Five Best Practices for Streamlining Electronic Licensing Operations


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Five Best Practices for Streamlining Electronic Licensing Operations

  1. 1. W H I T E PA P E R Five Best Practices for Streamlining Electronic Licensing Operations
  2. 2. Five Best Pract ices For Streamlining Electronic Licensing Operat ions Five Best Practices for Streamlining Electronic Licensing Operations Executive Summary Introduction The last five years have witnessed a dramatic adoption of Software publishers who implement electronic licensing electronic licensing among software publishers. Publishers to price, package and protect their products still face the claim that this is one of the easiest ways to accelerate challenge of how to create seamless licensing processes—for a product’s revenue growth. Electronic licensing enables themselves, their channel partners and their customers. software publishers to flexibly price and package their applications in any way that their customers want to buy Most publishers already have some combination of ERP and their products. At the same time, electronic licensing prevents CRM systems handling processes related to quotes, orders, revenue loss from unauthorized software use. Electronic contracts, customer data and customer support. licensing is becoming a standard part of most software applications, not unlike software installers. However, license and entitlement management processes are different for publishers using electronic licensing and are While the benefits of electronic licensing are overwhelmingly not typically handled well by today’s ERP/CRM applications, positive, publishers transitioning to electronic licensing are leaving publishers to build homegrown applications as often caught off-guard by the morass of manual processes a consequence. they end up using to manage their licensing operations. Inefficient, time-consuming manual processes have a More often than not, publishers underestimate the time negative impact on costs as well as customer satisfaction. and cost required to create efficient and end-user-friendly A not-so-obvious reality of electronic licensing is that once processes for managing licenses and entitlements using their licenses are issued by a publisher, they take on a life of their own internal resources. The following scenario occurs all own. Therefore, it is critical for publishers to proactively too often when publishers begin transitioning to electronic define operational processes for electronic licensing and licensing using homegrown approaches: streamline them up front. software publisher launched a new product with A This paper begins by outlining the business processes electronic licensing. The product consisted of six that make up the license lifecycle, which helps us identify components (a design time tool, a run time server potential operational blindspots publishers must take care component and four applications) that were turned “on” to avoid. Next, we introduce the five best practices for or “off” based on the license. A major customer, ABC streamlining the license lifecycle, which Flexera Software Company, purchased the product with all six components, developed after working with hundreds of publishers to along with Gold level support. The customer was instructed implement effective electronic licensing. Based on that to install six license files, one for each component. When experience, we provide a framework for the “build versus the customer installed the product along with the license buy” decision for an operational application that automates files, they found that only five of six components were the licensing lifecycle. The paper concludes with a brief activated. When ABC Company emailed tech support, description of how Nokia successfully anticipated and they received a second license file that activated the addressed operational issues prior to launching electronic missing component as well as one of the others. In licensing in their products. addition to being totally different from each other, the initial and corrected license files also indicated different support levels, though the customer knew that they had ordered Gold level support.2 Flexera Software: FlexNet Operat ions White Paper Series
  3. 3. Five Best Pract ices For Streamlining Electronic Licensing Operat ionsNine months later, when ABC Company contacted the A Day in the Life of a Licensepublisher to upgrade their software, they received license While concepts such as “Product Lifecycle” and “Customerfiles that authorized only five users—despite the fact Lifecycle” are well understood by publishers, surprisingly fewthey had originally purchased licenses for 20 users. ABC publishers transitioning to electronic licensing realize thatCompany also discovered that they were once again licenses have a life of their own. A first step to streamliningmissing one component key altogether. electronic licensing operations is to recognize this lifecycle. So what are we talking about?ABC Company used the publisher’s product in a mission-critical internal project with tight schedules. Given the Based on our experience helping publishers implementrecurring nightmares with license files, and their impact on electronic licensing over the past two decades, we haveinternal schedules, ABC Company decided not to bother identified seven processes that make up the license lifecycleupgrading at all in the future. (refer to the glossary at the end of this document for an explanation of terms), as shown in Figure 1:Unfortunately, scenarios like this are common in the 1. reate new product or package. Csoftware industry and have significant negative impact on 2. ntitle customers to the product (and maintenance or Eprofitability and customer satisfaction. Consider these facts: support that goes with it) based on their orders in an • Publishers lose 5-10 percent of their gross profits ERP or CRM application.6 because they are unable to flexibly price and package 3. eliver and install product. D their software due to operational issues.1 4. ctivate license (may be demo/evaluation or A • Publishers spend on average between 1-2 percent2 of production licenses). their gross revenues just on generating and fulfilling licenses from customer orders. 5. anage license and entitlement changes (e.g. return/ M rehost licenses; transfer/merge/split entitlements). • Publishers spend approximately $363 per support call related to licensing issues—most of these calls are 6. pdate maintenance-paying customers. U avoidable. Supporting customers who are not entitled 7. psell or renew licenses. U to receive support is another unnecessary and avoidable expense. Packages • Many publishers lose upgrade and renewal revenues ate Or Cre de r/ because they are not able to track their installed base ew En usage at the granular level of product version4. t en it le l l/ R • Publishers spend on average between 0.1 – 0.3 percent Upse of gross revenues adapting a homegrown application Deliver/Install to support licensing and packaging changes.5 License Mainta LifecycleThese costs can easily add up to hundreds of thousands of idollars a year for a reasonably sized publisher. This paper n/ Udemonstrates that using a best-of-breed application to pd at eautomate license management processes helps publishers at e Ret t iv urn/ Acmaximize profits by: Rehost • Maximizing revenues through flexibly pricing and packaging software. Figure 1: License Cycle • Minimizing license generation and fulfillment costs Publishers and intelligent device manufacturers, to an even • Reducing customer support calls pertaining to licensing greater degree,7 selling through channel partners have the same and non-entitled users. lifecycle processes as above, except that they have to deal with • Maximizing renewal and upgrade revenues by tracking an additional layer of complexity introduced by the presence customer purchases. of an intermediary who may create orders and licenses as well. • Minimizing IT costs for developing and maintaining a In many cases, companies are supporting a model where the homegrown operational application. end-user remains anonymous, i.e., the customer is owned by the channel partner. In other cases, publishers want to know more about end-users and register them prior to activating licenses, even if they order through the channel.1. ource: McKinsey and Company, October 2003 S2. ource: Flexera Software estimates based on customer surveys. Higher end of these figures typically apply to small publishers using manual processes to S generate electronic licenses.3. ource: “Technical Support Cost Ratios,” SoftLetter, The Association of Support Professionals, 2000. These figures are based on average support call costs for S software publishers. There is no evidence to suggest that licensing related support calls cost more or less than the average support call.4. n a related note, enterprise customers are demanding better approaches to ensure that they are able to be in compliance with their publisher agreements— O tracking the installed base is a necessary first step to provide the required capability.5. ource: Flexera Software estimate based on customer surveys. S6. ote that for a demo or evaluation license, no orders are typically required, though a customer entitlement still needs to be created. N7. e have found that intelligent device manufacturers (such as Nokia, Cisco) face these issues more often than software producers because of their more W widespread use of channelsFlexera Software: FlexNet Operat ions White Paper Series 3
  4. 4. Five Best Pract ices For Streamlining Electronic Licensing Operat ions Mapping out the license lifecycle is the first step towards 3. Enable self-service. Activating a license, automating licensing operations—the key to higher providing temporary licenses on an customer satisfaction and lower operational costs. emergency basis (e.g., when an end-user’s machine becomes unusable) or moving The Zen of Streamlined Electronic Licensing Operations licenses from one machine to another (i.e., a re-host) are all What does it take to implement efficient operational examples of license lifecycle processes that can be manual processes for the license lifecycle outlined above? We have and costly tasks for a publisher. Several nuances of these identified five best practices based on Flexera Software’s business processes may also occur based on the licensing experience with publishers (see Figure 2): model such as partial fulfillments, partial returns and partial rehosts (see glossary for a description). Publishers that allow 1. Ensure change readiness. Publishers their end-users and channel partners to self-serve license embarking on electronic licensing must lifecycle processes minimize operational costs, support calls assume changes are inevitable, and in many and associated costs. Given that over 50 percent of large cases, should expect them on a continuous and medium-sized companies manage over 40 software basis. An IDC survey revealed that: contracts9, self-service also enables enterprises to mitigate • 60 percent of software vendors make licensing changes some of this “complexity crisis” by helping them track what every year, and they bought and stay in compliance. • 33 percent of software vendors that made licensing changes in a previous year, plan on making changes in 4. Make licensing invisible. End-users should the following year.8 not have to know about electronic licenses Most software publishers and intelligent device at all—all they care about is how to order, manufacturers have to deal with the inevitability of mergers install and use the publisher’s product/ or acquisitions. When these happen, an often overlooked manufacturer’s device, and get upgrades when they choose but critically important change is the impact to the licensing to do so. Publishers and intelligent device manufacturers back office. Frequently new license key generators or new should create an end-user experience that enables “hands licensing technologies must now be integrated into the free” activation requiring minimal user input. For example, existing back office, which may not be able to handle this. when users install Adobe’s line of products, the only input As a result, large vendors over time can end up with required is the serial number on the CD (or a serial number several homegrown and third party license key generators they receive via email). The software is “turned on” without which drive up operational costs and result in a poor users being aware that they just received a software license customer experience. from Adobe. On an ongoing basis, changing business and licensing 5. Track license and entitlement histories. models often result in modifications to licensing processes As licenses get generated, publishers can and end-user-facing interfaces. For example, a publisher that accumulate a wealth of information about is introducing node-locked licensing for the first time would what customers actually installed at a more need to capture parameters of their end-user’s machines prior granular level than an ERP or CRM application allows—and to generating a license, while in their prior license models, more specifically, answer questions such as: such information may not have been required. Publishers • hat products and versions does Customer ABC have? W are, therefore, better served by operational applications • n an average, how long do customers wait before O that anticipate such changes and can handle them cost- they activate our products? effectively. Put simply, publisher’s operational applications • hich customers have Product A, version 5.6? W should be “change-ready”. • hich platforms have our customers purchased? W • hat entitlements does Company ABC have? W 2. Avoid manual handoffs. For most publishers an electronic license requires information from a. ow many licenses have they purchased versus H orders, such as the product or SKU number. what they have already installed? Manual handoffs between a publisher’s order b. hich products have they purchased that are W management system (i.e., their ERP/CRM still current on support and maintenance? application) and the licensing operations application should • hat activations has Company ABC received in the W be eliminated. Publishers must recognize that electronic last 12 months? licensing impacts several operational areas, including sales • hat license and entitlement changes has Company W operations, order entry/fulfillment operations, customer ABC done in the last 12 months (e.g., what is their list support and IT. A solution that automates any part of the of license returns)? license lifecycle process will touch those areas as well. 8. Future of Software Licensing Study”, IDC, 2004 “ 9. Future of Software Licensing Study”, IDC, 2004 “4 Flexera Software: FlexNet Operat ions White Paper Series
  5. 5. Five Best Pract ices For Streamlining Electronic Licensing Operat ions 1. Ensure “change-readiness” cost-effectively handle new packaging or pricing. 2. Avoid manual handoffs Packages ate Or ...with ERP/CRM systems. Cre de r/ 5. Track license ew En t en entitlement histories it le l l/ R a more granular level. Upse License Deliver/Install Lifecycle Mainta n/ Ui 3. Enable self-service pd at te ...for end-users and channels. e Ret t iva urn/ Ac Rehost 4. Make licensing invisible end-users.Figure 2: Five Best PracticesThis information is a goldmine for publishers—as they - The more we build out our homegrown app, the “plan upgrades and renewals, they can maximize those more it is costing us to maintain it as changesrevenues. They can also avoid support calls and costs for happen… changes to license models, upgradescustomers that did not pay to get support (i.e., “unentitled” to our ERP, changes to end-user-facing interfacescustomers). Customers benefit too, by knowing what they we have 2 FTE (full time equivalents) focused onhave installed and staying in compliance with their contracts maintaining our in-house system…”with publishers. —Office equipment manufacturer with $200M in gross revenuesTo Build or Buy…That is the Question • “Bad data, bad key” resulting from the poor integration The five best practices for operational excellence apply of the operational application with order managementwhether publishers or intelligent device manufacturers build systems. This often causes manual processes and error-their own operational application or buy one off-the-shelf. prone licenses, as the following anecdote highlights:So which is better: building or buying an application forlicensing processes? - Order entry person takes an order printout from “ SAP, looks up a paper license configurationNeedless to say, software publishers and intelligent device document to find list of features for productmanufacturers are experts in software development. (As and then enters feature list and machine seriala result, many might suspect that building an application number into the “License Editor” (homegrownin-house to support electronic licensing operations will application) to generate licenses…customers gobe easy.) However, the actual experience of publishers through the entire installation process assumingbuilding homegrown applications for managing the license the keys they received are correct. As they uselifecycle indicates that there are several pitfalls they have the product, they find they are missing features orencountered. These pitfalls frequently result from: components they paid for because their licenses • Underestimating changes to business and licensing are incorrect…” models. Every time a publisher goes through a merger —Large Medical Equipment Manufacturer or an acquisition, or wants to change their licensing, • Poor understanding of the license lifecycle. Once a they need to overhaul their operational systems. Ideally, license is generated, it takes on a life of its own. The you would want that flexibility built in to gain potential lifecycle includes activities such as replacing lost new revenues from flexibly pricing and packaging your licenses, processing license returns or rehosts, merging software. As the IDC survey cited earlier points out, or splitting of entitlements and facilitating upgrades license and business model changes are constant in the and renewals. Most homegrown solutions fail to software industry—as more publishers are finding out, anticipate and manage these types of changes that these changes can be very costly to operationalize. typify licenses and entitlements.Flexera Software: FlexNet Operat ions White Paper Series 5
  6. 6. Five Best Pract ices For Streamlining Electronic Licensing Operat ions Consider the examples below from large software - I struggle with four component keys with different “ producers that have built and maintained their own expiration dates located in four different places. operational applications: Whenever I launch the product, a portion of the - Customer license files are very large and “ product may not work because of an expired continue to grow. We regenerate the entire license…It is a real pain.” license file each time a customer install-base — ustomer of a leading enterprise software C record is touched or changed in any way (i.e., publisher new purchase, maintenance renewal, rehost, - Thirty percent of customer support calls pertain “ upsell or update). Customers have no way to to lost keys or customers that cannot find their easily identify exactly what changed or what is machine’s HOSTID” the difference between the “before” and “after” —Large server intelligent device manufacturer license file. We have no easy way to assist the • nability to identify upsell and renewal opportunities. I customer here.” Because publishers cannot track installed base license —Large publisher of Electronic Design and entitlement histories, they lack the ability to Automation software proactively identify upsell and renewal opportunities. As • oorly designed customer experience. Most publishers P it relates to support entitlements, poor tracking causes would not be in business if their products were as some customers to be denied support they are entitled to, poorly designed as their customer-facing licensing while other users may get support without paying for it. processes. Often, publishers make customers go - By scanning the spreadsheets I use, I could catch “ through multiple installations and keys with unintuitive a few customers here and there who are not user inputs such as HOSTIDs. Such problems are current on maintenance…But with 10-20 percent exacerbated for publishers that integrate products from of 50,000 customers being “problem” customers, other publishers in an OEM relationship or acquired as we require several thousand manual checks” part of a merger. —Inside Sales Manager of an enterprise software publisher Pitfall: Homegrown Best Practice: Operational Cost/ Empirical Cost/Benefit Data10 (where available) Approach 3rd Party Application Revenue Impact Homegrown Approach 3rd Party Application Underestimated license Ensure “change ready” Lost revenue due to 5–10% of gross profits Maximize revenues with business model applications inability to operationalize lost flexible pricing and changes licensing and packaging packaging changes IT costs to maintain 0.1–0.3% of gross IT costs can be reduced operational application revenues by more than 50% compared to homegrown. “Bad data, bad key” Avoid manual handoffs License generation 1%–2% of gross revenues Can be reduced to zero between orders, fulfillment costs depending on level of entitlements and licenses self-service and ERP/CRM integration Poor understanding of Ensure self-service for all Support costs for license $36/support call. Some Can be reduced license Lifecycle license lifecycle processes entitlement changes estimates claim over 30% significantly via end user of support calls pertain self service and “hands Poorly designed Make licensing invisible to changes such as lost free” activation customer experience to end-users keys, rehosts, splits/ merges etc. Inability to identify Track license Upsell renewal Revenues lost because of Proactive renewals and upsell and renewal entitlement history revenues poor tracking of installed upgrades would likely opportunities base increase renewal upgrade revenues by 5–10% Support cost avoidance Example in year 1, customer Can be reduced for unentitled users bought 3 products, dropped significantly by tracking support on 1 product in of the installed base at year 2. If that product gets the level of products and 3 support calls/year, each their versions. costing $500, then the publisher incurs $1500 in extra costs. Table 1: Summary comparison of homegrown vs. best-of-breed third party application 10. Source: Flexera Software estimates based on customer surveys: 6 McKinsey Co. SoftLetter. Flexera Software: FlexNet Operat ions White Paper Series
  7. 7. Five Best Pract ices For Streamlining Electronic Licensing Operat ions Revenues From New Packages Upsell Savings Revenues Renewal Bottom Line Revenues Impact Cost Savings IT Costs Reduced Costs Fulfillment Costs Costs Customer Support Costs (license entitlement changes) Best of breed Homegrown third party applicationFigure 3: Summary of cost savings and revenue increases from a best-of-breed license and entitlement management application - Customers admit that there is no way that they can “ Streamlining Electronic Licensing Operations at Nokia: be 100 percent compliant. Vendors estimate non- A Case Study compliance at 20 percent. This amounts to a $40B problem.” Nokia Business Systems is a division of Nokia that focuses on Internet infrastructure solutions. The division’s —IDC products were the first to use electronic licensing in Nokia Because of these pitfalls, in-house applications raise history. Because the division sells primarily through its operational costs and often fail to track upsells and channel partners, it was critical to account for channel renewals, resulting in lost revenues, as summarized in Table processes as part of streamlining licensing operations. 1 and Figure 3. Nokia has automated key license lifecycle processes Beyond these cost and revenue impacts, some other using Flexera Software’s FlexNet™ Operations: considerations when deciding whether to build or buy an operational application include: • End-user entitlements are created automatically from • oes maintaining your own solution detract from your D their orders in the SAP system core product development objectives? • Channel partners and end-users can self-serve evaluation and production licenses from the Nokia • hat are the risks of not completing an in-house W portal. They can also manage license changes— solution on time? What is the effect on product upgrades, downgrades, transfers and version ship dates, customer satisfaction, IT budgets and— updates from the Web. ultimately—overall profitability? • Customer installed base records in Nokia’s Vantive • s the system able to provide business owners with all I CRM application are updated with their licensing the data they need to make better business decisions? histories to enable tracking of upgrade and renewal opportunities In addition to the financial benefits, buying a proven license and entitlement management solution from a trusted Summarizing Nokia’s transition to electronic licensing, third party that incorporates the five best practices for Chandra Shekar, director business systems for Nokia, streamlining operations is the “safe” choice for publishers. says, “Thanks to the FlexNet platform, we’ve been able to create and enforce a license model that closely matches Conclusion how customers perceive the value of our products. Back To minimize the operational costs of electronic licensing, office systems and processes are also integrated into publishers and device manufacturers must create seamless the licensing lifecycle, enabling seamless, self-service- operational processes for license and entitlement based licensing operations.” Such “seamless, self-service- based licensing operations” allows Nokia to minimize management. They can best achieve this by selecting an operational costs while ensuring customer satisfaction. application from a trusted vendor that adheres to the five best practices for streamlining electronic licensing operations.Flexera Software: FlexNet Operat ions White Paper Series 7
  8. 8. Five Best Pract ices For Streamlining Electronic Licensing Operat ions For More Information FlexNet Operations provides a single entitlement tracking FlexNet Operations, part of the FlexNet Suite, is a key system that enables producers to quickly create versatile component of Flexera Software’s Entitlement Compliance product configurations, allows management of multiple Management Solution, enabling software producers and licensing technologies, provides a unified customer intelligent device manufacturers to increase revenues,reduce experience, and facilitates prompt revenue recognition. support costs, and simplify customer relationships. Appendix Glossary of Terms Term Definition Entitlement What the customer bought. Can be of three types: Product, Maintenance (right to updates of software such as patches, updates under maintenance), Support (right to call tech support) Entitlements specify the product, the quantity and duration plus related entitlements (e.g., product includes maintenance). Example, an entitlement might be for 10 copies of Product A, lasting for one year. Fulfillment Represents what the customer installed or redeemed against an entitlement. Activation Synonymous with fulfillment. HOSTID A unique identifier for an end-users machine- can be one or a combination of IP address, MAC address, Disk Serial Number and so on. License A license file enforced by the application. Rehost The process of moving a fulfillment (partially or fully) from one machine to another. A rehost does not change the quantity of unredeemed entitlements. A repair is a full re-host. Renewal Resets the date on an expiring entitlement. Return The process of banking a fulfillment (partially or fully) with the publisher, resulting in an increase in the unredeemed entitlements. Similar in spirit to a product return allowed by a retail store. SKU Stock Keeping Unit. A number that uniquely identifies an orderable product in an ERP system. Update A free upgrade from Product A to Product B assuming the customer is current on maintenance. Upsell A paid upgrade from Product A to Product B. Entitlement Transfers/ Entitlement Transfers: Customer ABC bought 10 licenses for Product A, which is since used by Splits/Merges Department 1 of ABC. Customer ABC wants to transfer the licenses to Department 2 because Department 1 no longer needs them, which is the process of transferring the entitlement from Department 1 to 2. Entitlement Splits: Channel partner EFG bought 100 licenses to Product A. They wish to sell 45 licenses to Company 1, 20 licenses to Company 2 and 35 licenses to Company 3. They would have to split their original entitlement to accomplish this. Entitlement Merges: Customer ABC bought 10 licenses for Product A. Customer XYZ bought 15 licenses to Product A. Customer ABC merges with Customer XYZ. Customer XYZ would like to consolidate their 25 entitlements to A under its own name, representing a merge of entitlements. Partial Fulfillments If an end customer buys 10 licenses from a publisher, partial fulfillment allows the end-user to fulfill these licenses in batches, up to the total number of licenses purchased. In addition to fulfilling individual licenses from the same order, vendors can allow partial license durations to be obtained from a single license. This feature allows an end user to check out a license for several days on one computer while other licenses are concurrently fulfilled on other computers. In effect, it enables a very secure form of license borrowing. Partial Returns and These are situations where an end-user wants to move, for example, 10 out of 100 licenses from Rehosts one machine to another (partial rehost) or return 15 of 40 licenses for a credit from publisher for other products (partial returns).8 Flexera Software: FlexNet Operat ions White Paper Series
  9. 9. Five Best Pract ices For Streamlining Electronic Licensing Operat ionsAbout Flexera SoftwareFlexera Software is the leading provider of strategicsolutions for Application Usage Management; solutionsdelivering continuous compliance, optimized usage andmaximized value to application producers and theircustomers. Flexera Software is trusted by more than 80,000customers that depend on our comprehensive solutions-from installation and licensing, entitlement and compliancemanagement to application readiness and enterprise licenseoptimization - to strategically manage application usageand achieve breakthrough results realized only through thesystems-level approach we provide. Flexera Software is aprivately-held company and an investment of private equityfirm Thoma Bravo, LLC. For more information, please go to:www.flexerasoftware.comFlexera Software: FlexNet Operat ions White Paper Series 9
  10. 10. Flexera Software, Inc. Schaumburg United Kingdom (Europe, Japan (Asia, For more office locations visit:1000 East Woodfield Road, (Global Headquarters): Middle East Headquarters): Pacific Headquarters): www.flexerasoftware.comSuite 400 +1 800-809-5659 +44 870-871-1111 +81 3-4360-8291Schaumburg, IL 60173 USA +44 870-873-6300© 2011 Flexera Software, Inc. and/or InstallShield Co. Inc. All other brand and product names mentioned herein may be the trademarks and registered trademarks of their respective owners. FNO_WP_Streamlining-Licensing_June11