Software publishers are moving to subscription-based
pricing, but enterprises prefer perpetual licensing, which has been
the norm, according to a study.
The survey of 396 software industry executives and 100
enterprise users in September was sponsored by Macrovision, the
Software & Information Industry Association, and the
Centralized Electronic Licensing User Group
Currently, one of every three software companies offers
subscription-based models as their primary pricing model, with half
of publishing respondents expected to do so by 2006, according to
the survey.
Meanwhile, enterprise users prefer by a two-to-one margin to
stick with the perpetual licensing model. This discrepancy means
there could be an expectation gap between suppliers and customers
in the future, the study reported.
"I think what's happening is the difference between the laggards
and the innovators," said Daniel Greenberg, vice-president of
worldwide marketing at Macrovision, which sells software licensing
technologies.
While the software publishing and technology industry is quick
to adopt new trends, enterprises such as automotive industries and
utilities are more resistant to change, he said.
"We do think there will be some friction as the software
publishers try to roll out the subscription pricing," Greenberg
said.
While perpetual pricing has enabled users to acquire software
user rights permanently for a particular release through a single
large payment, Greenberg said enterprises still pay ongoing
maintenance fees. Subscription-based pricing will spread the
payments out more evenly.
Although users through a perpetual licence can keep on using the
same release as long as they want, history has shown they want to
upgrade anyway, Greenberg said. "I think history has proven that
software quickly becomes obsolete - computers get faster, demands
get greater, and software quickly gets obsoleted in the process,"
he said.
Also, the study found that while the most prevalent pricing
models are per-user- and per-seat-based, metrics-driven models are
growing in popularity. Under a metrics model, software is licensed
based on factors such as number of users, transactions, or time
used. By 2006, half of all software publishers responding expect to
offer pricing based on metrics.
Users, though, still prefer traditional per-seat and
concurrent-user pricing models. More than 70% of enterprise
executives maintain this preference, according to the study.
Greenberg said he believes software companies will let users
decide on licensing models. "I don't think any software company can
impose a paradigm shift on their customers," he said.
The survey also found that licensing enforcement is moving to
digital means and away from non-technical, manual forms of
licensing enforcement. Also, by 2006, 92% of software publishers
will have some form of licence enforcement in place.
Software buyers do prefer newer enforcement methods such as
product activation and network licensing over traditional methods
such as serial numbers and dongle/USB keys, according to the
study.
The average software maintenance fee that enterprises pay for
software is 20%, with larger software companies commanding a 22%
fee.
Others speaking at the SoftSummit conference on 18 October noted
the arrival of software licensing models such as utility- or
services-based computing, in which users are charged on a
pay-as-you-use basis. Growing user sophistication also was
noted.
"This world of software pricing and packaging has changed
entirely," said Bill Hewitt, vice-president of the global industry
solutions group at PeopleSoft. "Customers will demand more of every
vendor to provide software functionality in the delivery method
that they choose."
As an example of the impact of evolving pricing and delivery
models, Hewitt cited online CRM supplier salesforce.com and its
effect on traditional CRM firm Siebel Systems, with Salesforce.com
grabbing a lot of business.
Hewitt and Ken Wasch, president of the Software &
Information Industry Association, both cited the old timesharing
model as a precursor to subscription- or utility-based pricing.
"The idea of utility-based computing is not something new. The
IBM timeshare [model] in the 1960s existed," said Wasch.
Utility computing, though, faces operational and practical
issues on the supplier and customer sides, said analyst Amy
Mizoras, programme director for software pricing, licensing, and
delivery at IDC.
Utility computing is being defined on consumption and capacity
terms, she said. "I think we'll move in direction toward those
consumption models," Mizoras said.
Sun Microsystems' Java Enterprise Suite, meanwhile, "is really
throwing the gauntlet for desktop applications," with a
$100-per-user-per-year pricing, Wasch said.
The growing use of open source code caused confusion in the
industry, Wasch said. "Users are concerned about mixing proprietary
code with the GPL licence, and they are concerned with having
turned what is a proprietary development and opening it up to
everyone else," said Wasch.
Paul Krill writes for InfoWorld