Copyright 2007 IDC. Reproduction is forbidden unless authorized. All rights reserved.

Today’s Evolving Licensing Landscape

Amy KonaryAmy KonaryDirector, Software Pricing and LicensingDirector, Software Pricing and Licensing

IDCIDC

03/29/10 2© 2008 IDC

Tectonic Shifts

•Perpetual -> Subscription•On-Premise -> SaaS•Clear -> Cloudy

•License Broadly -> License Narrowly•License Opaque -> License Transparent•License Afterthought -> License Strategic•License Haphazard -> License Deliberate

03/29/10 3© 2008 IDC

Why is this Happening?

● The software industry is maturing

● Customers are dealing with a complexity crisis

● There is a price-performance-value disconnect

● New delivery models and hybrid software/service vendors are gaining acceptance

● Underlying technology is changing (multicore, virtualization, etc.)

03/29/10 4© 2008 IDC

Software Industry Landscape

Perpetual Subscription

LICENSING APPROACH

Service

Product

DEL

IVER

Y A

PPR

OA

CH

These approaches can be mutually exclusive!

Software as a Service

88% of WW software

revenue in 2009

03/29/10 5© 2008 IDC

What’s Wrong with this Picture?

To survive, vendors must continuously push new products and features, making software more costly and complex to obtain and manage

Customers believe that they only use 16% of the capabilities of their software

These customers are overserved

Because software is so costly and complex, a population of underserved customers exist

Overserved and underserved customers are attracted by a solution that provides most if not all of the features they need at a fraction of the cost and complexity

03/29/10 6© 2008 IDC

New Software Value Framework

ProductProduct

Defined by vendorValue typically based on cost to vendor of bringing the product to market

ExperienceExperience

Defined by customer/ vendor interaction

Value based on ease, intuitiveness, and quality of the experience

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Th e VO M IT

C h a r t

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Experience-Based Value Creation

SubscriptionConsumption

Outcome

Capacity

Metering/Tracking

ServiceImp

ort

an

ce

Pre

vale

nce

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Total Software Revenue Mix, 2006-2014

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

2006 2007 2008 2009 2010 2011 2012 2013 2014

SubscriptionMaintenanceLicense

20%

6%

1%

‘09-’14 CAGR%

03/29/10 10© 2008 IDC

Subscription is Here- Vendors

Of the top 100 software vendors worldwide by revenue, 40% report subscription revenues

For 13% of the top 100, subscription represents greater than 50% of total software revenues

Salesforce.com is the only pure-play SaaS provider to make it into the top 10 vendors according to software subscription revenue

Projected growth in SaaS impacts the subscription forecast, with SaaS-revenues making up 32% of the overall subscription forecast in 2008 and 33% in 2009.

2009 Spending on SaaS (est $9.5B WW) is YoY growth of 42% vs. All software: (3.4%) vs. All Applications (5.6%)

03/29/10 11© 2008 IDC

Licensing Model Attractiveness

Q: Please rate the attractiveness of the following (1-7 scale). A pricing model which:

0 1 2 3 4 5 6 7

involves unpredictablecosts over time

is value-based

is tied to usage, like autility

taps OPEX

involves predictablecosts over time

reduces CAPEX

Source: IDC Software Pricing Survey, April 2009N=326

03/29/10 12© 2008 IDC

Cloud Services Definition

Consumer and Business products, services and solutions delivered and consumed in real-time over the Internet

Cloud Services

Shared, standard service – built for a market (public), not a single customer Solution-packaged – a “turnkey” offering, integrates required resources Self-service – admin, provisioning; may require some “on-boarding” support Elastic scaling – dynamic and fine-grained Use-based pricing – supported by service metering Accessible via the Internet/IP – ubiquitous (authorized) network access Standard UI technologies – browsers, RIA clients and underlying technologies Pulished service interface/API – e.g., web services APIs

NOTE: Cloud Services is a mix of technical and business model attributes.

Key Attributes

“casual description”

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Why Cloud?

Q: Rate the benefits commonly ascribed to the 'cloud'/on-demand model (Scale: 1 = Not at all important 5 = Very Important)

Source: IDC Enterprise Panel, 3Q09, n = 263

54.0%

63.9%

64.6%

67.0%

68.5%

75.3%

77.7%

77.9%

0% 10% 20% 30% 40% 50% 60% 70%80% 90%

Seems like the way of the future

Sharing systems with partners simpler

Always offers latest functionality

Requires less in-house IT staff, costs

Encourages standard systems

Monthly payments

Easy/fast to deploy to end-users

Pay only for what you use

Source: IDC, September 2009

% responding 3, 4 or 5

03/29/10 14© 2008 IDC

What’s in it for Software Vendors?

● Increase competitiveness– Allows lower entry price for customers

– Improve customer experience

– Get out in front of public market competitors who may be slow to launch subscription pricing

● Increase predictability of license revenues – Public market valuation metrics reward

subscription pricing and recurring revenue business models

● Decrease management/sales pressure to close marginal deals at the end of the quarter

– Remove customer pricing leverage

– Increases importance of customer satisfaction in ongoing “sales” process (e.g. product management commitments & customer support)

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Two Likely Reactions at this Point in the Presentation

1) 2)a 2)b

03/29/10 16© 2008 IDC

Case Study: Siebel and Salesforce.com

MORE FUNCTION-

ALITY

HIGH-COST PERP. LICENSE

TRADITIONAL DEPLOYMENT

LARGE ENTERPRISE PARTNERS

LOW-COSTSUBSCRIPTION

SERVICE DEPLOYMENT

SMB PARTNERS

LESS FUNCTION-

ALITY

“I believe I have never encountered them competitively in nine years. And I am absolutely satisfied that they do not have a business model.”

Tom Siebel on Salesforce.com(Source: destinationCRM 10/2002)

03/29/10 17© 2008 IDC 17

Underlying Technology Change by the Numbers

By the end of 2009, VMs will outnumber physical servers

By 2012, VMs outnumber physical servers 2:1

VMs per server has increased from 3.0 in 2005 to 6.3 today and will rise to 8.0 in 2012

50% of the workload described as production

10-40 fewer servers acquired on average annually

70% are very satisfied with virtualization

03/29/10 18© 2008 IDC

A Delicate Balance

•Simplicity/Complexity•Adaptability/Predictability•Existing Clients/New Clients

Technology Must Play a Key Role

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Software Licensing Technologies

III.Entitle

Characterized by: Saleable software Execute a contract License as a verb

Markets include: Entitlement management License generation Electronic store

IV.Deliver

Characterized by: Movement of software from

repository to customer Formally the fulfillment role

Markets include: License fulfillment Electronic store Software distribution

I.Create and

Manage

Characterized by: Code generation tools Version repository Approval workflow

Markets include: Code management Product life-cycle management Internal release management Product launch

II.Configure

Characterized by: Creating salable software Aligning SKUs for delivery

Markets include: Product life-cycle management BOM management

VI. Control

Characterized by: Audit function DRM License metering

Markets include: Software asset management Purchase support Price analysis

V.Install

Characterized by: Proper install/removal

Markets include: Software installation Software configuration

management

InsideVendor

BetweenVendor andEnterprise

InsideEnterprise

III.Entitle

Characterized by: Saleable software Execute a contract License as a verb

Markets include: Entitlement management License generation Electronic store

IV.Deliver

Characterized by: Movement of software from

repository to customer Formally the fulfillment role

Markets include: License fulfillment Electronic store Software distribution

I.Create and

Manage

Characterized by: Code generation tools Version repository Approval workflow

Markets include: Code management Product life-cycle management Internal release management Product launch

II.Configure

Characterized by: Creating salable software Aligning SKUs for delivery

Markets include: Product life-cycle management BOM management

VI. Control

Characterized by: Audit function DRM License metering

Markets include: Software asset management Purchase support Price analysis

V.Install

Characterized by: Proper install/removal

Markets include: Software installation Software configuration

management

InsideVendor

BetweenVendor andEnterprise

InsideEnterprise

03/29/10 20© 2008 IDC

Licensing Technology Forecast by Phase

0

200

400

600

800

1,000

1,200

1,400

2007 2008 2009 2010 2011 2012

Phase 5&6

Phase 3&4

Phase 1&2

($M)

Source: IDC Software Product Lifecycle Management Forecast, Dec. 2008

15% CAGR

12% CAGR

9% CAGR

03/29/10 21© 2008 IDC

Role of Licensing Technology- Case Studies

Enable more flexible licensing

Floating or concurrent models

Sub-feature licensing

“Real-time” licensing

Enable trials

Generate more revenue/improve margins

Reduce the number of SKUs

Stop “giving away a lot of software” due to piracy or non-compliance

03/29/10 22© 2008 IDC

Mask complexity

Move away from error-prone, manual processes

Move away from physical protection

Reduce the number of SKUs

Improve the customer experience

Create a unified view of licensing

Work more smoothly with partners

24x7 self service capabilities, up-to-date reporting

Better intelligence

GROWING PAINS

Role of Licensing Technology- Case Studies

03/29/10 23© 2008 IDC

Challenges

Connecting licensing to KPIs.

Sometimes workarounds, usually manual processes, ensure KPIs are met even when current systems have shortcomings

Identifying the licensing champion

Getting the attention of senior management

Making a strong connection between licensing and customer/partner satisfaction

Making a clear connection to lost revenue due to noncompliance

Realizing that any approach will take time and money.

03/29/10 24© 2008 IDC

Guidance

Policy is the best Policy

Choice is Good

Flexibility is where it is all going, but need to mitigate complexity with:

Education

Communication

Technology

Not a question of if, but when

Take head out of sand

Your customers are moving on, with or without you