Pay-as-you-grow software licensing—is the iTunes model a fit for high-tech products?

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An industry expert we work with mentioned that the iTunes success model will rapidly be adapted for high-tech products. One of the keys to iTunes’ success was to allow music to be purchased like it was consumed, thus transforming the monetization model in the music industry. The incumbent model in the music industry was to aggregate collections of tracks into albums, which then became the unit of purchase for consumers. iTunes transformed this model to allow consumers to only purchase what they consumed, one track at a time, if desired.

In high-tech markets, a similar transformation is happening. A specific model of a device is analogous to a music album. Just like an album is a collection of tracks, a device model is a collection of capabilities. Instead of building “albums”, high-tech manufacturers are creating generic platforms (like the iPod or iPhone) that can add on capabilities and capacity on the fly to suit different customer needs.

For example, Citrix NetScaler, a multi-function (load balancer, application firewall) device used in datacenters and enterprises,  is a great illustration of such a licensing model in action. Citrix offers this product as a hardware appliance and as a virtual appliance. Citrix® offers “Pay-as-You-Grow” software licensing for NetScaler, which they describe as “a simple, on-demand licensing model that provides   investment protection, avoids costly hardware upgrades and reduces TCO. Most networking systems require expensive hardware replacements to expand capacity and functionality, which often forces companies to over provision and pay for more than they need at any given time. Pay-as-you-grow licensing from Citrix breaks this dependency, enabling companies to buy only what they need today, knowing they can easily scale up their network as demand grows with a simple software license upgrade.”*
Citrix image * Source: Citrix website http://www.citrix.com/English/ps2/products/subfeature.asp?contentID=1860610

If you are a high-tech manufacturer, iTunes is at your doorstep…are you ready for this device management transformation? Are you using embedded software licensing to transform the way you do business? We would love to hear from you!

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