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  • ENTERPRISES SEEK TO OPTIMIZE SOFTWARE LICENSING STRATEGIES Enterprise Applications Software Licensing refers to the available user based metrics, usage metrics, delivery and financing mechanisms, policies that impact the software lifecycle ownership experience, and software lifecycle costs related to the customer-vendor experience in procuring software. Enterprises are reevaluating their existing contracts because: Existing licenses do not accommodate new licensing metrics. On one hand, the software industry has been challenged to deliver simplified licensing metrics such as enterprise wide licenses. On the other hand, enterprises have asked vendors to model usage around business process or actual amounts of usage to avoid overpayment. New business models such as employee self service, supplier portals, non-employee users and application hosting require different licensing metrics around users and usage that may not have been originally accounted for. (See Figure 1.) Business is handicapped by a lack of flexibility in licensing policy. In many cases, language in existing contracts may prohibit the IT side of the house from making the necessary changes to accommodate business initiatives such as shared services, mergers and acquisitions, and outsourced operations. Questions arise as to how licenses are credited, combined, augmented, and reduced. Additionally, flat IT budgets are leading to instance consolidation and reduction in the number of vendor relationships. Vendors find themselves not only compelled to enforce policy to maintain margins, but also pressured to show flexibility in the software lifecycle ownership experience to win new business. (See Figure 2.) Current systems are nearing the end of their lifecycle. Many ERP systems were initially installed pre-Y2K and are coming upon replacement. [i] Enterprises learned harsh lessons as they paid for maintenance of unused licenses (i.e. shelfware), suffered undefined maintenance fee increases, and lost functionality credit for future releases. As companies begin their vendor selection processes, they are looking not to repeat the same mistakes. New licensing preferences are emerging. A recent Forrester survey of 100 business users and IT executives, asked, “How do you license your ERP software, and how would you like to license in the future?” 3 clear preferences emerged across all sizes of business including a shift away from single named user, shift from existing usage model to enterprise wide license, and a dislike of processor specific metrics. (See Figure 3) [i] The typical lifecycle for enterprise software ranges from 7 to 10 years. See the July 26, 2005, Tech Choices “Enterprises Software Licensing Strategies.”
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    1. 2. R “Ray” Wang Senior Analyst, Enterprise Applications Forrester Research, Inc. An Insider’s View on Software Licensing Trends for Enterprise Applications
    2. 3. Theme “ Companies seek a balance between simplicity and complexity of license metrics; and rigidity and flexibility of licensing policies that affect the overall software lifecycle experience.”
    3. 4. Agenda <ul><li>Market Forces </li></ul><ul><li>The Software Life Cycle </li></ul><ul><li>Enterprises Trends </li></ul><ul><li>Licensing Strategies </li></ul><ul><li>Software Licensing Trends </li></ul><ul><li>Recommendations </li></ul><ul><li>Questions and Answers </li></ul>
    4. 5. Market Forces
    5. 6. Market Forces <ul><li>Consolidating vendor market reduces choices </li></ul><ul><li>Instance consolidation creates reliance on vendors </li></ul><ul><li>Existing systems require immediate modernization or replacement </li></ul><ul><li>Improving market diminishes vendor discounts and incentives </li></ul>
    6. 7. The Software Lifecycle
    7. 8. Components Of The Software Life Cycle July 2005, Tech Choices “Enterprise Software Licensing Strategies”
    8. 9. Enterprise Trends
    9. 10. Enterprise Trends <ul><li>Existing licenses do not accommodate new licensing metrics. </li></ul><ul><li>Business is handicapped by a lack of flexibility in licensing policy </li></ul><ul><li>Current systems are nearing the end of their lifecycle. </li></ul><ul><li>New licensing preferences are emerging. </li></ul>
    10. 11. Trends in user based metrics
    11. 12. Trends in user based metrics
    12. 13. Trends in user based metrics
    13. 14. Trends in usage based metrics
    14. 15. Trends in usage based metrics
    15. 16. Trends in usage based metrics
    16. 17. Users dislike single named user
    17. 18. Users want enterprise-wide
    18. 19. Users dislike processor based metrics
    19. 20. Licensing Strategies
    20. 21. Strategies For The Software Life Cycle July 2005, Tech Choices “Enterprise Software Licensing Strategies”
    21. 22. Software Licensing Trends
    22. 23. Understand a Variety of Software Licensing Models Source: March 19, 2004 Trends “ The Future Of Software Pricing”
    23. 24. Average selling prices
    24. 25. Typical ASP pricing and options for SMB’s <ul><li>List price is usually the starting point for negotiations </li></ul><ul><ul><li>For 25 to 50 users: $150 to $250 / month </li></ul></ul><ul><ul><li>For 10 to 25 users: $400 to $600 / month </li></ul></ul><ul><li>Contract terms vary in length and options </li></ul><ul><ul><li>Usually begin negotiations at 5 years </li></ul></ul><ul><ul><li>Financing options exist for lease to own with 3 to 5 year terms </li></ul></ul>
    25. 26. Recommendations
    26. 27. Include Licensing Requirements In Your Vendor Selection Criteria <ul><li>Enter licensing discussions in parallel with vendor selection </li></ul><ul><li>Understand software usage </li></ul><ul><li>Engage verticals early to commit to delivery of vertical functionality </li></ul><ul><li>Leverage referenceability </li></ul><ul><li>Partner with the vendor </li></ul><ul><li>Focus on the total cost </li></ul>
    27. 28. Evaluate Vendors Using Some Key Criteria
    28. 29. Evaluate Vendors Using Some Key Criteria
    29. 30. Evaluate Vendors Using Some Key Criteria
    30. 31. Selected bibliography <ul><li>July 26, 2005, Tech Choices “Enterprise Software Licensing Strategies” </li></ul><ul><li>June 9, 2005, Market Overview, “ERP Applications – The Technology and Industry Battle Heats Up” </li></ul><ul><li>April 7, 2005, Market Overview “Midsize ERP Vendors Fend Off Newcomers” </li></ul><ul><li>April 19, 2005, Tech Choices “To Be or Not to Be Single Instance ERP” </li></ul>
    31. 32. Questions and Answers
    32. 33. Thank you R “Ray” Wang 408.327.4308 [email_address] Entire contents © 2005 Forrester Research, Inc. All rights reserved.