Vincent Smyth (Europe) - How to Approach Subscription Software License Models

Subscription software license models can offer a lower cost of entry for software vendor's customers. Vincent Smyth, general manager at Flexera, discusses the details of how best to utilise these licenses.

If you are a software vendor, a subscription license model can be an excellent addition to your product pricing portfolio. The subscription software license model can offer a lower cost of entry for your customer, making it more cash-flow friendly if they need to closely manage cash flow. It is often accounted as an operational expense rather than a capital budget item for the buyer, which may also be appealing to your customers who prefer this method of purchasing software (this is popular with engineering software where software license procurement is viewed as a project expense). And for the publisher, the subscription license model offers the promise of a more predictable annuity revenue stream. This is quite appealing to a CFO who can plan and budget more accurately with known revenue streams. Of course, the subscription license model isn't always a fit for all software in all markets.

However, there are cases where we find that a subscription license model is a perfect fit for the business, yet the software vendor is reluctant to adopt it. The argument I often hear can be paraphrased as..."Yes, it's the perfect model, but we can't have our software stop running because a license key expired. Our customer's business can't go down." This is a case of backward thinking - an inaccurate technology view of the subscription license model affects its adoption.

If the subscription license model is the right monetisation and customer-friendly model then it can and should be adopted. Next is the enforcement decision, which can be applied somewhat separately from the monetisation decision. It too is a business decision, and not a technology decision.

If your software is mission critical to your customer's business, and if you trust your customer, then your compliance (enforcement) philosophy should be to never stop the customers from running, but to monetise this over-usage when possible. An enforcement mechanism, such as a license manager, does not actually stop software from running. The license manager simply informs the software that the license has expired, and it is up to the business policy coded into the application that decides on what to do. There is an entire range of possibilities from simply messaging a customer that the software license has expired, all the way to the hard stop of an application. In fact, the business policy coded into the product can be designed to vary by a number of factors (mission criticality of product, product lifecycle, geographic region of sale, size of customer, etc.).

If your customer is running your software in a mission critical environment, then simply give them a message that their license has expired. And, be sure that the associated entitlement management systems are providing the business information that a license is about to expire so that a sales conversation can be arranged.

Subscription software license models are a great way to grow market share and increase customer satisfaction. If it makes sense, adopt the model, and tune the enforcement mechanism to align with your compliance philosophy.

By Vincent Smyth, General Manager (EMEA) at Flexera Software