Flexible licensing options gaining traction

The arrival of software-as-a-service and other alternatives to conventional licensing is causing one vendor to offer better terms

Design and engineering software specialist Bentley Systems is going against the grain with a new licensing programme that lets customers turn in user licences they no longer want, in exchange for seats of a different product in Bentley’s portfolio.

For Architects Design Partnership, a large British architecture practice, it means that, instead of writing off its investment in print management software that’s not being used, the firm can get a credit for the licences — based on current list prices — and use this to buy seats of Bentley’s latest architectural design and documentation software.

“That’s something I’m definitely going to take advantage of,” says Marc Thomas, Architects Design Partnership’s IT director. “We have a piece of software called Digital InterPlot that doesn’t fit in with our needs, so I’m planning to trade that in, probably for Bentley Architecture.”

While Bentley operates in a niche market, its efforts to keep customers happy reflect a challenge all software makers face: customer retention. In particular, software makers with traditional licensing models are trying to compete with vendors that offer lower start-up costs via open-source products or hosted options, says Joshua Greenbaum, a principal at research firm Enterprise Applications Consulting.

“On-demand and open source have had the combined effect of disrupting a lot of traditional licensing models and, therefore, a lot of traditional revenue models,” Greenbaum says.

“When there’s a potentially disruptive player involved, customer retention becomes even more critical.”

However, most packaged software makers aren’t making concessions in favour of customers, despite the increased competition.

“Things are still very much geared towards the vendor,” says Ray Wang, a principal analyst at Forrester Research.

“Once you lock in, after the initial purchase, everything is kind of stacked against you. You’ve made this major investment and, if you want to switch off the software, the switching costs are very high.”

For example, most software vendors make it difficult for companies to stop paying maintenance and support fees on licences they aren’t using. “A lot of vendors require a renegotiation of a licence if you want to downgrade the number of users,” Greenbaum says.

Bentley’s licence exchange programme is an exception, Wang says. “It’s definitely unique, it’s definitely very innovative,” he says.

While Bentley may be leaving money on the table by letting customers acquire new products through trade-ins rather than purchasing new licences, in the long run it could come out ahead.

“Licence revenue is important, but maintenance revenue is often the real cash cow,” Greenbaum says. “It’s cheaper to a certain extent to send [customers] another DVD and keep them paying 15% or 18% maintenance than it is to let them to walk out the door.”

Also, the exchange programme sends a user-friendly message to customers, Wang says.

“If you share everything you have in your portfolio of licences, you really give customers the impression that you’re there to help, to partner with them,” he says. “It’s much more of a long-term play, whereas a lot of other vendors are thinking short-term, quarter to quarter.”

Bentley also offers concurrent licensing options that let companies pool the available licences for use by all employees. The pooled licensing model is very attractive, Thomas says. “We can load the software onto every machine in the organisation, and people get a licence when they need it,” he says.

It’s much easier to make a business case for purchasing 20 licences of software that 50 people will be able to share than it is to find cash for 50 licences of software that most users only need to access occasionally, he says.

Many packaged software-makers used to offer pooled licensing, but most have moved away from that and require companies to get a licence for every named user, Wang says. One exception is Microsoft, which still offers a concurrent usage licence for its Dynamics (formerly Great Plains) business software. “Everyone else has gone to named user,” he says.

Wang expects that as software-as-a-service models gain greater traction, more vendors will experiment with licensing flexibility.

“With software-as-a-service, and different hosting options, there are all these ways to reduce the cost of ownership, as well as the cost of the licences,” Wang says, adding that, while vendors such as SAP and Oracle have a tight hold on large customers, there are no clear leaders in the mid-market.

Neither Wang nor Greenbaum expect sweeping licensing changes overnight. Business software makers have been releasing on-demand products to keep up with the competition, but few have done any serious rejigging of traditional licensing models, Greenbaum says.

Wang suggests users take steps to limit paying maintenance on unused software. For example, a company with plans to purchase 1,000 licences could ask to begin paying maintenance on 100 licences in the first year, 500 in the second and 400 in the third, he says.

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