The Myths of Pay-Per-Use Software Licensing & Pricing Models

A lot is being written about the eminent arrival of pay-per-use license models and how it will change the software licensing and pricing landscape. In fact, a lot has been written about the arrival pay-per-use models since the 1990’s. Nothing could be closer to the truth, yet farther away from the truth.

Pay-per-use provides an intriguing and common value proposition to provide flexibility – pay for only what you use: eliminate the large up-front license costs and ongoing maintenance fees.

Don’t be fooled: Pay-per-use, in a granular sense, will NEVER be deployed in a large scale across the software landscape, whether the software is hosted via SaaS, sold on an enterprise server, or distributed across the desktop. Pay-per-use software licensing and pricing have 2 fundamental flaws for large scale deployment; an unpredictable revenue (provider) or cost (purchaser) stream and high operational costs to maintain. It’s also just generally a nuisance to be measuring seconds or other fine units of usage, especially when some software can take a long time to load, or, if the software crashes in the middle of a task.

Yet, if you look across the software industry, usage-based licensing models are successfully deployed, and are a part of fabric of enterprise licensing models. As the software industry has matured, we haven’t seen the evolution toward a single model, but rather, a refinement of different license models to meet the needs of different market segments. The key to success of a usage-based model is finding a balance between the flexibility of a pure pay-per-use model, with the predictability of a subscription or perpetual license model.

This is well illustrated in the science and engineering markets (Electronic Design Automation; Oil & Gas Exploration; Mechanical CAD, etc) where there are a number of different models such as “Token licensing”, “Subscription Licensing”, “Peak Usage Licensing”, “Remix”, “Variable Usage” and other names. These licensing models all balance flexibility with predictability and work well for large consumers of software. The goal is to license and price software in a way that makes it easy for customers to do business with you.

So, if you’re waiting for pay-per-use models to arrive on the scene, don’t hold your breath. But on the other hand, if you are waiting, it may be too late.

Customers are using Flexera products to deploy usage based licensing models today, are you?

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