The ROI and benefits of buying a commercial off-the-shelf (COTS) Licensing and Entitlement Management System versus building one in-house will vary from customer to customer, based upon business needs and market conditions. Historically, many of our hundreds of customers attempted to build their own systems, when at some point they realized that it was a losing proposition. The in-house solution was insufficiently flexible and scalable, and required too many resources that could be applied in other areas of core-competency. Ultimately, they decided that a COTS solution was best.
While the value proposition and exact ROI for buying a COTS solution will differ for each customer, some of the areas below were used to develop the business case to buy a COTS solution rather than build one or, to abandon an existing solution for one that was commercially available:
1. Future-Proofing for Market Advantage:
Commercial solutions will ALWAYS have more functionality, more associated best practices, and more industry case studies, allowing you to design a solution that will meet your needs today and into the future. This provides product agility which means the capability to proactively or reactively change product packaging, license models, and pricing to meet market conditions.
Companies most challenged by the need to offer new license models, and consequently who build competitive differentiation with licensing and pricing models rely on COTS offerings. This includes market segments that have traditionally had small markets, high-priced software, and a wide portfolio of products, including: Electronic Design (Magma Design Automation), Mechanical Design (AutoDesk), Software Development (Borland), and Oil & Gas Exploration Halliburton).
In the past 6 – 12 months, enterprise software companies (ERP, CRM, storage management, etc.) are beginning to feel some of the market pressures that had traditionally been limited to the solution vertical segments. As markets become more saturated, as virtualization and SaaS are emerging, and with compliance becoming more critical, even enterprise software companies are looking at new ways to “future proof” their business. Benefit Characterization: Increased revenue and/or decreased discounts from 2 – 10 percent can occur with improved license models, product packaging, improved compliance, and more rapid deployment of new products to market.
2. Faster Time-to-Benefit:
Commercial solutions are typically ready-to-go, and have many associated best-practices and implementation case studies for a variety of processes, license models, and customer-facing facilities associated with licensing and entitlement management. The deployment of a COTS solution doesn’t suffer from endless internal cycles to define and refine requirements for systems and processes most companies don’t fully understand. Companies such as Avocent (Datacenter Software), Rosetta Stone (Language Learning) and Tableau (Data visualization software) have realized these benefits.
Benefit Characterization: Reduction in implementation from 6 – 12 months for an entire IT or product development team is not uncommon. Secondary benefits can be the release of a new product dependent upon the availability of a new license or entitlement management system.
3. Solution Tuned to the Unique Needs of the Software Business:
Customers who internally develop systems tend to base their entitlement management solution around a classic ERP implementation. ERP systems are effective for managing finances and for facilitating the development of physical entities, but are usually not built to support the unique needs of the software or intelligent device markets. On the other hand, COTS licensing and entitlement management systems provide effective support for the “product lifecycle” – the morphing of software products over time due to upgrades, updates, moves, transfers, end-of-life, M&A, etc. Customers with internally-developed systems tend to lose track of their customer entitlements over the lifecycle of the product, resulting in lost renewal or upgrade revenue, manual processes, and ultimately, customer dissatisfaction. This was one of the driving reasons that led to Serena Software choosing a COTS solution.
Benefit Characterization: Over time, companies can spend from 1-2 percent of total revenues on manual processes associated with improperly working systems. In addition, maintenance renewal rates can be as low as 55-60 percent with poor visibility into customer entitlements, as opposed to a more typical 85-90 percent renewal rate.
4. Core Competency Focus for Internal Resources:
Companies don’t want to use their best product and IT development resources investing in the development of licensing and entitlement management solutions. Companies want to use their top talent to focus on the development of market-leading products in areas of core competency, and not to innovate in licensing or entitlement management.
Benefit Characterization: The benefit is more difficult to quantify, but is typically related to delays in new product releases from 6 – 12 months as critical resources can’t be applied to a new product development.
5. Business Scalability / Accelerated Benefits for M&A Activity:
Companies that buy COTS solutions tend to standardize on that solution across their range of product offerings and business processes, lowering operational and development costs via “reusable” and standard components and eliminating manual processes. Companies that build solutions tend to continually expand their licensing and entitlement management solution as they acquire new companies, never standardizing on a single approach, as each approach is tuned to a particular software title. Costs become excessive through multiple systems and extensive manual process across several organizations.
More importantly, the lack of a standard license and entitlement management platform limits the capacity for companies to create meaningful “solutions” across companies that are acquired, and increases the probability that financial numbers are missed in a particular financial period due to inefficient operational processes. Companies such as IBM and Synopsys have created standard entitlement management and license platforms that form the basis for ongoing integration of new companies.
Benefit Characterization: : Over time, companies can spend from 1-2 percent of total revenues on manual processes associated with improperly working systems (also described above) In addition, a company’s market position can be eroded if they cannot assimilate acquired products into solutions or bundles, leading to an additional 10-15 percent discount for some products.