and pricing policies help the company:


62% of application producers said that their pricing and licensing strategies captured the value of their

software effectively, down considerably from 2010 when the response was 79%. 23% consider their pricing

strategies either ‗ineffective or ‗very ineffective‘, compared to 14% in 2010.

Software Usage, Delivery and Enforcement

Software Budgets Starting to Increase

43% of enterprises report that, looking ahead two years, they expect their software budgets to increase – up

from 33% in 2010. 28% expect their budgets to stay the same, and 22% expect them to decrease.

0

20

40

60

80

100

120

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How would you rate your price-to-value satisfaction of the following types of software?

Highly satisfied

Satisfied

Neutral

Unsatisfied

Highly unsatisfied

N/A

How would you rate the overall effectiveness of your company’s pricing and licensing strategies in capturing the

value that your product provides to customers?

Very ineffective

Ineffective

Effective

Very effective

Don't know


Percentage of Total Software Budgets Assigned to New Software Varies

The percentage of total software budget within enterprises assigned to new software purchases varies

greatly. 23% report that between 1-10% of budget is assigned to new software, 21% report the figure being

between 11-20% of their budgets, and 24% report it being more than 20%.

Managing Software Licensing & Usage is Critically Important for Enterprises

Looking forward two years, do you expect your software budgets to...

Decrease

Stay the same

Increase

Do not know

What percentage of your total software budget is assigned to new software licenses?

0%

1-10%

11-20%

21-30%

31-40%

41-50%

51-60%

61-70%

> 70%

Do not know


72% of enterprises indicated that compared to other objectives, managing software licensing and usage is

important or very important. Only 12% indicated it is unimportant.

Application Producers Aware of Customers’ Usage & Entitlement Tracking Challenges

62% of application producers believe it is somewhat or very difficult for customers to determine their software

product entitlements. 34% believe customers have no difficulty.

Moderated Approach to Adopting Cloud Licensing Strategies

Compared to your other objectives, how important is managing software licensing/usage?

Very unimportant

Unimportant

Neutral

Important

Very important

0

10

20

30

40

50

No difficulty Somewhat difficult Very difficult N/A

# o

f re

sp

on

den

ts

How difficult do you believe it is for your customers to determine which of your products they are entitled to use

and what they are actually using?

Answer Choice


Application producers are taking a gradual view in anticipating licensing strategy changes to accommodate

the Cloud. 46% indicate the changes they‘ll need to make will be moderate over the next two years. 34%

anticipate no change. While 21% indicate changes will be significant or dramatic.

Please rate the level of your agreement with the following statement: In the next 24 months, my company's current

licensing strategy will need to change in order to adapt to the requirements of cloud computing.

1 = Stay the same/no change

2 = Moderate changes

3 = Significant changes

4 = Dramatic changes


Subscription Software Licensing Models Continue to Grow

Subscription-based license models represent an important source of revenue for application producers today

– though the majority still derive most of their revenue from perpetual licenses.

0% 20% 40% 60% 80% 100%

1

5

9

13

17

21

25

29

33

37

41

45

49

53

57

61

65

69

73

77

81

Thinking of your total software licensing revenue, what percentage is associated with the following license types?

Percent of Revenue Associated with Perpetual Licenses

Percent of Revenue Associated with Subscription/Term Licenses

Percent of Revenue Associated with Other License Types (such as usage based)


Over the next two years, subscription-based licenses will represent an increasing source of revenue for

application producers.

0% 20% 40% 60% 80% 100%

1

5

9

13

17

21

25

29

33

37

41

45

49

53

57

61

65

69

73

77

81

Looking forward in the next two years, what percentage of your total packaged software and/or intelligent device license revenue will be associated with the following

license types?

Percent of Revenue Associated with Perpetual Licenses

Percent of Revenue Associated with Subscription/Term Licenses

Percent of Revenue Associated with Other License Types (such as usage-based)


Virtualization on the Rise Within Enterprises

Most enterprises report that they have adopted some level of virtualization technology. The type of

virtualization deployed and the extent of that adoption vary widely across respondents.

Strategies for Managing Software Licenses in Virtual Environments Vary

36% of enterprises use automated commercial license management software to manage their virtual

licenses. 26% do so manually, while 21% use the tools supplied by their virtualization vendor.

0

10

20

30

40

50

60

70

80

90

100

Server virtualization (% of servers)

Desktop virtualization (% of desktops)

Application virtualization (% of

desktop apps)

Hard partitioning (% of physical servers)

# o

f R

esp

on

den

ts

What virtualization technologies has your organization adopted?

< 20%

20-40%

40-60%

60-80%

> 80%

How do you manage software licenses in your virtual environments?

Automated commercial license management software

Software provided by the (virtualization) vendor

Automated homegrown software

Manual methods, including spreadsheets

We don‘t manage software licenses in our virtual environments


Varied Software License Optimization Approaches for Virtualized Environments

While 83% of enterprises take into account license entitlements such as software product use rights, and

upgrade/downgrade rights when managing licenses in a virtualized environment, 50% do so for only key,

high-value vendors and only 33% do so across all vendors.

Shelfware and License Non-Compliance Challenges Persist for Enterprises

Only 15% of companies report that none of their software spend is associated with out of compliance

applications – down from 30% last year. 35% report that between 1-10% of their software license spend is

associated with applications that are out of compliance – slightly lower than 2010 (37%), 16% report that 11-

20% of their applications are associated with out of compliance applications (up from 7% last year).

Do you take into account license entitlements (e.g., software product use rights such as upgrade rights, downgrade rights, etc.), which are part of all software license agreements, in your analysis when reconciling your organization’s software license

pos

Yes, for all vendors

Yes, for key high-value vendors

No

What percentage of software license spend within your organization do you estimate is associated with applications that

are overused and therefore out of compliance?

0%

1-10%

11-20%

21-30%

31-40%

41-50%

> 50%

Do not know


The levels of software underuse (―shelfware‖) have not changed substantially over 2010 and suggest there

still is room for improvement. Only 4% of enterprises report no spend associated with shelfware, 25% report

that up to 10% of their application spend is associated with shelfware, and 27% say that up to 30% is

associated with underused applications.

Tracking Customer Usage Remains Blind Spot for Application Producers

Of the application producers responding, the largest proportion, 47%, report that they do not monitor

customer usage of their products. For those that do, 20% report doing so using internally developed tracking

tools, and 16%, using manual audits. Only 10% use third party tracking tools.

What percentage of software license spend within your organization do you estimate is associated with applications that

are underused (shelfware) and therefore over-licensed?

0%

1-10%

11-20%

21-30%

31-40%

41-50%

> 50%

Do not know

How do you primarily monitor your customers’ usage of your product?

We do not monitor customer software usage Manual audits

Third-party usage-tracking tool(s) Using internally developed usage-tracking tool(s) Do not know

Other (please specify)


Enterprises Use a Variety of Tracking Methods

98% of all enterprises track, manage and report on their software usage – the majority of which (53%) use

commercial software asset management systems. 20%, however, still track usage manually using

spreadsheets. The top two reasons for tracking usage were the same in both 2011 and in 2010 – but the

ratios were reversed. In 2011 56% cited ‗ensuring compliance‘ (32% in 2010), and 55% in 2011 cited

‗reducing software costs/minimizing shelfware spending‘ as their primary reasons (32% in 2010). 66% of

respondents are satisfied or very satisfied with their current methods for tracking licensing and usage.

How do you primarily perform tracking, management and reporting of your software licensing/usage today?

Automated (commercial) software, which is part of our asset management system

Use software provided by the vendor

Automated (homegrown) software, our own system used only for license management

Manual methods, including the use of spreadsheets

Do not currently track

If you are currently managing your software licensing/usage, what is the most important reason for doing so?

Reduce software costs/minimize shelfware spending

Ensure compliance with vendor agreements (and reduce cost and risk of an audit)

Prevent downtime due to denials in the middle of critical projects (concurrent licenses)

Do not manage software licensing/usage


Enterprises Would Prefer Enforcement via Network Licensing

48% of enterprises prefer enforcement of their software license via network licensing (activation by an

internally shared license) down from 67% in 2010. Lesser-preferred methods include product activation,

vendor-supplied monitoring with annual true-up, and compliance audits. Dongles and locally-checked serial

numbers are the least preferred enforcement mechanism.

If you are currently managing your software licensing/ usage, how satisfied are you with the current method?

Very dissatisfied

Dissatisfied

Satisfied

Very satisfied

If a software vendor gave you a choice, which of the following means of software license enforcement

would you prefer most?

Product activation (software activated over the internet by vendor key) Network licensing (software activated by internally shared license) Trust-based licensing with manual vendor compliance audit

Vendor-supplied automated monitoring mechanism with annual true-up Serial numbers checked locally

Dongle/USB


Lack of Automation Hinders Usage Tracking in Enterprises

Enterprises most frequently cited desktop, engineering and middleware software as being difficult or very

difficult to track usage and maintain license compliance. They most frequently (33%) cite lack of automated

tracking mechanisms as the reason.

0 20 40 60 80

100 120

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For which types of software is it difficult to track usage and maintain license compliance?

No difficulty

Difficult

Very difficult

N/A

If you checked "difficult" or "very difficult" to any software type in the previous question, what is the primary reason why?

Licensing policy is too complex

IT environment is too complex

IT management is too decentralized

No automated tracking mechanisms in place


Application Producers Cite Numerous Methods Their Customers Use to Track Entitlements

Application producers believe their customers use a variety of methods to manage entitlements including

web-based entitlement management systems, home grown systems, manually, and through customer

inquiries. 24% do not think their customers manage entitlements.

0%

5%

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How do you believe your customers manage their entitlements today?


Many Application Producers Lack Automation to Monitor Usage; Recognize Need to modify

Licensing Strategies

47% of application producers say they either do not have technology in place that enables them to know

what product, product version or platforms their customers are using – or they simply do not know. They see

the need to change their licensing strategies to deploy technologies that better track licensing (42%), that

better enforce their licenses (40%), that support pay-as-you-go schemes (26%), and that accommodate

short bursts of use (19%).

Do you have technology in place that enables you to know what product, product versions or platforms your

customers are using?

Yes

No

Do not know

0% 5%

10% 15% 20% 25% 30% 35% 40% 45%

Need to

accom

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short

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In the next year, in what ways will your licensing strategy need to change?


Compliance Audits Continue to Gain Steam

Network licensing (56%) continues to be application producers‘ most predominantly used enforcement

mechanism, followed by product activation (48%). ‗Compliance audits‘ tied with ‗serial numbers‘ (28%) for

the third most used method. 15% indicated that within the next two years, the need for compliance audits

will increase.

0%

10%

20%

30%

40%

50%

60%

None

Serial num

bers

checked locally

Dongle

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B

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mechanis

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Oth

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(ple

ase

specify)

Which of the following means of enforcement does your company use today?

0 10 20 30 40 50 60 70 80 90

100

Serial num

bers

checked locally

Dongle

/US

B

Pro

duct activation

(soft

ware

activate

d

over

the inte

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by

vendor

key)

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ork

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mechanis

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ith …

# o

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sp

on

ses

Looking at your license enforcement practices today and projecting ahead two years, do you see your need for the

following as increasing, decreasing, or remaining the same?

Don't know

Will Not Use

Increase

Stay Same

Decrease


Application Producers Commonly Use Compliance Audits as Enforcement Means 40% of all application producers reported having conducted software license audits within the past year.

15% of those conducted 21 or more audits as part of their enforcement efforts. 60% did not conduct any

audits.

Software True-Ups Usually Small, but Can Represent a Substantial Revenue Stream for

Some Application Producers

The vast majority (84%) of application producers report that the average true-up revenue received per audit

over the last year was less than $100,000, though 6% reported that the average was more than $1,000,000.

10% reported the average to be between $100,000 and $1,000,000. 79% of respondents said their total

true-up revenue last year was less than $100,000. 12% reported that the total was more than $1,000,000.

How many license compliance audits did your company perform within the last year?

0

1-10

11-20

21-50

51-100

More than 100

What is the average true-up revenue per audit your company received within the past year?

More than $1 million

$300,000 to $1 million

$100,000 to $300,000

< $100,000


The Majority of Enterprises Have Been Audited Within the Last Year

56% of enterprises reported having been audited over the past year, and almost a third report having been

audited more than once. 17% were audited three times or more.

What is the total true-up revenue from compliance audits your company received within the past year?


$50 - $100 million

$20 - $50 million

$5 - $10 million

$1 - $5 million


$100,000 to $500,000

< $100,000

How often have you been audited (or had a license review) by your vendor(s) within the last year?

More than 3 times in the past year

3 times

2 times

1 time

We have not been audited or had a license review within the past year


Microsoft is the Most Frequent Auditor

Half of all respondents report that they have been audited by Microsoft over the last year, making it the most

frequent auditor. Oracle (41%) SAP (35%) and Adobe (24%) were the next most frequent auditors.

Average Size of Enterprise Compliance True-Ups Vary

Consistent with the application producer survey findings, 68% of enterprises report that their average, true-

up penalty was less than $100,000 per audit. But some enterprises reported broader exposure, with 8%

reporting true-up costs of more than $1 million per audit, and 24% reporting average true-up per audit in the

$100,000 to $1 million range.

0%

10%

20%

30%

40%

50%

60%

Adobe IBM Microsoft Oracle SAP Symantec

If you have been audited within the last year, which vendors have audited you?

What is the average true-up cost per audit for your organization?



$100,000 to $300,000

< $100,000


Total True-Up Exposure Moderate for Most, but in the Millions for Some Enterprises

64% of enterprises report their total software true-up bills were less than $100,000 over the past year. But

11% reported theirs to be more than $1 million. $25% reported their total true-up exposure to be between

$100,000 and $1 million.

What was your total software audit true-up cost within the last year for your organization?



$100,000 to $300,000

< $100,000


SOFTWARE LICENSING AND PROVISIONING RESEARCH AT IDC

IDC's global Software Licensing and Provisioning research practice is directed by Amy Konary. In this role,

Ms. Konary is responsible for providing coverage of software go-to-market trends including volume license

programs, evolving license models, global price management, and licensing technologies through market

analysis, research and consulting. In her coverage of software maintenance, subscription, electronic

software distribution and licensing technologies, Ms. Konary has been instrumental in forecasting future

market size and growth. Ms. Konary was also the lead analyst for IDC's coverage of software as a service

(SaaS) for eight years prior to focusing exclusively on pricing, licensing, and delivery. International Data

Corporation (IDC) is the premier global provider of market intelligence, advisory services, and events for the

information technology, telecommunications, and consumer technology markets. For more information about

IDC, please see www.idc.com

ABOUT FLEXERA SOFTWARE

Flexera Software is the leading provider of strategic solutions for Application Usage Management; solutions

delivering continuous compliance, optimized usage and maximized value to application producers and

enterprises. Flexera Software is trusted by more than 80,000 customers that depend on our comprehensive

solutions- from installation and licensing, entitlement and compliance management to application readiness

and enterprise license optimization - to strategically manage application usage and achieve breakthrough

results realized only through the systems-level approach we provide. For more information, please go to:

http://www.flexerasoftware.com.

Flexera Software, LLC.

1000 East Woodfield Road,

Suite 400

Schaumburg, IL 60173 USA

Schaumburg (Global Headquarters),

+1 800-809-5659

United Kingdom (Europe,

Middle East Headquarters):

+44 870-871-1111

+44 870-873-6300

Japan (Asia,

Pacific Headquarters):

+81 3-4360-8291

For more locations visit:

www.flexerasoftware.com

http://www.idc.com/

http://www.flexerasoftware.com/products/installation.htm

http://www.flexerasoftware.com/products/software-licensing-entitlement-management.htm

http://www.flexerasoftware.com/products/application-packaging.htm

http://www.flexerasoftware.com/products/software-asset-management.htm

http://www.flexerasoftware.com/

2011 key trends in software pricing & licensing survey

Documents

years survey

customer software usage

usagebased pricing

software revenues

usage metrics

applications software

software licensingusage

customer usage