The rise of Software-as-a-Service (SaaS) over the past several years has led to an increase in the popularity of subscription software licenses. Subscription licensing pre-dates SaaS, but the cloud delivered nature of SaaS has naturally led to this increase in subscriptions.
At SafeNet we’ve seen this evolve in the past year where both enterprise buyers and software publishers are increasingly moving beyond subscription to a pay-per-use model for licensing software. We’ve seen this increasing demand for pay-per-use from our ISV customers who are delivering their software in the cloud, and from those that are providing on-premise software but who want to charge based on usage.
This trend we’re seeing from our customers and enterprise buyers is supported by a recent Forrester Research survey of enterprise buyers. Forrester asked the enterprises how they were currently purchasing software licenses and how they would prefer to license applications in the future. Forrester’s findings showed that for cloud-based software, the proportion of enterprises consuming pay-per-use today would increase from today’s 28 percent to 45 percent. In the case of on-premise software, they found that only seven percent of enterprises consume software on a pay-per-use basis today. But that is expected to increase to 20 percent of software.
So the industry has dynamic pay-per-use on its agenda. But what’s the driving force here? In one word, it is shelfware – the software that’s purchased but not used. We estimate that $30.5 billion is spent on on-premise shelfware and $3.7 billion on cloud shelfware annually. Indeed, a conservative estimate is that 10 percent of software is shelfware. That’s a lot of software that people are paying for but not using.
Paying for what you actually use obviously appeals to customers, but it also offers monetization opportunities for software publishers and developers. For example, we have customers that provide resource-heavy cloud software to their customers. They moved to a pay-per-use model based on resource consumption to ensure that they have a profitable business model as their customers use these resource-heavy services. Other scenarios include bursty customer usage, or when a customer has a periodic or seasonal requirement for software, where there is a sudden increase (or decrease) in demand for the software. Pay-per-use enables these vendors to ensure that they are able to meet the dynamic requirements of their customers. In addition, metered usage can also be a powerful tool in monetizing add-on features or modules that are not included in base subscriptions.
Moving to a pay-per-use licensing model presents challenges that are eased by the availability of a cloud connected licensing solution that leverages the cloud to license on-premise, cloud, and hybrid software. This can offer the elasticity required to securely collect and analyze usage patterns in the volume, frequency and detail necessary for widening availability of pay-per-use features that meet the needs of both end users and software vendors.
But cloud-based approaches aren’t a panacea for introducing usage pricing and it is important that vendors migrating to pay-per-use models apply a rigorous checklist that ensures they possess the systems to:
- Collect usage data at the feature level
- Aggregate usage and bind the usage data into the user and pricing model
- Consume usage data for billing and analytics
- Control use for trial conversion, licence renewals and extension, and to set pre-paid and post-paid limits
Additionally, it is important to consider a migration strategy that helps some customers make the move too. Certain enterprises may hold off on usage based models and need guidance to migrate. In these cases, it may be important to provide customers with online visibility into their usage levels and go to extra lengths to make it easier for them to understand the pricing model.
While the benefits of pay-per-use are strong for both retaining and winning customers, the complexities involved do mean that migration needs to be planned for and it is essential that those software licensing and entitlement processes in the cloud are sufficiently robust and flexible to ensure success.