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It’s no secret that software licensing models across the IT industry are chaotic. Software providers typically offer a mix of licensing options, spanning everything from subscriptions and usage-based licensing models, to traditional perpetual licenses that enable organizations to continue to pay an annual fee in return for the right to use a specific version of the software.

Over the last few years, software vendors have been trying to push more customers toward subscription-based licensing models, which ensure that a customer is always running the latest version of the software. Vendors favor that approach because the cost of supporting and securing outdated software is not only high, it’s difficult to upsell new features to a customer that is several releases behind.

Mixed results

A survey of 321 software executives published by Flexera, a provider of tools for managing software licenses, finds 74 percent of software producers have embraced subscription models for some or all their products. The same survey, however, notes 65 percent still have customers that prefer perpetual licenses. Another 59 percent also employ usage-based models, while 47 percent also rely on outcome/value-based models.

The survey also reveals that most software vendors are trying to support a mix of deployment models, with 52 percent having moderate to extensive SaaS deployments, while 63 percent have moderate to extensive on-premise software deployments. Another 54 percent also have moderate to extensive embedded software deployment.

Opinions concerning which models customers will gravitate toward over the next 18 months are just as varied. Nearly half (48 percent) of respondents expect subscription/term-based monetization to grow, compared to 43 percent who expect to see growth in usage-based models. At the same time, 32 percent expect outcome/value-based models, while 29 percent said reliance on perpetual license models will increase.

Customer frustration creates MSP opportunity

Understandably, customers are more than a little frustrated when it comes to figuring out software licensing models. Things are only likely to get more complicated in the age of the Internet of Things (IoT). Therein, lies an opportunity for managed service providers (MSPs) that already monitor events occurring across a customer IT environment. 

When it comes to software, customers clearly want the best value. The trouble is no one knows for sure what they will be up front. Things have become so bad in that regard that most savvy customers demand a 50 percent discount on software upfront, no matter what.

They then try to figure out what licensing model makes the most sense based not only on how widespread that software will be used, but it’s value to the business. A CAD/CAM application may not be widely employed, but it’s value to a business tends to be a lot higher than an application for managing sales contacts.

MSPs have a unique opportunity to function as a referee between the contending parties in these negotiations. MSPs can, for example, provide end users with highly accurate reports on how much software is being used when. Rather than waiting for a software vendor to launch an audit, the end customer would be in a better position to demand to renegotiate terms once the real value of a piece of software is empirically determined.

As part of that negotiation, the customer could then determine whether to keep the current licensing model in place or switch to another one. Given the level of competition these days across the software sector, most software vendors have become more flexible about licensing terms than they were a few short years ago.

Most software vendors are a little biased toward one licensing model over another. The end customer is usually confused and aggravated. Between those two contending parties there lies a need for an impartial arbiter that MSPs are best qualified to fill. Best of all, every dollar a customer saves on software is, in theory, another dollar that might be applied to a managed service.

Photo: wutzkohphoto / Shutterstock

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Mike Vizard

Posted by Mike Vizard

Mike Vizard has covered IT for more than 25 years, and has edited or contributed to a number of tech publications including InfoWorld, eWeek, CRN, Baseline, ComputerWorld, TMCNet, and Digital Review. He currently blogs for IT Business Edge and contributes to CIOinsight, The Channel Insider, Programmableweb and Slashdot. Mike blogs about emerging cloud technology for Smarter MSP.

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