New Business Models Driving Creative Software Monetization Strategies

“The next generation of software monetization is not just about IP protection nor limited to licensing alternatives (perpetual versus term), but rather about enabling business models that provide additional opportunity for monetization to drive growth.”

I found this statement to be a key takeaway from a recent Gartner report, Disruption in Software Business Models Creates New Opportunities for Monetization. This notion is based on several recent trends in the industry:

• The transformation of software licensing models from upfront cost with an add-on maintenance contract to more recurring revenue models, like time-based or feature-based subscriptions.
• The enablement of new pricing scenarios that are more end user friendly and easier for the publisher to manage entitlements.
• The granular ability to track application usage, which paves the way for attractive consumption-based pricing models and provides developers with valuable analytics and insights for next generation products.

Gartner highlighted several assumptions that will drive these future transformations:

• By 2018, 50% of independent software vendors (ISVs) will use concurrent licensing (based on users) as the primary licensing strategy compared with the majority using node-lock models today.
• By 2019, 80% of ISVs will use multiple licensing models (such as consumption/metered services, capacity, node lock and concurrent) for software monetization.

It’s interesting to note that similar dynamics are driving transformations in the embedded system market segment as well. According to Gartner, embedded developers should consider that: 

• By 2019, 20% of intelligent device manufacturers (IDMs) will move from no protection for embedded software to a node-lock model as the primary software licensing strategy for monetization beyond the hardware.
• By 2020, 15% of Intelligent Device Manufacturers will be exploring/piloting concurrent (based on users) and consumption (metered services) software licensing strategies in order to further monetize on embedded software.

With these industry shifts occurring, embedded device developers are realizing the potential benefits of recurring revenue models for themselves as well. Gartner points out that, for example, a medical device manufacturer, can offer hospitals and medical centers with flexible pricing options that alleviate the high upfront capital equipment cost with a subscription-based model that is more manageable. As a result more customers can access the medical equipment they otherwise could not afford.

Agfa HealthCare, a leading provider of diagnostic imaging and healthcare IT solutions, is a good case in point. The company’s digital computed radiography system encompasses the most cutting-edge technology in clinical research, but many small laboratories, orthopedic doctors, and other facilities were hard pressed to afford the upfront investment for hardware and software. To accommodate the needs of the vast low-end market, the company rolled out a time-based licensing model that allows the user to only pay according to the imaging volume they needed, which made the solution more affordable for providers and their patients who could benefit from the state-of-the-art technology while opening up new markets for the company.

As these transformations continue to alter the software licensing and monetization landscape, the next question is what tools are needed and how best to implement these new business models. Do the software publishers and embedded device manufacturers develop and rely upon their own expertise to manage the process or partner with an expert in the field to help them commercialize these models? In the case of Agfa Healthcare, they chose to utilize CodeMeter, Wibu-Systems’ proven software security and licensing solution, to help them fulfill their business vision. You can read the full story here.