Getting a Grip on Subscription Licensing – Is Your License Management System Up to the Task?

Just recently I was doing some research on the ongoing market shift towards SaaS and subscription software licensing and stumbled upon an old Gartner report that was published in 2008, entitled Gartner’s Top Predictions for IT Organizations and Users, 2008 and Beyond. What I found fascinating was the discussion about the impact of alternative software delivery and acquisition models and how they were affecting the way IT organizations and users planned for spending as well as their evolving preferences for selecting the products and services of interest. The report noted that IT budget decisions would be dependent on service-based spending models, such as subscriptions and annuities.

These findings led to key assumptions about software usage. The assumption that I found most prophetic was one that declared that the cloud would have a major impact on the software industry: “Software vendors finally get the message in 2008. Everyone needs a strategy for delivering software services through the global Internet cloud. Leveraging SaaS, as well as open-source offerings, will change the basic balance of licensed vs. subscription-based software for today's independent software vendors (ISVs) and technology users.” The report further noted that: “By 2012, at least one-third of business application software spending will be as service subscription instead of as product license.” That was probably a bold prediction made by Gartner back in 2008 and made me consider what that percentage looks like today. Another search captured a more recent prediction by Gartner, that “By 2020, all new entrants and 80% of historical vendors will offer subscription-based business models.” And I think most ISVs and consumers have come to terms with this reality: Subscriptions and consumption-based software licensing models have overtaken traditional perpetual licensing as the new normal.

But, how have ISVs fared in making this transition from perpetual to subscription licensing? It was certainly easier for new entrants to the market, as they could employ a subscription licensing model from initial commercial launch, without having any effect on their existing sales and distribution processes, as their business essentially was built around a SaaS offering from its inception. Established ISVs found it more difficult to make the transition, particularly if they were locked into an old, inflexible, or home-grown licensing system – in some cases, they found themselves attempting to hammer a round peg into a square hole.

In helping our CodeMeter customers address this licensing metamorphosis we found that subscription models come in all shapes and sizes and the relationship between the vendor and user can involve many different implementation scenarios. In the most simplistic terms, a typical subscription model uses a time-limited license i.e. the end users need to renew their license prior to the expiration date to continue using the software, which they can either do by buying an extension to their subscription or by having a contract in place to do so in the background. If that expiration date has not been reached, the license can be used; when the expiration date arrives, it cannot.

Seems like a very straightforward process on the surface – subscriptions end when the expiration date is not reset and the license automatically becomes invalid at the end of the active date. Software can, of course, include a mechanism for checking the expiration date and either starting an automatic renewal process or reminding the user to do so manually.

However, the waters start to get a bit muddy when you start considering management of things like temporary licenses, unlimited licenses, transferred licenses, canceled licenses, and even lost licenses. Renewal mechanisms and expiration rules can vary, reminders need to be sent and managed, and the entire licensing process needs to be seamlessly integrated with existing ERP and back-office processes without causing major disruptions in customer relationships.

Fortunately, there are proven license management systems available, like Wibu-Systems CodeMeter License Central, that provides the inherent flexibility needed to address the various nuances of subscription licensing and implement the model that works best for the ISV’s products and services and their customers. Our latest KEYnote 41 magazine includes an article on this very topic, and I invite you to download the article for an in-depth look at the subscription licensing environment and CodeMeter implementation solutions.