An argument against license enforcement

7 12 2009

This may seem weird as I’ve been talking about pricing and license metric development.  However, we have not yet talked about enforcement. 

To software companies, license enforcement protects the bottom line.  It prevents rampant, “entrepreneurial” software distribution throughout their customer base.  Keep in mind that this discussion isn’t a one-size-fits-all scenario.  A major enterprise software provider may choose to enforce a license differently than a single-user shrink-wrapped software provider.

To customers, software licensing is a way of steering clear of the legal issues surrounding "viral license expansion” that can happen as co-workers share their productivity practices. 

It’s simply risk avoidance – policy triumphing over value to the organization.  IT departments go through elaborate means to “control the desktop environment” of their employees both for ease of management and for license enforcement.

Viral license expansion for fun and profit

If we take away the legal and negative revenue implications of letting a software package roam free-range style throughout an organization, the result of getting more eyeballs on your product can be compelling to both parties.  This is especially true if your software has an entrenched user base in one specialized area of a company, but could bring significant value to other areas of your customer base.

Creativity is the order of the day.  One way to do this is to establish an agreement with that customer that lets you work with them on an regular basis to review the actual use of your products within their organization.  Establish trust and a partnership and the value will materialize.

Customers will fear the cost of the unknown (like a pay-per-text cell phone plan) – each year that review could result in huge license and maintenance cost variability.  It’s up to the software provider to be intelligent about handling this up front and sticking to it.  For instance, if there are cyclical use patterns (month-end, year-end, every Friday, etc.) then negotiations should reflect that.

Software companies will fear that their review with a customer will result in reduced licensing revenue due to attrition in the user-base.  If actual use declines at a customer site, that means a customer might ask for a refund. 

The problem here is not one of licensing, but user awareness.  If customers have a high degree of turnover, your product could quickly become shelf-ware.  So, instead of issuing a refund, offer them something more – like free training or seminars to stimulate their user community.

If you have the information, you can deliver the value.  Licensing metrics are like a dashboard in a vehicle.  The more you can replace idiot lights with actual gauges, the more informed both parties will be.

Making organic license expansion valuable for both parties takes creativity and trust.  It also will require deviating from established IT policies.

Making that first impression

If you are one of these niche players, your value and long term viability (stickiness in an organization) is dependent upon reaching (and delivering value to) that wider audience.  It’s a long-term strategy as the objective is shifting your revenue stream away from instantaneous license revenue and to a more annuity-style maintenance revenue style.

The best way to damage the expansion of your product beyond its niche (and establish its position in customer infrastructure) is to put strict license enforcement on the client products.  You get one chance to make that first impression.  The tantalizing potential of your software evaporates once you lock the user out before, during, or (even worse) post-installation.

Because today’s IT environment doesn’t facilitate viral license expansion, if a user is able to secure special dispensation from the lords of IT to install a new piece of software on their desktop, making it difficult for the IT department or user to activate their license will immediately sour any user’s perception of your software and company.

The hidden costs of license restrictions

All licensing metrics are arbitrary.  Enforcement of these metrics is also an arbitrary activity.  Just because you have a license metric doesn’t mean it has to be enforced.  Licensing metrics can also be valuable to a software company to help them understand just how a product is being used at an organization (if the customer is willing to share that information).

If you have highly customizable license metrics, you have to consider your organizational capability to adjust these metrics to fit your customers.  If you take a one-size-fits-all approach, then making license enforcement strict is not in your best interest.  Your customer scenarios and use cases for your software vary widely, so tight license enforcement will result in a large number of “exception requests” to your support, sales, and product management staff.

Licensing is not a “fire and forget” practice.  If you have innovative customers or highly variable use patterns, beware of generalizations.

The work of license metric customization is going to happen – it’s up to you to decide whether it’s up-front, or through support channels.  You can guess which one is more frustrating to a customer and the resulting impression of your product’s value.

Policy is the enemy of innovation

If you take one thing away from this, I suppose it should be that respecting the creativity of your users is valuable to the long-term viability of your product.  Enforcing license metrics isn’t an evil practice, but if it’s done ham-handedly, you will inflict damage on your revenue stream.

Also, most customers want to remain square with your company when it comes to licensing.  The Microsoft Office and Windows license audit and enforcement campaign in early 2000 made lawyers happy, corporations nervous, and IT department gun-shy. 

Your customers want to be good citizens.  Make it easy for them to do so.

If you can use license metric information to negotiate with your customers, both of your organizations can gain significant insight into the value of your product. 

Trust is the most important component of your licensing.

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