the new look of software monetization · cloud-idc expects cloud software will grow to $67.3...
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The New Look of Software Monetization
Copyright 2012 IDC. Reproduction is forbidden unless authorized. All rights reserved.
Amy Konary
VP, Software Licensing and Provisioning
IDC
The Business of Software in 4 Easy StepsThe Business of Software in 4 Easy Steps
Step 1: Make a Killer ProductStep 2: Drive down Marginal CostsStep 3: Sell as many Units as PossibleStep 4: Repeat Steps 1-3
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Step 4: Repeat Steps 1-3
Result? The software industry is loaded with products
that are feature-rich but experience-poor
1. Monetization Shift: Pricing, Packaging, and Plans no Longer an Afterthought1. Monetization Shift: Pricing, Packaging, and Plans no Longer an Afterthought
� As business strategy changes, pricing strategy should also
� Usage, Freemium, Trials, Promotions
� Transparency! Don’t hide your
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� Transparency! Don’t hide your pricing page, or require a conversation with the prospect to explain your framework
� It can’t take “forever” to get pricing done
Pricing, Packaging, Plans Enable…(or Disable)Pricing, Packaging, Plans Enable…(or Disable)
�Mobile access -> 3:1 device to user ratio
�BYOD-> 40.7% of devices used by information workers to access business applications are ones they own themselves
�Virtualization-> VM software is becoming less of a standalone product but rather a foundational layer embedded
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standalone product but rather a foundational layer embedded into larger solutions
�Cloud- IDC expects cloud software will grow to $67.3 billion by 2016 at a compound annual growth rate (CAGR) of 24%
�Marketplace Ecosystems- by 2014, 30% of net new business software purchases will be made through an online marketplace operated by an ISV or 3rd party
2. Monetization Shift: Experience/Relationship2. Monetization Shift: Experience/Relationship
� Features and functions are only part of the experience
� Key: Build Substantive Relationships; Monetize the Relationship
SUBSCRIPTION
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� Transparency and Communication
� Commitment to doing what is right for the customer, even if it means a smaller deal size
Relationship Status: “It’s Complicated”
Total Software Revenue Mix, 2007-2015Total Software Revenue Mix, 2007-2015
300,000
350,000
400,000
450,000
500,000
Subscription
18% CAGR
$M
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0
50,000
100,000
150,000
200,000
250,000
300,000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Subscription
Maintenance
License
4% CAGR
5% CAGR
Source: IDC, 2012
Subscription Highlights
�57% of the top 100 software vendors worldwide by revenue had subscription revenue in 2012.
�For 16% of the top 100 software vendors worldwide, subscription represents greater
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Source: IDC, 2012
worldwide, subscription represents greater than 50% of total software revenue.
�For the top 25 software companies (with subscription), subscription revenue grew an average of 17% from 2010 to 2011
Subscription/Recurring Revenue Models: The Nuts and BoltsSubscription/Recurring Revenue Models: The Nuts and Bolts
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� Traditional ERP and billing systems are probably not up to the task of supporting a subscription business
– May be able to handle this with Scotch Tape and rubber bands early on, but as business scales this becomes a major problem
3. Monetization Shift: Usage3. Monetization Shift: Usage
�More efficient use of services/things�Cost scales up or down depending on resource utilization�Can be implemented
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�Can be implemented alongside other models
Pay close attention to:�Complexity�Metrics that make sense�Tracking
4. Monetization Shift: Flexibility and Control4. Monetization Shift: Flexibility and Control
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“Pricing Science Project”“Pricing Science Project”
DEFINE
IMPLEMENTITERATE
�What are you trying to do?�“2 months free for new
customers”
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IMPLEMENT
MEASURE
ITERATE
�Analyze� “Huge bubble of
new accounts, but
significant increase
in churn.”
�Product Plans�Entitlements�Marketing
�Conversion�Churn Rate�Revenue
”It’s all about putting number
on the wall and your setting
goals and checking back on it.”
5. Monetization Shift: The Customer Experience5. Monetization Shift: The Customer Experience
“…the (software producer) scares the hell out of us. They use what I would term strategic ambiguity. The company's Web site says that for further pricing information contact your reseller. You do this and get one answer. Then you go to another person
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You do this and get one answer. Then you go to another person and get another answer.
"I just want to know how much it costs and what type of license I need, and I get a different answer from everyone
that I ask. It's not straightforward.“
"This (complexity) has gone from ridiculous to just plain stupid on the part of (the software producer). This does not encourage me
to spend more with the company."
The Customer JourneyThe Customer Journey
Customer Experience: a complex mix of technology, information, access and devices, people and strategy, and process.
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Create a flow that is planned and architected in a manner that makes the interactions throughout the customer's journey as easy, quick, transparent, positive, and full featured as possible.
Customer Journey MapCustomer Journey Map
Awareness Engagement Purchase Use
Renew, Retire, or Upgrade
Activities What might it cost? How do I buy?
Talk withsales, references.
Negotiation Activate, manage/track usage
Collect intelligence. Conduct assessment
Motivations Compare and prepare
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prepare
Feelings Over-whelmedConfused
Questions How much? How do? Can I? Do we?
Barriers Complexity. Lack of transparency
Ambiguity, complexity. Inconsistency.
Customer focus on discount %
Lack of tools. Complexity.
Lack of usageinfo. Staff turnover.
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ConclusionConclusion
�Pricing, Packaging, Plans no Longer an Afterthought
�Subscription Continues to Trend
�Usage-Based Pricing (or at least Intelligence)
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�Usage-Based Pricing (or at least Intelligence) Continues to Trend
�Tracking, Management, and Control More Important Than Ever
�Customer Experience Has Moved to the Forefront
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