Pay-Per-Use licensing: its time has come

Pay-per-use software licensing is not a new concept. In fact, as discovered in a recent Google search, the business model was under consideration as far back as 1993 (Host Users Seek License Details, Computerworld, May 24, 1993), when visionaries at companies like IBM perceived potential value in the novel concept. The idea was well before its time, perhaps, particularly given that the commercialization of the Internet and the realization of its powerful impact was just underway and the build out of enterprise IP networks was still in its infancy.

Today, however, the rise in cloud-based computing is driving market demand away from conventional perpetual licensing and toward next generation consumption based services in the form of software-as-a-service, infrastructure-as-a-service, and other subscription models that base pricing on actual service usage. The pay-per-use model has come of age and is being widely embraced by consumers, particularly those with low volume needs or those whose usage fluctuates in and out of peak periods.

The pay-per-use model is relatively straightforward: use of the product is metered and customers pay only for service they use, much like pay-per-view TV or publishers and research firms who sell access to high value content on per-use or per-download basis.

The pay-per-use model has tangible benefits for ISVs and embedded system developers as well as end users.

Benefits to customers include low start-up costs, month-to-month affordability, and convenience. In low usage scenarios, the model makes expensive, specialized software more affordable and accessible to smaller businesses. It is also beneficial to customers in environments where usage fluctuates over time, so when the software is not being used, the customer is not paying for it.

Software vendors, on the other hand, benefit from enhanced customer relationships. The pay-per-use model also provides valuable market information, as vendors gain greater feedback as to product usage and can retool and refine their pricing models and packaging to better serve their customer demands and improve revenues.

As consumers become more sophisticated and selective in their licensing preferences, it is incumbent upon the ISV to be capable of deploying new business models that satisfy their customers, particularly in a highly competitive market. Software licensing now is a mechanism by which vendors can differentiate themselves in the marketplace while enriching their customer relationships and building trust and loyalty for the future.

In the industrial realm, pay-per-use licensing has become more relevant as well, driven by recent developments in machine connectivity, the globalization of manufacturing processes, and the interest in customized manufacturing for production runs of maybe even only single pieces. Pay-per-use allows them to pay on the go for the machine lease, the consumables, the raw material, or the software package they specifically requested, at the time they really need it.

The most successful ISVs will be those who have the tools to roll out a pay-per-use licensing model as easily as they would for conventional permanent or subscription licenses, with automated billing and integration of the process into ERP, CRM, e-commerce and other back office business platforms.

If you are considering adopting pay-per-use licensing, you will be interested in watching our pre-recorded webinar, Monetizing Software, Machines, and Materials with New Business Models. The webinar reviews different application scenarios for pay-per-use licensing and demonstrates the technical implementation using our CodeMeter License Central platform. You can view the agenda and recording here.