Enterprises are accelerating their use of cloud computing because it provides such an attractive value proposition. This value proposition is enhanced through usage-based licensing. However, the difficulty of monitoring usage-based licensing has slowed its adoption. Flexera Software, the market leader in software license compliance management solutions, makes it possible to efficiently deploy usagebased licensing models. The company’s solutions empower application producers to implement a broad spectrum of licensing models within a single product—from strict enforcement to a more open trust-but-verify approach—to maximize software revenues and ensure compliance.
The State of the Cloud Computing Marketplace
Cloud computing continues to grow because it offers a wealth of benefits to software publishers as well as their enterprise customers. Rather than a company having to purchase a software package, which must be deployed and maintained on their own servers, cloud computing provides the economies and conveniences of an organization simply logging into a web-based service. Cloud computing eliminates the CapEx costs of purchasing dedicated servers and software, and it greatly reduces OpEx by eliminating the need for allocating IT personnel for application administration and maintenance, including keeping up with security patches. All of this in turn allows companies to focus on their core competencies, rather than devoting precious time and resources to peripheral tasks. These benefits are likely to drive increased SaaS adoption well into the future.
The biggest obstacle to greater adoption of cloud computing has been enterprise concern and regulatory mandates concerning privacy and control of sensitive data. Yet these concerns, including regulatory requirements for on-site storage and control, have to a great extent been relieved as cloud providers have gone beyond the original public cloud model to private cloud deployments (in which cloud-based resources are only used by a single organization) and public/private hybrid models in which sensitive information is stored on dedicated resources on the customer’s premises.
Meanwhile the pressures that have made the cloud computing marketplace so attractive continue to build. Organizations see a need to relieve the burdens on overworked, understaffed and underfunded IT departments. As long as vendors meet customer requirements for performance, security and other factors, many more companies are now willing to use hosted software services. In many cases, the cloud offers greater redundancy, fewer points of failure and superior IT resources to ensure security and high availability than what organizations can economically provide on their own.
At the same time, the basic cloud value proposition has become more attractive as cloud providers have created new pricing models—including usage-based licensing—to better compete in the marketplace.
Projected Software Growth
Research firm IDC estimates that $367 billion was spent in 2012 globally for packaged software, with a steady growth for the sector projected for some years out. The cloud computing market is growing as well, as Gartner estimates that global cloud computing sales were up nearly 18% to some $14.5 billion for 2012.
Industry Shift from Perpetual to Consumption-Based Licensing and Pricing
The shift from perpetual to usage-based licensing models is driven by a number of IT needs, including a desire to avoid shelfware and to pay only for actual use, while avoiding the hassle of software audits. Consumption-based pricing—which is a hallmark of cloud computing—gives organizations the flexibility to ramp departments up or down, according to needs and varying workloads.From a hardware standpoint, a company can spin up more servers for its testing group to use, for example, prior to a new release, and then release the hardware (and its cost) when the extra resources are no longer needed. The value of such pricing is seen from a software standpoint, too. All of this points toward the desire of customers for greater flexibility in licensing. These same forces provide opportunities for producers to provide a distinguishing value-add through offering innovative licensing and pricing programs.
Technology Forcing New Monetization and Protection Models
Hybrid cloud computing, much like a hybrid cloud, describes situations in which a solution is partitioned between local software running on company premises and web-hosted cloud-based services. Google Apps, and Office 365, for example, can be run both locally and in the cloud.
An important driver for hybrid deployments is the need for privacy and security. A hybrid cloud computing solution enables cloud-based resources to support a presentation tier, for example, while the data could reside either on customer-based servers or on private cloud infrastructure.
As earlier noted, regulatory compliance for some industries—such as healthcare and financial services— mandates that critical content must be stored locally. A company which handles military contracts might be required to not let any sensitive data be stored elsewhere. Even when not mandated, companies with high-value intellectual property may have internal policies that prohibit use of public cloud and standard cloud computing solutions. Customer demands come into play as well. For example, customers of a chip design firm might stipulate that their data be stored locally to protect intellectual property.
New monetization models will be required to deal with hybrid and other specialized solutions. In cases where the solution is partially cloud-based and partially enterprisebased, usage-based licensing is a way for companies to make sure that they are not paying twice for the same services.
Why is Usage-based Licensing So Complex?
Surveys indicate that many companies intend to migrate to usage-based licensing, but fail to do so. Part of the reason for this is that usage-based licensing is more complex than simply buying software to use on the company premises.
Pricing & Licensing Strategies in Flux
Forty two percent of application producers report that over the past 18-24 months, their software pricing and licensing strategies have changed
Change remains the norm for the immediate future. When asked how licensing and pricing strategies would change over the next 18-24 months, application producers said they would add subscription/term licensing (26%), better enforcement or security (24%), pay-as-you-use (24%) and temporary/evaluation/ “try-before-you-buy” licensing (19%).
Source: Flexera Software, 2012 Software Pricing and Licensing Survey