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As we enter 2010, one trend in software license management that I believe will continue to grow in the next few years is the rise of usage-based models for software licensing. This is a trend being driven by enterprises and governments, but one that software vendors will need to track carefully in order to meet the expectations of their customers.

For years end-customers have licensed software based on projected needs, but have had no ability to actually reconcile those licenses (or oftware entitlements) with actual usage. The growing adoption of SaaS and subscription licensing models combined with the budgetary pressures brought on by the economic downturn have elevated the importance of usage-based models.

Flexera Software’s recently completed research study “2009 Software Pricing and Licensing Trends” sheds light on these trends:

• 61% of enterprise IT managers believe that tracking software usage is important or very important to reduce costs, minimize shelfware, and ensure software compliance
• Enterprises are increasingly using automated tools for license compliance tracking (62% up from 58% in 2008), but 35% still manually track or do not track compliance
• Currently, only 15% of software vendors surveyed offer a usage-based model, but by 2011, 36% expect to do so, making it one of the top three fastest growing licensing options
• While 58% of software vendors report monitoring customer software usage— 18% growth over 2008—the majority of these have only rudimentary tools to track usage with 28% using home grown tools and just 6% using robust third-party tools
• 34% of software vendors have no system in place or tools to determine what product/versions their customers are using

In the following video, I talk more about how as enterprises and governments seek to “buy what they need and use what they have”, the pressures on software vendors to implement usage-based software pricing models will continue to grow.

Do you think the availability of more usage-based software licensing models would benefit your organization? How do you think it will impact software license management in the next year or 18 months?

Randy Littleson is Senior Vice President, Marketing, at Flexera Software

As the New Year arrives and enterprises clarify their software license management goals for 2010, the overarching question is how to align the company’s software investment with the actual value delivered by the software. How can an organization be sure that it will only buy the software that will actually be used? And how can an enterprise be sure that perpetual licenses acquired in previous years will be sufficient to cover the ongoing needs of the organization?

One approach that could simplify this problem would be to acquire more subscription-based licenses. This could be an attractive alternative to perpetual licenses. With subscription licenses, planning and purchasing decisions could focus on a one-year horizon instead of a much longer time window. Indeed, industry observers predict that enterprises may begin to demand subscription offerings from their key software vendors.

For example, Jim Geisman of Software Pricing Partners gave the following advice to ISV’s:

“If you use perpetual licenses, the easiest place to take immediate action is there: Stop using these licenses. Offer shorter term-licenses (annual subscriptions) to new prospects instead. (You may also want to bundle support and maintenance with the subscription license fee.)”

Is there evidence that ISV’s are heeding this advice and creating more subscription offerings? The results from Flexera Software’s Pricing and Licensing Trends Survey from the previous three years paints an interesting picture. The following percentage of ISV’s reported that their primary offering to customers were subscription-based:

Even more interesting is the ISV’s prediction that their primary offering in two years will be subscription-based:

Apparently, in 2007 and 2008, software vendors anticipated they would significantly shift to subscription offerings by the end of 2010. However, by 2009, this shift had apparently not started. In fact, the self-reported projection is that the number of ISV’s offering primarily subscription-based licensing will remain even in 2011 at the historic levels of 30-35%.

Perhaps one reason that the expected shift to subscription pricing has not yet materialized is that ISV’s assume that subscription pricing is only suitable for on-demand offerings. I think this is unfortunate, since many options are available for ISV’s to license even on-premise software on a subscription basis. If ISV’s would consider this option, they might find a shorter path to satisfy enterprise customers who are closely optimizing their software investment.

While such enterprises may be looking for subscription offerings as a way to simplify their software license management process, it is quite possible that their wish will have to remain on hold for another few years. In the meantime, as enterprises set their software license management goals for 2010, they will probably need to continue looking for techniques to manage the challenging problems of perpetual software licenses.

Do you think that ISV’s should provide more subscription-based offerings? Do you think such offerings would help you better manage your software license investment? What impact would subscription offerings have on your software license management process?

Art Middlekauff is President of Engineering for Flexera Software’s enterprise license optimisation solution