softsummit 2010 key trends survey

2010 Key Trends in Software Pricing & Licensing Survey

Sponsored by Flexera Software LLC

2010 Key Trends in Software Pricing and Licensing Survey 2

2010 Key Trends in Software Pricing

& Licensing Survey Sponsored by Flexera Software LLC

Overview of Survey Findings

The 2010 Key Trends in Software Pricing and Licensing Survey of 234 participants, prepared jointly with IDC, found

that software vendors and their enterprise customers, increasingly challenged by the current economic downturn, are

looking for better strategies to derive more value for their organizations through software licensing and pricing.

While, not surprisingly, some of those strategies diverge between vendors and customers, many are complementary

and serve to strengthen the positions of both. Some of the key findings include:

Cloud Computing on the Rise

The 2010 survey reveals that cloud computing is on the minds of software producers, who are planning on a

significant market shift towards private and/or public cloud-based models. 60% of producers indicated that

their licensing will need to adapt to the cloud over the next two years, and 30% expect that the change will

be significant.

Implicit in this trend will be the need for both producers and enterprises to manage the heightened

complexity associated with cloud-based computing. For producers and high-tech manufacturers, this means

more sophisticated entitlement and compliance management. For enterprises, this means more

sophisticated software asset management and enterprise license optimization to ensure, among other

things, continual compliance.

Increased Emphasis on Usage

The survey also reveals an increasing demand for more flexible licensing models, which in turn is going to

fuel the demand for more sophisticated application usage tracking tools. For instance, 22% of producers

currently offer usage-based pricing (up from 15% in 2009), and over the next two years 41% expect to offer

usage-based pricing.

In the midst of this shift, while 70% of enterprises report that tracking software license usage is important,

one-third of the software producers that have or plan to have usage-based pricing do not track usage at all

today – not even manually. Just over 50% that have or plan a usage-based pricing model in the next two

years are offering tools to help their customers track application usage. For both producers and enterprises,

the ability to track and understand current usage is a prerequisite to making an intelligent decision to migrate

to a usage-based model. Thus, both sides will have to acquire better tools as this pricing model takes hold.

Producers Still Lagging in Usage Tracking & Enforcement

The 2010 survey indicates that despite the growing complexity of software licensing models and increased

enforcement, producers are not adequately tracking software usage. 43% of Producers indicate that either

they do not monitor software usage or they do not know if they do. Likewise, 13% of Producers indicate that

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they still have not implemented any means of enforcement, although this number is a vast improvement over

2009 when 28% reported that they had no enforcement mechanisms. These numbers belie the growing

importance of software compliance and speak to an absence of industry-wide standardization and

automation of software usage tracking and enforcement.

Preferred Enforcement Mechanisms Converging

Given that software license enforcement is a necessary reality, the 2010 survey indicates a convergence of

both producer’s and enterprise’s preferred enforcement mechanisms. Overwhelmingly, 66% of enterprises

prefer network-based licensing enforcement, up from an already-strong 60% in 2009. Software producers

are responding to this preference, with 46% now reporting that they use networking licensing (more than any

other method), up from 28% last year. This enterprise desire matches the findings around trends towards

more usage-based licensing models.

Software Audits: A Growing Reality

13% of software producers report in 2010 that they use compliance team audits as an enforcement

mechanism. While this number is low compared to other methods, including serial number checks (39%),

product activation (36%) and dongles (24%), audits are on the rise. Last year only 3% of producers used

audits as a compliance mechanism. Looking forward, 18% of producers expect the use of audits to increase

over the next two years. This increase in audits, often initiated as a result of mergers and acquisitions, and

changes in environment such as virtualization, while adding to the producers’ coffers can also add tension to

the relationship between producer and customer. Tools that help producers and enterprises better track

usage and ensure continual compliance would ultimately serve both parties more effectively by better

identifying under- and over-utilization and spreading the costs to the parties actually using the licenses.

Value Satisfaction – Is Value Equal to Price?

Software producers and enterprises are largely in agreement that pricing models capture the value of the

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

CRM, engineering and desktop applications. Most respondents indicated they were largely satisfied.

Enterprises were most satisfied with database software pricing -- with only 10% of respondents registering

dissatisfaction; they were least satisfied with ERP software pricing, but not by a significantly higher amount --

only 20% registered dissatisfaction.

79% of software producers, likewise, said that their company’s pricing and licensing strategies captured the

value of their software effectively. Notwithstanding current satisfaction levels, producers also understand

that their customers want more choice in licensing models. Most producers are increasing the flexibility of

licensing by adding more choice. They are doing this in order to generate more revenue (72%) and improve

customer relations (69%).


Survey Background

The 2010 Key trends in Software Pricing and Licensing survey was conducted by Flexera Software and IDC’s

Software Pricing and Licensing Research division under the direction of Amy Konary. This annual research project

looks at the software licensing, pricing and enforcement trends and best practices around the licensing of software.

The survey reaches out to executives at software vendor firms, high-tech manufacturers and enterprise customers

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

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

Methodology and Sampling

In total, 234 respondents participated in the survey, including 77 enterprise executives and 157 software vendor

executives.

Enterprise Demographics About one-half of the enterprise respondents were from larger enterprises of more than $500 million in

revenues, and about a quarter were from companies between $100 - $500 million. 66% were from North

America, 25% from Europe, 8% from Asia Pacific, and 1% from the Middle East.

Where is your company or division headquartered?

http://www.softsummit.com/


Software Producers and High-Tech Manufacturer Demographics

The largest proportion of software vendor respondents (34%) came from companies with under $10 million in

revenues. The remainder of respondents were divided relatively equally across all revenue levels. 84%

were from North America, 11% from Europe, 4% from Asia Pacific, and 1% each from Africa and the

Middle East.

Where is your company or division headquartered?


Individual Findings

Pricing Flexibility and Value

Growing Demand Amongst Enterprises for Usage-Based Pricing:

The overwhelming majority of enterprises (59%) prefer concurrent user (floating/network) licensing.

However, the demand for usage-based pricing models is growing significantly – 16% (up from 11%

last year).

What is the software pricing model you prefer

for enterprise class applications?


Software Vendors Continue to Offer a Wider Variety of Software Pricing Models: While we saw fewer software vendors offering seat (named-user) (28%) and financial metric (revenue, cost,

royalty) (5%) pricing models in 2010, on the whole, variety increased, with the largest growth in seat (per

machine/server) (65%) and concurrent user (63%) licensing models. Producers, clearly responding to

growing enterprise demand; saw usage based software licensing increase to 22% -- up from 15 percent last

year. Gains were also seen in processor core pricing models. Over the coming two years, 41% of

Producer’s expect to offer some sort of usage-based pricing.

Which pricing models do you offer for your software today?

(Select all that apply). Software that is priced per…

Looking forward in the next two years, which pricing models do you

expect to offer? (Select all that apply). Software that is priced per…


Revenue Generation & Customer Satisfaction Driving Changes:

39% of Producers have indicated that they have changed their pricing and licensing policies over the past

two years to make them more flexible. Overwhelmingly, the two reasons for this shift have been to generate

more revenue (54%) and improve customer relations (50%).

Generate

more revenue

Improve relations

with customer

Accelerates the sales

cycle

Free R&D resources

Decrease development

cost

Not applicable

Other (please specify)

Both Enterprises and 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. Most respondents indicated they were anywhere from neutral to

highly satisfied. They were most satisfied with database software pricing -- with only 10% of respondents

registering dissatisfaction; they were least satisfied with ERP software pricing, but not by a significantly

higher amount -- only 20% registered dissatisfaction.

If you answered yes to question 11, did providing more flexible licensing

and pricing policies help the company (Select all that apply):


Database Middleware ERP CRM Engineering

/Technical Applications

Desktop Applications

Likewise 79% of software Producers said that their companies’ pricing and licensing strategies captured the

value of their software effectively.

.

How would you rate the overall effectiveness of your

company’s pricing and licensing strategies in capturing the

value that your software provides to customers?

How would you rate your level of satisfaction with the value received for the

price from the following types of software? (Please rate all that apply.)


Software Usage, Delivery and Enforcement

Cloud Computing on the Rise:

Cloud computing is on the minds of software producers, who are planning on a significant market shift

towards private and/or public cloud-based models. 60% of producers indicated that their licensing will need

to adapt to the cloud over the next two years, and 30% expect that the change will be significant.

Please rate the level of your agreement with the following statement (enter a number

between 1 and 4 with 1=stay the same/no change; 4= change dramatically):

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.


Subscription Software Licensing Models Continue to Grow

While perpetual licensing models continue to dominate, Producers report an increased percentage of their

revenues associated with subscription models – 85% in 2010 compared to 79% in 2009. Producers expect

that percentage to grow over the next two years to 88%.

Thinking of your total software license revenue, what percentage

is associated with the following license types?

Looking forward in the next two years, what percentage of your total

software license revenue will be associated with the following?


Disconnect in the Enterprise Between Confidence and Compliance:

85% of enterprises responded that if audited, they are at least somewhat confident that they are in

compliance with all of their software license agreements. However, when pressed, that confidence is not

justified. 53% of enterprises also responded that at least some of their software license spend is associated

with applications that are overused and therefore out of compliance. 85% responded that at least some of

their software license spend is associated with under-used software, or shelfware.

If you were audited by a vendor or a third party today,

how confident are you that your company would be in

total compliance with all of your licenses?

What percentage of software license spend within your

organization do you estimate is associated with applications

that are over-used and therefore out of compliance?


Many Software Producers Still Don’t Track Customer Usage

While the percentage has declined over 2009, a surprisingly high number of Producers, 35% in 2010 versus

43% in 2009, still do not monitor software usage, and 7% do not know whether or not they monitor usage.

How do you primarily monitor your customers’ software usage?

What percentage of software license spend within your

organization do you estimate is associated with applications that

are under-used and therefore over-licensed (i.e., shelfware)?


Enterprises Use a Variety of Tracking Methods

71% of enterprises agree that tracking software license usage is important. However they use a variety of

methods to do so, including Software Asset Management software (32%), homegrown systems (18%),

vendor-provided software (9%), and manual methods (9%). 4% of enterprises say they do not currently

track usage. Reducing software costs and ensuring compliance are the two most oft-cited reasons for

tracking usage. More than a quarter of enterprises are dissatisfied with their current software license usage

tracking model.

How do you primarily perform tracking and reporting of

your software license usage today? (check only one)

If you are currently tracking your software license usage, what

is the most important reason for doing so? (check only one)


If you are currently tracking your software license usage,

how satisfied are you with the current method?


Compliance Audits Soar

While network licensing, local serial number checks and product activation continue to be ISV’s preferred

method of enforcement, use of compliance audit teams have risen nearly fourfold, up to 13% in 2010

compared to 3% in 2009. This trend will continue over the next two years as 18% of Producers predict that

their use of compliance audits will increase.

None Serial #

check locally

Dongle USB Key

Product Activation (Internet)

Network Licensing

(LAN)

Compliance audit team that visits customers

None Serial #

check locally

Dongle USB Key

Product Activation (Internet)

Network Licensing

(LAN)

Compliance audit team that visits customers

Projecting ahead 2 years, do you see your company’s use of each type of

enforcement as increasing, decreasing, staying the same, or not using?


Enterprises Would Prefer Enforcement via Network Licensing

66% of enterprises would prefer network licensing enforcement of their software license – software activated

by an internally shared license. Lesser-preferred methods include product activation, vendor-supplied

monitoring with annual true-up, and, of course, compliance audits. Dongles and locally-checked serial

numbers were the least preferred enforcement mechanism.

If a software vendor gave you a choice, which of the

following means of software license enforcement

would you prefer most? (check only one)


Lack of Automation Stymies Usage Tracking in Enterprises

Enterprises said that for compliance purposes, tracking usage of Middleware, ERP and CRM software is the

most difficult. They most frequently (46%) cite lack of automated tracking mechanisms as the reason.

Database Middleware ERP CRM Desktop

Applications

For which types of software in your environment is it

difficult to track usage for compliance management?

If you checked “difficult” or “very difficult” to any software

type in Question 12, what is the primary reason why?

Engineering/

Technical

Applications


Most Producers, However, Believe Their Customers Understand Their Entitlements:

62% of Producers believe their customers understand what products they are entitled to use. The methods

Producers attribute to their customers’ entitlement management varies from use of tools to manual tracking.

However, a large percentage (27%) of Producers don’t know what their customers use.

Do you believe your customers know what products they are

entitled to use and what they are actually using?

What do you believe is the primary way your customers

manage their entitlements today?


Many Producers, Still Lacking Automation to Monitor Customer Usage, See the Need to

Adopt Better Tools:

43% of Producers say they either do not have technology in place that enables them to know what product,

product version or platform their customers are using – or they simply do not know. Not surprisingly, given

this figure, 46% of these Producers say that over the coming year they will need to deploy technologies that

better track licensing, and 40% say they will need to deploy better enforcement technologies .

Yes No Do not know

Do you have technology in place that enables you to know what

product, product versions or platforms your customers are using?

In the next year, in what ways will your licensing

strategy need to change (check all that apply)?


Vendors and Customers Prefer Electronic Software Delivery

Not surprisingly, electronic delivery for software media and documentation is overwhelmingly the preference

of both enterprises (83%) and Producers (62%), up significantly from 2009, when only 47% of Enterprises

and 55% of Producers preferred this delivery method. Producers site cost reduction and customer

satisfaction and loyalty as the reasons for their preference.

Looking forward, how would you best describe your

primary software delivery strategy 1 year from now?

How would you best describe your preferences

for software delivery? (pick one)


Do not plan on

adopting an ESD solution

Cost reduction Customer satisfaction and

loyalty

Opportunity to drive revenues

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. For more information about IDC, please see www.idc.com

ABOUT FLEXERA SOFTWARE LLC

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 their

customers. 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

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

Copyright © 2011 Flexera Software LLC. All other brand and product names mentioned herein may be the trademarks and registered trademarks of their respective

owners. FX_2010KeyTrendsSurvey_Oct11

Flexera Software LLC

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Suite 400

Schaumburg, IL 60173 USA

Schaumburg (Global Headquarters),

+1 800-809-5659

United Kingdom (Europe,

Middle East Headquarters):

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For more locations visit:

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softsummit 2010 key trends survey

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