When Licensing Metrics Must Change

5 11 2009

Everyone knows that technology changes quickly.  So it’s surprising (at least to me) that licensing metrics for software are so difficult to change.  Purchasing contracts, license agreements, and license enforcement tend to lag technical milestones.  Sometimes this is a good thing – for instance, everyone waited out the predicted move to 64-bit servers during the development of the Itanium processor.  At other times, licensing metrics are not compatible with IT practices that develop due to technology – you license per-Ethernet port and they buy per-device.

Consumer packaged goods don’t usually have to keep pace with technical changes.  Cars are licensed per unit, not per cylinder, seat, or window.  In many ways software is licensed “per cylinder” which makes it susceptible to fundamental changes.  Think of the impact hybrid technology or turbo chargers would have on a per-cylinder vehicle licensing model during the current green movement.

What to disrupt when you’re disrupted

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Pricing, metrics and evolution (#3)

9 07 2009

So far I’ve talked about how pricing is a mix of several elements which involve math, science, intuition and emotional intelligence.  At some point, these things come together and you have to divide up what you’re selling and assign a suggested quantity of money that should be exchanged for each quantity of your product.

For some products, sizing or metrics may be determined by the market standards (e.g. existing products, packaging, shelf space) or by some other decision designed to garner a net impression (e.g. 100 calorie snack packs of food or beverage).  Consumer packaged goods have a whole pricing paradigm unto themselves versus pricing a “virtual” product or service.

I’ve heard that individuals will typically undervalue their own skills or services when they ask for compensation versus letting the recipient pay them.  However, I don’t believe that’s true for business transactions.  Especially when it comes to software, cable TV, and cell phone plans. 

Certainly in the software sector, many customers believe that the pricing is out of line with the value they receive.  Perhaps that’s because the licensing terms don’t match their expectations very well.

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Economic necessity: where have all the users gone?

14 04 2009

Now is the time for vendors to seek out their buyers and users (and know the difference).  Grassroots user support helps keep a vendor’s platform relevant and endorsed as critical infrastructure.  Vendors that take an active role in assisting users will also make users shine and avoid “going legacy”.

The strategy is simple to articulate, but hard to deliver: change the argument from “cost savings” to “new value” as easily as plausible.

Keep in mind that vendors also need to show momentum to buyers.  By acknowledging appropriate compatibility and buzzwords surrounding their product, they stay viable from a customer-funding standpoint.

User shrinkage

Layoffs have many layered, long term effects.  Users and buyers at customer installations will be faced with some very difficult and immediate cost-cutting decisions.

For software companies, that means familiar users and buyers may disappear or “go dark”.  This triggers a cycle which could slow software releases or cause product stagnation.  None of this helps the case for software upgrades or roll-outs.

Savings as a Service?

During cost-cutting season, users will look under every rock for opportunities to keep their teams employed and food on the table.  If users look under your “rock” and find a shiny new replacement technology with promise, you’ve got problems.

Everyone’s heard of “the cloud” right?  Vendors offering tangible, useful services in the cloud may help IT staff and users alike carve out narrow savings and innovation opportunities.

Software as a service (SaaS), Infrastructure as a Service (IaaS), Platform as a Service (PaaS) and even Datacenters as a Service (DaaS?) have all received  much attention in the recent past (much like SOA used to).  Heck, I even wrote a couple articles about SaaS and manufacturing in 2008.  The cloud is now chock full of capable, credible options.

Remember: upgrades are ugly, so if the cloud fixes a problem appropriately, it’s on the table.

However, disrupting the status quo is a difficult decision.  The switching costs associated with swapping out an existing application or infrastructure may be too great to undertake as customer staff and support wane.

But trading on fear, uncertainty and doubt is not the answer.

Get tangible before the pressure builds

Immediate value is something vendors need to demonstrate hand-in-hand with users to maintain relevancy.  Working with customers early to understand their objectives can keep their user support base on staff while uncovering new, valuable opportunities.

Know your landscape: vendors threatened by the cloud or that lack a “cloud positioning strategy” had better create one. 

Adopting a proactive stance may turn a potential liability into an asset and transform a “cost savings” argument for displacement into “new value” built on existing assets.