Back Office Requirements for Electronic Software Licensing


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Back Office Requirements for Electronic Software Licensing

  1. 1. WHITEPAPER Back Office Requirements for Electronic Software Licensing
  2. 2. Back Office Requirements for Electronic Software Licensing Overview When a software vendor takes advantage of software licensing to restrict unauthorized use of their product and enable more flexible licensing policies, a system needs to be in place to handle the license generation infrastructure. The systems that comprise a standard back office, such as financial, order entry and customer management are generally understood for most industries. There are several commercial offerings for these products that have common capabilities. This is not true for an electronic licensing back office. Due to the diverse requirements in an electronic licensing back office no common standards have been established to operate such a system. Licenses usually consist of a unique file or key tied to a computer identifier. A license generally needs to be generated from a set of information that includes the customer order, computer identification, licensing policies/ terms and a description of the software being licensed. The manner in which the licensing process is to be handled and the license distributed will depend upon the number of licenses generated by the software vendor, the complexity of the licensing policies selected and the ability of the software vendor’s customer to understand the licensing process. The following is a list of elements affecting the needs of a software vendor: • Number of license generators/technologies that need to be supported • Number of licenses generated • Business requirements for data collection • Software vendor and customer relationship • Computer skills and online connectivity of the end user • Software licensing policies • Self-service Web access to obtain licenses • Integrating licensing with software downloads • The software vendor’s Web page appearance • Integration with other back office systems • Use of distribution channels • Desire to outsource licensing tasks These elements are now discussed in more detail. Number of License Generators/Technologies that Need to be Supported When a software vendor is standardized on a single licensing technology, entitlement management is inherently simpler to address. However, for large software and hardware vendors, mergers and acquisitions are fairly routine. This leads to large vendors often needing to support multiple license generators and technologies. This results in a poor end-customer experience and high operational costs. A single entitlement management solution that can easily integrate multiple license key generators can solve this problem. Number of Licenses Generated Small numbers of licenses generated by a software vendor (say, fewer than five per month) can be well satisfied in the back office system with a simple spreadsheet or database tool. In this scenario, software license certificates are dispatched to the end user by methods such as fax or email. As the number of licenses increases, the software vendor incurs more record keeping and delivery issues. A more efficient solution is required. Back Office Requirements for Electronic Software Licensing Flexera Software: FLEXnet White Paper Series
  3. 3. Back Office Requirements for Electronic Software Licensing 3Flexera Software: Flexnet White Paper Series Business Requirements for Data Collection The back office system that handles software licenses tracks several pieces of valuable data that can be very powerful aids to making business decisions. Rather than collect reporting requirements after implementation of the licensing back office, a best practice for publishers is to include business owners and their data gathering requirements in the planning process. Data that business owners may like to collect from a licensing back office server include: For example: • On average, how long do customers wait before they activate a product? • Which platforms do customers use? • Which license models are most widely used? • Detailed entitlement history by customer…? A scalable back office system that has powerful reporting capabilities will be immensely valuable to the business. Vendor and Customer Relationship The manner in which the software vendor handles licensing, distribution and interaction with their customer base will vary considerably with the dollar value of their software. In the case of expensive software, the software vendor usually maintains a close relationship with the buyer. This relationship tends to affect the manner in which the software vendor implements licensing policies, such as having a desire to keep the customer happy under all circumstances and providing the ability for the customer to re-configure their software licensing any time there is a computer failure, without allowing the utilization of additional unlicensed copies. In such a case, the vendor may provide easy access for the end user to collect a temporary (short duration) license to cover the period of the failure. At the other end of the spectrum, we have the software vendor who issues hundreds or thousands of licenses a day, for relatively inexpensive software, to customers they cannot possibly know. In the case of high-volume/reasonably priced application software, the software vendor cannot deal directly with his or her customers to build a trusted relationship. Servicing, in cases of computer failures, and the customer need of utilizing other machines may require more liberal licensing policies. Experience shows that there are many “shades of gray” between the two extremes discussed above and so we end up with many different implementations of a back office system and licensing strategies. Some examples of these variations are: • Software vendors who sell a few orders of very expensive software. The installation of the software and training may be performed by vendor staff, who then installs the licenses • Hardware vendors with embedded software features (few licenses and high value) • Vendors with products costing a few thousand dollars where the delivery mechanism becomes the driving force behind a back office design Computer Skills of the End User Software licensing is steadily being incorporated into almost all areas of computing: the enterprise corporate installations, small companies, home office and domestic use. The use of software licensing has been accelerated with the increasing use of the PC, in particular computers using Microsoft software. No longer is software licensing confined to workstation environments where Unix was a dominant player. The end users of applications, controlled through the use of electronic software licenses, now range from the very sophisticated to the novice. The inexperienced end user may only have enough skills to run one or two basic software applications. These customers have to be handled very differently from customers that have information technology services in-house. Connectivity of the end user is also an issue – for users that may not be able to access the Internet or are behind a firewall, options to activate licenses by phone or via email must be provided. Software Licensing Policies When thinking about software licensing and the back office issues one has to consider the differences between generic policies and customer specific policies. The generic policies may be applicable in many situations, where customer specific policies will require a combination of generic policies combined with specific exceptions. See example 1.1 on page 2.
  4. 4. Back Office Requirements for Electronic Software Licensing 4 Flexera Software: FlexNet White Paper Series Self-Service Web Access The software vendor and customer both benefit from the ability to obtain licenses via the Internet. The vendor costs are reduced as the customer collects licenses and provides host computer identification. The customer may collect licenses as necessary and has the ability to retrieve the same license again if lost. The customer can collect a new license in an emergency or move the license to another machine through a re-hosting process. Separation of the license fulfillment process from order processing is mandatory for an efficient back office. Many orders are processed in the last weeks, days or hours of the quarter. Requiring order processing personnel to obtain the data required to fulfill licenses will both hinder a vendor’s ability to process orders and will lead to license re-hosting issues for the vendor and customer later on, as frequently the information provided will not be correct. Separating license fulfillment from order processing is hence crucial for both customer satisfaction and the vendor’s ability to minimize licensing related costs. Online self-service leads to better customer satisfaction when the interface is user friendly. It is important that the proper end user experience is designed consistent with the skills of the customer base and the complexity of the software vendor’s software applications. Such a complexity arises when the vendor is providing (at one time) a mixture of licenses that may be hosted on different computers. The customer may have the option to choose to take all or a limited number of products, as well as the option of having each product available in some quantity. A by-product of providing this service is that some software vendors are able to recognize the revenue for the application software as soon as the customer is provided the ability to get a license and not when the license is activated, provided that all other revenue recognition requirements have been met. This is valuable when the customer may have purchased several items on an order, but because they have not decided which computers all the software will reside on, cannot fulfill them all at the same time. Contact your accounting advisors for guidance regarding these issues. Demonstration and Evaluation Licenses The distribution of demonstrations or evaluations of the application software that is licensed can present another policy decision. An effective policy may be to make the application software available to unknown end users but require them to activate a license for its use. The software vendor can then collect the registration information of the potential customer, which provides quality sales leads. When this process is completed over the Internet without needing to contact customer support, the process is painless for both the vendor and the potential customer. Appearance of the Web Pages Whether or not the distribution of licenses is integrated with the download of the vendor’s software, the vendor needs to provide a Web experience that mimics the standard appearance of their commercial site. This generally means that their pages need to be sensitive to the licensing processes and the type of information that needs to be provided to and obtained from the end users. Generic Policies Customer Specific Policies How to license the application software product • Network licensing • Locked to one computer • Time limited • Unlimited for specified domain Scenario: A software vendor’s customer order consists of the purchase of multiple software applications products. After a time, some remain under maintenance while others do not, and only those on maintenance are entitled to an upgrade of the software and license. How to get the license on the end user’s network or computer Scenario: A company splits. Some licenses go with one division and some with another division. How to handle common policies: • License renewals • New licenses for product upgrades • Re-hosting of the license on another computer • Allow end user to retrieve a lost license. Scenario: One company is bought by another company and the license owner changes Example 1.1: Software Licensing Policies
  5. 5. Back Office Requirements for Electronic Software Licensing 5Flexera Software: Flexnet White Paper Series These Web pages need to provide a unified end user experience to connect to the vendor’s Web pages with single logon and password procedures. In addition to simply providing the license on demand the vendor needs to provide facilities for the end user to view their licensing entitlements, get another copy of the license in case of disk error on their computer, obtain license upgrades, etc. Integration With Other Back Office Systems Electronic Software Licenses are usually generated to fulfill an order from a customer or to make demonstration/ evaluation products available. When there is an order from a customer, the software vendor now has the customer details and may place this information into back office systems that handle these orders and their related financial processes. It may be necessary to use this same order information to generate software licenses. It is very unlikely that order processing systems in place are sensitive to the policies described above and whether the systems in place can provide the Web facilities and end user experience that are necessary. The consequence is that the policies, licensing generation and distribution of licenses need to be easily integrated with the existing order entry back office systems. Smaller software vendors, as well as some divisions of larger companies, may not wish to integrate into an order processing system, because they have no access to corporate systems or because they have no suitable system to integrate with. In this case the licensing back office has to be sensitive to the order information and may well act as the primary repository for the orders. When the numbers of licenses generated are small, the need for integration with order processing systems diminishes. Use of Distribution Channels When a software vendor uses channels for their software distribution, the licensing policies and the vendor’s back office need to be able to effectively support that distribution method. The software vendors may choose to provide unlimited copies of the application software to channels, but to control the process of license generation by issuing license certificates over the ISV’s own Web site. Normally the ISV would allow the channel to sell the software and provide them with a key for the end user to obtain the software license from a central point under the control of the software vendor. With this solution the ISV can still make it appear that the license comes from the channel through composition of the Web pages or allowing the channel to physically ship the license certificates. Outsource Licensing Tasks Increasingly software vendors are turning to companies to outsource their downloads of application software. For these software vendors, the opportunity exists to move the electronic license generation, management and distribution of licenses to the outsourcing channel who can better supply the 24/7 service needed. The determination of the licensing policies still rest with the software vendor but the day-to-day requirement to keep computers operational and to manage the electronic licensing back office systems is the responsibility of the contractor. The determination on whether this approach is suitable for a software publisher depends upon the size of the customer base, the scale of operations, and the available internal infrastructure. Summary We have addressed some, but not necessarily all of the issues that need to be considered by a software vendor when setting up a “back office: for license generation, tracking and delivery. Although one can find a common set of operations for a large proportion of software vendors, there any many unique requirements dictated by the manner in which the company determines the marketing and licensing policies of their applications and services. About Flexera Software 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:
  6. 6. 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 Australia (Asia, Pacific Headquarters): +61 3-9895-2000 For more office locations visit: Copyright © 2012 Flexera Software LLC. All other brand and product names mentioned herein may be the trademarks and registered trademarks of their respective owners. FNO_WP_Back-Office_June12