Blog Entry

Jul 7
2010 

Software Licensing: What is the right investment?

Frequently I have the opportunity to discuss “software licensing costs” with ISV’s and device manufacturers in our industry. I always find it to be an intriguing discussion, and almost universally it seems that these companies view licensing as a necessary evil, not as an investment (let alone a strategic investment!). While there are multiple reasons why this could be (think of purchasing organizations and how they are measured), part of the equation undoubtedly has to do with the lack of concrete ROI metrics that are available around this technology, and the management of licenses and entitlements.

How do you know how much you are losing? How much is due to piracy? How much is due to unintentional piracy by organizations that want to be compliant, but aren’t due to a lack of enforcement? All of these metrics seem to be based in the psychology of perceived loss, as opposed to perceived opportunity.

But perhaps a different way of looking at this is not in terms of losses (both imagined and real), but rather in terms of revenue gained, and the investment required for that revenue to be there. We talk about “investing” in ERP systems, but it seems when we talk about licensing, it is far more frequently followed or preceded by the word “reducing”. To be successful, most organizations need the dialog to depart from the controller to the CFO, and extend into the efficiencies that can be gained throughout operations, R&D, and other areas.

When we analyze the financial performance of a company, industry analysts will benchmark appropriate R&D levels as a necessary investment for sustained success. What should those percentages be for software licensing?