Blog Entry

Apr 13
2012 

Exploring the Four Aspects of a Comprehensive Software Monetization Strategy

Software monetization can be viewed as the adoption of any variety of measures an organization takes in order to increase the profitability of their intellectual property, in this case, software. These tactics can range from sophisticated anti-piracy and IP protection techniques to creative pricing and packaging strategies. It is important to note that no individual software monetization technique is greater than the combination of multiple techniques. No matter what type of software application has been developed or how that application is being delivered to the end-user, a comprehensive software monetization strategy hinges on four key factors – how effectively the software publisher can package, control, manage, and monitor, their offering(s).

Effective Software Packaging
Contrary to popular belief, software pricing and packaging is not a one time event and despite the hopes of product managers around the world, ‘one size’ is never going to ‘fit all’. You can have the most sophisticated, feature-rich offering on the market, but if you can’t offer flexible pricing and licensing models you will never reach your maximum potential! And just when you though the work was done you are going to need the ability to change all of your pricing and packaging schemes on the fly to satisfy the constantly evolving demands of enterprise and consumer end-users alike. So what does it take to be successful in the world of software packaging?

  • Product versatility – WHAT customer want to pay for
  • License model flexibility – HOW customers want to pay for it
  • Business model agility – ADAPTING to new customer requirements

Product Versatility – With the right tools in place, one product CAN fit ALL, it is the pricing and feature bundling that requires a custom fit!

Product versatility requires you to first establish a value for each feature within your catalog and then have the ability to bundle those individual features into multiple service packages with a variety of pricing options. The ability to package components of your offering into different packages without any engineering effort enables you to quickly and cost-effectively deliver the right offering for every customer every time.

When you build feature-level authorization and packaging capabilities into your product catalog you really improve the overall accessibility of your application across a multitude of diverse markets. You can deactivate or remove premium features from a ‘basic’ version that you can offer at a lower cost to capture low end markets. Alternatively, you can charge a premium for access to cutting-edge features that provide additional value to high-end customers or niche markets. One thing is clear: if you don’t have the ability to monetize individual features of your solution, you end up significantly limiting your market applicability or the premium you can charge for your services. Both equal a lost revenue opportunity.

License Model Flexibility – We have discussed the importance of product versatility for diverse market penetration, ongoing customer satisfaction and new business growth. The next step has to do with how your customers consume your services. Every organization has a unique internal process of budgeting, requisition and PO creation, and invoice payment. Some processes a clean and simple and some are very slow, complex, and frustrating for everyone involved.

Customers have a definite preference when it comes to how they purchase goods and services. Your service offering could be exactly what they are looking for, but if you don’t offer a licensing model convenient to how they do business they could choose a less attractive competitor out of convenience.

There are many factors that influence consumption preferences from market segment to the size of the organization, and even the business criticality of the application to customer. Smaller or start up customers may prefer or even need to make many small payments with no long term commitment. Large, complex enterprise organizations may not be able to support monthly payments and would prefer long term, quarterly or annual unlimited usage plans.

Licensing is a critical tool for helping your customers budget for and consume your service in the way that works for their business.

Business Model Agility – As most established ISVs know, product versatility and flexible licensing models are only the first step of an ongoing commitment to customer satisfaction. What is right for customers today will need to evolve tomorrow. Customers will want to stop paying for features they don’t use and will want the ability to add features that they either overlooked in their initial purchase or have been added to your service offering as your product has evolved. If you don’t have the ability to quickly change your product catalog to easily add features to existing packages, you make it much more difficult to monetize new R&D work through existing customers and you add a lot of additional engineering work to your GTM process.

It is critical that when you are designing your service offering that you draw a clear distinction between engineering and packaging/delivery. If you are unable to respond rapidly to evolving market/customer demands, you create a significant opportunity for your competitors. Being able to adapt your services in real time not only closes the door for competitive evaluation but it also significantly reduces your engineering costs and time to market.

Control
Control is critical to effective software monetization. All of the creative pricing and packing in the world won’t get you anywhere if you have no way to a) ensure payment for products or services rendered and b) protect your intellectual property from theft or manipulation.

Customer Friendly License Compliance – At the highest level, there are two core ways issues with license agreement compliance will end up costing you, the software publisher, a significant amount of money:

  1. If your service is being used more than you are getting paid for it – you are losing money (duh)
  2. If you don’t proactively track license compliance and have to go back to a customer to request back payment it will cost you. End-user frustration will cause irreversible damage to customer satisfaction (best case) or even lead to the loss of the account (worst case).

How do you manage compliance without impacting that experience for the end-user? Denial of use is a license enforcement tactic that has been on the decline in on-prem markets for some time now and is completely taboo within the cloud industry. The last thing you want to do is to stop a billable use of your software. It is important that you have the ability to authorize and control the use of your services.

If access control has failed you, the next best thing is visibility.  You need the power to know who has used what, when, and for how long. Armed with this information, you can recover lost revenue from users out of compliance with their license agreements. Be warned though – this method of tracking usage post consumption and chasing down payment after the fact is not a long-term business model. End-users expect that their access is controlled by you as the software provider. Have you ever had to go back to your boss at the end of the year and ask for a large additional sum of money b/c of a vendor billing mistake? If you have, I am sure the first thing you did after paying the overage bill was look for a new vendor!

Do your business and your revenue number a favor – make sure to build a proven entitlement provisioning, control, and management solution into your business strategy. It will pay for itself many times over!

IP Protection – Many software publishers get so caught up in the need to protect their applications from unauthorized use and distribution that they overlook the importance of protecting their IP. Software publishers are at risk every time they deliver their applications to their end-users (either for installation on a personal or networked device or embedded within a high tech piece of machinery). If not properly protected, access to the code of an application is left vulnerable to tampering and reverse engineering. Your software code is your secret sauce – would you willingly hand it over to your competitor or to a renowned hacker? If you just answered no, then you can’t afford to run the risk of not incorporating IP protection into your software monetization strategy.

Manage
As any CFO would be more than happy to tell you, profitability is as much about cost control as it is about revenue generation. Therefore it is critical that all the systems that are put in place to help us effectively price, package, bill for, and manage our product offerings both integrate easily with each other, and are easy for internal and external stakeholders alike to use.

Every step of the license, entitlement, and software delivery process can be easily automated in a internally transparent and end-user friendly way with the right entitlement management tools. Adoption of system agnostic, flexible entitlement management solution will enable you to automate time-consuming, manual tasks, eliminate human-error, and track the status of your end-user’s entitlement and usage trends for life.

Monitor
The ability to effectively track and easily report on what end-users are a) entitled to and b) what they have consumed — when, and to what extent — is the last, but certainly not least, core aspect of a comprehensive software monetization strategy. Product usage monitoring provides the business insight required to report on license agreement compliance, optimize product roadmap investment, and drive future packaging strategies.

Licensing agreement compliance reporting – The ability to track and report on software usage is critical for end-user compliance reporting and billing purposes, both ensure that you are receiving the maximum value from every customer every time.

Optimizing product roadmap investment – Insight into how products are being used is key to effective product line management. Armed with a full understanding of which features are being used and to what extent provides product managers with an easy way to identify which features they should be investing in, and equally as important, where to disinvest. This knowledge can also help with overall use case prioritization and investment mapping.

Driving future packaging strategies — Having an understanding of the various ways that customers use your products lends itself to being able to make smarter packaging decisions. Determining which features to package into a baseline product and which features can be sold as added value allows product management and marketing to more appropriately reach customers who want a low investment in the software all the way up to the larger deployments that want full access at a much grander scale.

Every software monetization strategy is unique. In order to maximize the value you are deriving from your software offering, your strategy should take into consideration each aspect of software monetization – packaging, control, management, and monitoring.