Much Ado About Pricing
The software industry is going through much turmoil over licensing versus subscription, concurrent user versus named user, maintenance fees versus not, per processor …
A survey from Macrovision shows how Enterprises prefer to buy software (64% prefer perpetual licenses, versus 36% subscription). Surprisingly, they still prefer Perpetual License models, as opposed to Subscriptions, although all trends indicate that in the long run, software will be sold as a service, and an on-demand, Software as a Utility model will prevail, as championed by Salesforce.com and Webex.
Granted, this will be true ONLY for a certain class of applications, not all, and the demise of software altogether, I do not think is a given - no matter how much Marc Benioff rants about it. To Mr. Benioff’s credit, he has chosen an application that can indeed be served as a Utility, and has therefore successfully disrupted the existing world-order that had Siebel as the reigning champion.
While it is simpler to resolve the Utility versus License alternative, it is more subtle to resolve the License versus Subscription debate. Some segments of the software industry have effectively painted themselves into a corner by offering Flexible Subscriptions to their entire product portfolios, the Electronic Design Automation (EDA) industry being a prime example. Flexible Subscription can only work in the case of a monopoly, but in any other situation, it hands over the entire negotiating power to the customer, and triggers a negative spiral of price erosion that is singularly undesirable.
At the next level of detail, Enterprises still prefer a Concurrent User pricing model (42%), with floating licenses that can be used flexibly, across the team. Only 9% care about CPU-based pricing.
In an article in CNET, David Znidarsic vice president of technology for Macrovision explores the complexity of per-CPU pricing in light of the emerging multi-core processor trends: “For years, enterprise software has been sold on a per-CPU basis. The process was simple, easy-to-track and made sense for both vendors and users. But now a rapidly emerging technology called the multicore processor is fundamentally changing the way computers interact with software. This change is adding multiple layers of complexity to the once-simple per-CPU model and forcing software companies to re-evaluate the way they are licensing their products.”
But does it matter, if less than 10% of customers buy in the per-CPU model, and the number is likely to decline further, trending towards Zero? It does, because for certain segments of the industry, this pricing model will continue to dominate, a case in point being the Database business.
The diversity in pricing models is likely to be a lasting phenomenon, thus, continuing to need attention from product marketeers. It is simplistic to state that all software will convert to service.
