Why is Managing Entitlement Rights within SaaS Applications so Difficult?

Many software publishers transitioning from perpetually licensed software models to SaaS or subscription licensing models treat the entitlement rights associated with the SaaS model as an after thought. The reason for this trend is that many of these companies initially feel SaaS applications will inherently manage the entitlement rights required because the licensing is “built in” to the application. Often, after the application has reached an initial level of maturity with adoption in multiple market segments challenges with respect to managing entitlement rights emerge.

Managing an entitlement right or a software license is typically not the initial focus of an engineering organization. With the push to get new products out the door with features demanded by customers, prospects and the sales team, having a working entitlement management solution is viewed as being good enough.  There is often pressure to move to a subscription model because a new competitor has emerged who potentially can leap frog a number one incumbent by delivering services under new pricing models that make a perpetual model look unattractive. Forced to react quickly, products licensed perpetually that need to be migrated or recreated in the SaaS delivery model are migrated with a focus on ensuring competitive advantages.

After the migration occurs and the SaaS version of the application becomes successful, many organizations go back to put additional pricing and packaging in place to address underserved markets. It is at this time that the realization occurs that managing entitlement models within a SaaS application is just as challenging as managing entitlement models in the on-premise, perpetual licensing world. With a single entitlement model built into a SaaS application, the change to manage multiple models will require extensive engineering effort because the effort ties not only to enforcing rights but also billing and compensation models. It is at this time that the realization occurs that an entitlement management system is needed.

To help avoid this situation, when I work with clients moving to SaaS models, my initial recommendation is always to focus on answering the business questions and avoid the temptation to rush to market with features and product to become number one without the ability to easily remain number one. Starting the dialogue of a transition to SaaS by answering such questions as:

  1. How many markets will you serve? Will you price and package the same or differently in the SaaS world for these markets?
  2. How will you pay your sales force and will this tie to automated billing as part of your new solution?
  3. Will you charge for usage or have a flat subscription fee?

Questions such as these can quickly identify that the need for entitlement management in the cloud is just as great, if not greater, than in the perpetual world.

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