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SoftSummit 2010 Key Trends Survey

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  • 1. 2010 Key Trends in Software Pricing & Licensing Survey Sponsored by Flexera Software LLC
  • 2. 2010 Key Trends in Software Pricing and Licensing Survey 2 2010 Key Trends in Software Pricing & Licensing Survey Sponsored by Flexera Software LLC Overview of Survey Findings The 2010 Key Trends in Software Pricing and Licensing Survey of 234 participants, prepared jointly with IDC, found that software vendors and their enterprise customers, increasingly challenged by the current economic downturn, are looking for better strategies to derive more value for their organizations through software licensing and pricing. While, not surprisingly, some of those strategies diverge between vendors and customers, many are complementary and serve to strengthen the positions of both. Some of the key findings include: Cloud Computing on the Rise The 2010 survey reveals that cloud computing is on the minds of software producers, who are planning on a significant market shift towards private and/or public cloud-based models. 60% of producers indicated that their licensing will need to adapt to the cloud over the next two years, and 30% expect that the change will be significant. Implicit in this trend will be the need for both producers and enterprises to manage the heightened complexity associated with cloud-based computing. For producers and high-tech manufacturers, this means more sophisticated entitlement and compliance management. For enterprises, this means more sophisticated software asset management and enterprise license optimization to ensure, among other things, continual compliance. Increased Emphasis on Usage The survey also reveals an increasing demand for more flexible licensing models, which in turn is going to fuel the demand for more sophisticated application usage tracking tools. For instance, 22% of producers currently offer usage-based pricing (up from 15% in 2009), and over the next two years 41% expect to offer usage-based pricing. In the midst of this shift, while 70% of enterprises report that tracking software license usage is important, one-third of the software producers that have or plan to have usage-based pricing do not track usage at all today – not even manually. Just over 50% that have or plan a usage-based pricing model in the next two years are offering tools to help their customers track application usage. For both producers and enterprises, the ability to track and understand current usage is a prerequisite to making an intelligent decision to migrate to a usage-based model. Thus, both sides will have to acquire better tools as this pricing model takes hold. Producers Still Lagging in Usage Tracking & Enforcement The 2010 survey indicates that despite the growing complexity of software licensing models and increased enforcement, producers are not adequately tracking software usage. 43% of Producers indicate that either they do not monitor software usage or they do not know if they do. Likewise, 13% of Producers indicate that
  • 3. 2010 Key Trends in Software Pricing and Licensing Survey 3 they still have not implemented any means of enforcement, although this number is a vast improvement over 2009 when 28% reported that they had no enforcement mechanisms. These numbers belie the growing importance of software compliance and speak to an absence of industry-wide standardization and automation of software usage tracking and enforcement. Preferred Enforcement Mechanisms Converging Given that software license enforcement is a necessary reality, the 2010 survey indicates a convergence of both producer’s and enterprise’s preferred enforcement mechanisms. Overwhelmingly, 66% of enterprises prefer network-based licensing enforcement, up from an already-strong 60% in 2009. Software producers are responding to this preference, with 46% now reporting that they use networking licensing (more than any other method), up from 28% last year. This enterprise desire matches the findings around trends towards more usage-based licensing models. Software Audits: A Growing Reality 13% of software producers report in 2010 that they use compliance team audits as an enforcement mechanism. While this number is low compared to other methods, including serial number checks (39%), product activation (36%) and dongles (24%), audits are on the rise. Last year only 3% of producers used audits as a compliance mechanism. Looking forward, 18% of producers expect the use of audits to increase over the next two years. This increase in audits, often initiated as a result of mergers and acquisitions, and changes in environment such as virtualization, while adding to the producers’ coffers can also add tension to the relationship between producer and customer. Tools that help producers and enterprises better track usage and ensure continual compliance would ultimately serve both parties more effectively by better identifying under- and over-utilization and spreading the costs to the parties actually using the licenses. Value Satisfaction – Is Value Equal to Price? Software producers and enterprises are largely in agreement that pricing models capture the value of the software. The survey asked enterprises to rate their satisfaction of pricing for database, middleware, ERP, CRM, engineering and desktop applications. Most respondents indicated they were largely satisfied. Enterprises were most satisfied with database software pricing -- with only 10% of respondents registering dissatisfaction; they were least satisfied with ERP software pricing, but not by a significantly higher amount -- only 20% registered dissatisfaction. 79% of software producers, likewise, said that their company’s pricing and licensing strategies captured the value of their software effectively. Notwithstanding current satisfaction levels, producers also understand that their customers want more choice in licensing models. Most producers are increasing the flexibility of licensing by adding more choice. They are doing this in order to generate more revenue (72%) and improve customer relations (69%).
  • 4. 2010 Key Trends in Software Pricing and Licensing Survey 4 Survey Background The 2010 Key trends in Software Pricing and Licensing survey was conducted by Flexera Software and IDC’s Software Pricing and Licensing Research division under the direction of Amy Konary. This annual research project looks at the software licensing, pricing and enforcement trends and best practices around the licensing of software. The survey reaches out to executives at software vendor firms, high-tech manufacturers and enterprise customers who use and manage software and devices. Now in its sixth year, the survey is previewed at the annual SoftSummit ® Conference and made available to the industry at large each year. Methodology and Sampling In total, 234 respondents participated in the survey, including 77 enterprise executives and 157 software vendor executives. Enterprise Demographics About one-half of the enterprise respondents were from larger enterprises of more than $500 million in revenues, and about a quarter were from companies between $100 - $500 million. 66% were from North America, 25% from Europe, 8% from Asia Pacific, and 1% from the Middle East. Where is your company or division headquartered?
  • 5. 2010 Key Trends in Software Pricing and Licensing Survey 5 Software Producers and High-Tech Manufacturer Demographics The largest proportion of software vendor respondents (34%) came from companies with under $10 million in revenues. The remainder of respondents were divided relatively equally across all revenue levels. 84% were from North America, 11% from Europe, 4% from Asia Pacific, and 1% each from Africa and the Middle East. Where is your company or division headquartered?
  • 6. 2010 Key Trends in Software Pricing and Licensing Survey 6 Individual Findings Pricing Flexibility and Value Growing Demand Amongst Enterprises for Usage-Based Pricing: The overwhelming majority of enterprises (59%) prefer concurrent user (floating/network) licensing. However, the demand for usage-based pricing models is growing significantly – 16% (up from 11% last year). What is the software pricing model you prefer for enterprise class applications?
  • 7. 2010 Key Trends in Software Pricing and Licensing Survey 7 Software Vendors Continue to Offer a Wider Variety of Software Pricing Models: While we saw fewer software vendors offering seat (named-user) (28%) and financial metric (revenue, cost, royalty) (5%) pricing models in 2010, on the whole, variety increased, with the largest growth in seat (per machine/server) (65%) and concurrent user (63%) licensing models. Producers, clearly responding to growing enterprise demand; saw usage based software licensing increase to 22% -- up from 15 percent last year. Gains were also seen in processor core pricing models. Over the coming two years, 41% of Producer’s expect to offer some sort of usage-based pricing. Which pricing models do you offer for your software today? (Select all that apply). Software that is priced per… Looking forward in the next two years, which pricing models do you expect to offer? (Select all that apply). Software that is priced per…
  • 8. 2010 Key Trends in Software Pricing and Licensing Survey 8 Revenue Generation & Customer Satisfaction Driving Changes: 39% of Producers have indicated that they have changed their pricing and licensing policies over the past two years to make them more flexible. Overwhelmingly, the two reasons for this shift have been to generate more revenue (54%) and improve customer relations (50%). Generate more revenue Improve relations with customer Accelerates the sales cycle Free R&D resources Decrease development cost Not applicable Other (please specify) Both Enterprises and Producers Are Largely Satisfied with Current Pricing Models: The survey asked enterprises to rate their satisfaction of pricing for database, middleware, ERP, CRM, engineering and desktop applications. Most respondents indicated they were anywhere from neutral to highly satisfied. They were most satisfied with database software pricing -- with only 10% of respondents registering dissatisfaction; they were least satisfied with ERP software pricing, but not by a significantly higher amount -- only 20% registered dissatisfaction. If you answered yes to question 11, did providing more flexible licensing and pricing policies help the company (Select all that apply):
  • 9. 2010 Key Trends in Software Pricing and Licensing Survey 9 Database Middleware ERP CRM Engineering /Technical Applications Desktop Applications Likewise 79% of software Producers said that their companies’ pricing and licensing strategies captured the value of their software effectively. . How would you rate the overall effectiveness of your company’s pricing and licensing strategies in capturing the value that your software provides to customers? How would you rate your level of satisfaction with the value received for the price from the following types of software? (Please rate all that apply.)
  • 10. 2010 Key Trends in Software Pricing and Licensing Survey 10 Software Usage, Delivery and Enforcement Cloud Computing on the Rise: Cloud computing is on the minds of software producers, who are planning on a significant market shift towards private and/or public cloud-based models. 60% of producers indicated that their licensing will need to adapt to the cloud over the next two years, and 30% expect that the change will be significant. Please rate the level of your agreement with the following statement (enter a number between 1 and 4 with 1=stay the same/no change; 4= change dramatically): In the next 24 months, my company’s current licensing strategy will need to change in order to adapt to the requirements of cloud computing.
  • 11. 2010 Key Trends in Software Pricing and Licensing Survey 11 Subscription Software Licensing Models Continue to Grow While perpetual licensing models continue to dominate, Producers report an increased percentage of their revenues associated with subscription models – 85% in 2010 compared to 79% in 2009. Producers expect that percentage to grow over the next two years to 88%. Thinking of your total software license revenue, what percentage is associated with the following license types? Looking forward in the next two years, what percentage of your total software license revenue will be associated with the following?
  • 12. 2010 Key Trends in Software Pricing and Licensing Survey 12 Disconnect in the Enterprise Between Confidence and Compliance: 85% of enterprises responded that if audited, they are at least somewhat confident that they are in compliance with all of their software license agreements. However, when pressed, that confidence is not justified. 53% of enterprises also responded that at least some of their software license spend is associated with applications that are overused and therefore out of compliance. 85% responded that at least some of their software license spend is associated with under-used software, or shelfware. If you were audited by a vendor or a third party today, how confident are you that your company would be in total compliance with all of your licenses? What percentage of software license spend within your organization do you estimate is associated with applications that are over-used and therefore out of compliance?
  • 13. 2010 Key Trends in Software Pricing and Licensing Survey 13 Many Software Producers Still Don’t Track Customer Usage While the percentage has declined over 2009, a surprisingly high number of Producers, 35% in 2010 versus 43% in 2009, still do not monitor software usage, and 7% do not know whether or not they monitor usage. How do you primarily monitor your customers’ software usage? What percentage of software license spend within your organization do you estimate is associated with applications that are under-used and therefore over-licensed (i.e., shelfware)?
  • 14. 2010 Key Trends in Software Pricing and Licensing Survey 14 Enterprises Use a Variety of Tracking Methods 71% of enterprises agree that tracking software license usage is important. However they use a variety of methods to do so, including Software Asset Management software (32%), homegrown systems (18%), vendor-provided software (9%), and manual methods (9%). 4% of enterprises say they do not currently track usage. Reducing software costs and ensuring compliance are the two most oft-cited reasons for tracking usage. More than a quarter of enterprises are dissatisfied with their current software license usage tracking model. How do you primarily perform tracking and reporting of your software license usage today? (check only one) If you are currently tracking your software license usage, what is the most important reason for doing so? (check only one)
  • 15. 2010 Key Trends in Software Pricing and Licensing Survey 15 If you are currently tracking your software license usage, how satisfied are you with the current method?
  • 16. 2010 Key Trends in Software Pricing and Licensing Survey 16 Compliance Audits Soar While network licensing, local serial number checks and product activation continue to be ISV’s preferred method of enforcement, use of compliance audit teams have risen nearly fourfold, up to 13% in 2010 compared to 3% in 2009. This trend will continue over the next two years as 18% of Producers predict that their use of compliance audits will increase. None Serial # check locally Dongle USB Key Product Activation (Internet) Network Licensing (LAN) Compliance audit team that visits customers None Serial # check locally Dongle USB Key Product Activation (Internet) Network Licensing (LAN) Compliance audit team that visits customers Projecting ahead 2 years, do you see your company’s use of each type of enforcement as increasing, decreasing, staying the same, or not using?
  • 17. 2010 Key Trends in Software Pricing and Licensing Survey 17 Enterprises Would Prefer Enforcement via Network Licensing 66% of enterprises would prefer network licensing enforcement of their software license – software activated by an internally shared license. Lesser-preferred methods include product activation, vendor-supplied monitoring with annual true-up, and, of course, compliance audits. Dongles and locally-checked serial numbers were the least preferred enforcement mechanism. If a software vendor gave you a choice, which of the following means of software license enforcement would you prefer most? (check only one)
  • 18. 2010 Key Trends in Software Pricing and Licensing Survey 18 Lack of Automation Stymies Usage Tracking in Enterprises Enterprises said that for compliance purposes, tracking usage of Middleware, ERP and CRM software is the most difficult. They most frequently (46%) cite lack of automated tracking mechanisms as the reason. Database Middleware ERP CRM Desktop Applications For which types of software in your environment is it difficult to track usage for compliance management? If you checked “difficult” or “very difficult” to any software type in Question 12, what is the primary reason why? Engineering/ Technical Applications
  • 19. 2010 Key Trends in Software Pricing and Licensing Survey 19 Most Producers, However, Believe Their Customers Understand Their Entitlements: 62% of Producers believe their customers understand what products they are entitled to use. The methods Producers attribute to their customers’ entitlement management varies from use of tools to manual tracking. However, a large percentage (27%) of Producers don’t know what their customers use. Do you believe your customers know what products they are entitled to use and what they are actually using? What do you believe is the primary way your customers manage their entitlements today?
  • 20. 2010 Key Trends in Software Pricing and Licensing Survey 20 Many Producers, Still Lacking Automation to Monitor Customer Usage, See the Need to Adopt Better Tools: 43% of Producers say they either do not have technology in place that enables them to know what product, product version or platform their customers are using – or they simply do not know. Not surprisingly, given this figure, 46% of these Producers say that over the coming year they will need to deploy technologies that better track licensing, and 40% say they will need to deploy better enforcement technologies . Yes No Do not know Do you have technology in place that enables you to know what product, product versions or platforms your customers are using? In the next year, in what ways will your licensing strategy need to change (check all that apply)?
  • 21. 2010 Key Trends in Software Pricing and Licensing Survey 21 Vendors and Customers Prefer Electronic Software Delivery Not surprisingly, electronic delivery for software media and documentation is overwhelmingly the preference of both enterprises (83%) and Producers (62%), up significantly from 2009, when only 47% of Enterprises and 55% of Producers preferred this delivery method. Producers site cost reduction and customer satisfaction and loyalty as the reasons for their preference. Looking forward, how would you best describe your primary software delivery strategy 1 year from now? How would you best describe your preferences for software delivery? (pick one)
  • 22. 2010 Key Trends in Software Pricing and Licensing Survey 22 Do not plan on adopting an ESD solution Cost reduction Customer satisfaction and loyalty Opportunity to drive revenues SOFTWARE LICENSING AND PROVISIONING RESEARCH AT IDC IDC's global Software Licensing and Provisioning research practice is directed by Amy Konary. In this role, Ms. Konary is responsible for providing coverage of software go-to-market trends including volume license programs, evolving license models, global price management, and licensing technologies through market analysis, research and consulting. In her coverage of software maintenance, subscription, electronic software distribution and licensing technologies, Ms. Konary has been instrumental in forecasting future market size and growth. Ms. Konary was also the lead analyst for IDC's coverage of software as a service (SaaS) for eight years prior to focusing exclusively on pricing, licensing, and delivery. For more information about IDC, please see www.idc.com ABOUT FLEXERA SOFTWARE LLC Flexera Software is the leading provider of strategic solutions for Application Usage Management; solutions delivering continuous compliance, optimized usage and maximized value to application producers and their customers. Flexera Software is trusted by more than 80,000 customers that depend on our comprehensive solutions- from installation and licensing, entitlement and compliance management to application readiness and enterprise license optimization - to strategically manage application usage and achieve breakthrough results realized only through the systems-level approach we provide. For more information, please go to: http://www.flexerasoftware.com
  • 23. Copyright © 2011 Flexera Software LLC. All other brand and product names mentioned herein may be the trademarks and registered trademarks of their respective owners. FX_2010KeyTrendsSurvey_Oct11 Flexera Software LLC 1000 East Woodfield Road, Suite 400 Schaumburg, IL 60173 USA Schaumburg (Global Headquarters), +1 800-809-5659 United Kingdom (Europe, Middle East Headquarters): +44 870-871-1111 +44 870-873-6300 Japan (Asia, Pacific Headquarters): +81 3-4360-8291 For more locations visit: www.flexerasoftware.com

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