What is the future of software? (and what does it mean for SAM?)
Office for iPad has already moved to the freemium/premium model, with users paying only for consumption
What does the future hold for software? How will it be delivered, how will it be priced, and will we ever be able to move to a usage-based pricing model?
In my opinion, all enterprise software will eventually move from the perpetual/device licensing model that is common today, to a user-centric subscription model where you pay based on content consumption and application utilisation. This is a view echoed by Vito Forte, CIO at Fortescue Metals Group, “Applications will become the portal to content enablement.” Applications will effectively become portals to your content – where users pay to access their content on the applications, but do not pay for the applications themselves.
Many major vendors have already started to move in this direction, but there is still a long way to go. The perpetual business model will take time to change. Pip Marlow, MD of Microsoft Australia, sees the same future for software pricing. She suggested that the freemium/premium model, and paying by consumption, will eventually prevail. Microsoft is already moving in this direction. Take the recently announced Office for iPad as an example. While the apps themselves are free to download, the ‘free’ functionality is limited to reading and presenting documents. An Office 365 account is required to unlock any of the applications’ document editing capabilities.
The subscription model is a sensible approach going forward, as it helps organisations to pay for the software they use, or even for the specific features of that software. Think along the lines of an app store for the enterprise – organisations can pay for the capability and content of the apps they need, but only when they need them. This model helps software publishers too. As Vito suggests, the subscription model helps to tie customers into a vendor’s ecosystem (think of the close tie up that Apple has between its hardware products, online stores and subscription services).
The SAM conundrum
While the new model will help to improve cash flow for both vendors and their customers, in its current form it still falls short of solving one of the fundamental software management challenges prevalent today – effective software asset metering and usage/consumption reporting. Those applications which have already moved to the subscription model (such as Office 365 and Adobe Creative Cloud) are still notoriously difficult to inventory or monitor usage. While purchasing a new subscription is straightforward, it is still very difficult to see how each subscription is being used (or whether it is being used at all). Log into your Office 365 admin console for example and you’ll see what I mean. You can purchase more licences, but you can’t see whether each license is being used, who’s using it, how many devices they’ve installed Office on etc. Despite this progress in licensing, metering remains as challenging as it always has been.
If software publishers overwhelmingly move to this pricing model, they must put metering and usage features into their software delivery mechanisms. After all, how can you charge your customers by usage if you have no means to monitor it yourself?! Publishers can do their part by putting metering features into their admin consoles, and SAM vendors can build tools to aggregate this data across all applications and vendors.
According to Vito, the trick is how quickly and simply vendors are able to break away from their perpetual licencing models. The first vendor to master this will win. Think of how quickly Workday has been able to disrupt SAP. If a vendor can build a platform that allows its customers to effectively pay by consumption, matched with reliable mechanisms for tracking and reporting how the software is used, then they will have a significant first-mover advantage. While subscription software increases flexibility and allows you to more easily true down/true up to match your needs, software usage and deployment management remains the big gap.
We’re still a long way off achieving the usage-based payments model that Mathieu Baissac of Flexera Software recently talked about when he talked about a world without software audits (see this recent article in the IBSMA). But shouldn’t that be everyone’s objective? Audits are a pain for everyone. Paying by subscription is the first step towards banishing audits altogether. If software publishers and SAM vendors can build effective monitoring tools, then we’ll be well on our way to eliminating audits altogether.
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About Filipa Preston
Founder of Software Optimisation Services, a global IT and Software Asset Management (SAM) consulting practice.
Filipa is currently the only SAM professional outside of Europe to have been independently assessed and verified by KPMG for her professional and thorough approach to software licence compliance projects. She is also one of only two IAITAM certified CITAM professionals in Australia. In addition she is a Microsoft Certified Professional (MCP 2.0) and IBSMA ISO 19770-1 PCSAM professional.
I recall reading a number of articles about 10 years ago hyping up the anticipated growth with Microsoft Subscription and Software Assurance. 10 years on and it is clear that the hype, perpetuated by the vendor, did not quite mirror the anticipated growth.
Nobody would disagree that we are seeing a re-balance between on-premise Perpetual and off-premise Cloud / other Subscription software offerings; however, given the ‘Cloud’ hype over the past 5 years, how long do you expect this Cloud adoption to ‘eventually’ take given the relatively small number of companies that have adopted it so far?
Would it not be more accurate to state that the adoption of the Cloud may increase to a point that it dominates the software market and also that this is only likely happen once the vendors pull the plug with some or all of its Perpetual on-premise offerings? In my opinion, we will continue to see a slow adoption of the Cloud and a re-balancing of the software market rather than a complete move away from on-premise.
Given the reduced cost and reduced risk still associated with on-premise software, I cannot see a natural monopolisation of Cloud any time soon – until these issues are overcome, businesses will not experience the Cloud benefits being marketed by the vendors and whilst there is movement to the Cloud, we are also seeing movement of clients back from Cloud to Perpetual following poor experiences – it’s not all one-way traffic.
Thank you for this interesting article, Filipa. You are absolutely right about the Office365 plans with no local installations – and maybe the future of software.
So, is it really a shift to user licensing and not maybe allowing more options.
Many Office365 plans as well as Adobe’s CC allow download, installation and usage of software locally. Adobe has not changed their license model from device to user – besides if you ask for and get a special contract and that is not new as well. So, imho today even with Adobe CC and Office365 we still are talking about onsite installations.
Absolutely, the most important change with Office365 is the change from device to user licensing and for many this is a good move. With local installations you still can monitor if you like as you can with Adobe CC software.
Imho the move to user licensing is always worth a second look and will make organizations go for it but the whole NSA etc. discussion will not make cloud usage an instant priority – and look at the US court where Microsoft just got ordered to hand over emails stored in Europe. What I see in IT environments of our larger customers is more security, more processes and policies, more digging for in-house saving potential (like monitoring usage) but less thinking about cloud.
Noel, more and more rights are shifted to SA. Try to run SQL Server in a virtualized environment with no SA. Server licensing now is different compared to the situation 10 years ago.
Not everybody will like it but I think you are right about the cloud.
Hi Filipa:
I think that we will all be hard pressed to see a world in future where all software and patented technology is completely subscription based. My personal opinion is that we will continue to circle on this journey and see perpetual licensing continue to transition between this and subscription and cloud based options and back again. I think Option is the main word to think about here.
Software and other important IP used in technology needs to be flexibly licensed in order to meet the various business demands/social needs of a company’s customer/end user.
In a lot of cases software publishers are pushing customers to subscription models when they don’t always see the benefit. If I have software and it works for me why change it? Especially in a device that isn’t very intelligent. I am intrigued by the move towards the IoT but do we need everything to be intelligent at some level and connected to the Internet?
The most important aspect of the licensing practises of any software publisher is that their business model needs to be unambiguous and manageable. As you rightly point out in your article metering of usage by the publisher must be inherent in the product design or distribution model. Measuring and justifying use without such tools will be (and is) practically impossible today without great customer policies and processes in place. Publisher audits are on the rise and this is one of the reasons why.
A related trend in the industry today is the ‘All You Can Eat’ model. Here customers and publishers alike agree to some fundamental measurement of usage and the customer “bulk-buys” licenses to meet their need over some timeframe with minimal or no metering involved. The notion of a true up exists in these models but again is tricky to implement accurately without good tools. In most cases audits are a built in failsafe for most publishers. So in many cases a large cash payment essentially entitles the customer to not worry about counting.
Most cloud based/subscription scenarios are driven by the expectation of most devices being tethered to the internet. Many still aren’t and many will never be.
Another reason for the rise in subscription models is the corresponding decline in software quality driven by a couple of factors: a) time to market demands on engineers & b) software complexity. I am not saying engineers are bad developers, however so much software is stitched together today from many sources that it is almost impossible to test completely. The result is that the customer becomes an extension of the QA department and when problems are discovered they want the fixes in real time. By implementing a subscription model with unlimited updates its easy for publishers to evolve software features quickly and provide repairs almost on the fly (particularly with cloud based products). As you know Microsoft is often criticised for releasing products too early and it is no surprise to me that they are driving the 360 program with vigour! Consumers on many mission critical applications will not see much benefit from subscription models if they are applied for this purpose as they will be savvy to quality issues and look for SLA and performance guarantees with penalties if they are smart.
Back in “the good old days of computing” the cloud was provided by the mainframe. I remember costs for the mainframe being allocated on a time basis or job basis (how long your punch card deck took to load and eventually run as one of many batch jobs). The archetypal subscription model.
As technology progressed complexity and usage needs drove us to client server models and the need for self contained instances of applications on our device tops. This helped with mobility (untethered use) and removed us from the dependency of CPU cycles being consumed in a shared environment. Licensing evolved to perpetual.
Now we are circling back to the mainframe models in a virtual environment and I am sure we will continue the journey round as long as it helps grow business and satisfy customer requirements.
Hi,
Can you please help me to learn more on SAM