ISVs In Denial About Software Licensing

“The only constant. . . is change.” That cliché is enough to induce a vigorous eye roll from hardened IT pros, but it’s actually apropos for the IT industry, which feeds off disruption like the Kardashians feed on media attention. Now, a pair of new studies indicate a large number of software vendors are ill equipped to handle the current round of cloud- and mobile-induced IT chaos.

The rise of powerful smartphones and tablets has eliminated the need to have a Windows PC or laptop to access many enterprise software applications. That’s a huge win for enterprise software users and productivity in general. But it raises a number of tricky questions, including how best to manage and secure data in BYOD environment. It also raises questions about software licensing.

In its State of Software Monetization Report, software monetization software provider Gemalto asked 780 decision makers (including enterprise software users and software vendors) about software packaging and licensing issues. The results are not pretty if you’re a fan of stability, but are great news if you pray to the gods of market disruption.

According to the study, 83 percent of survey respondents said having flexible software packaging and access to software across multiple devices was “extremely important.” However, there’s a mismatch between what users want and what the producers can actually deliver. About 40 percent of the ISVs in the study said they “find it difficult” supporting and licensing their software on multiple devices.

ISVs are too rigid in their licensing and packaging options, and aren’t meeting the expectations of enterprise software users, the company says. “The way that software is consumed is changing–whether users only want certain features, to use it on the device of their choice, or only want to pay for what they use,” said Shlomo Weiss, senior vice president of software monetization at Gemalto, which is based in Amsterdam.

So what does today’s enterprise software user want? According to Gemalto, they want online software delivery, metered usage, and device-agnostic licensing. Instead, what they often get are complicated enterprise and site licenses (which complicates running in the cloud); restrictive and complex user licensing schemes; and additional fees for accessing software on a tablet or a phone.

It would appear that most ISVs want to give users what they want, but are unable to do so, for whatever reason. Three-quarters of the ISV respondents agreed that, if their company is to be successful, their software needs to be “future proof.”

In the meantime, ISVs are grappling with their own pet peeves. According to the study, nearly 70 percent of ISVs find it difficult to get visibility into how their software is being used. Nearly nine in 10 ISVs report being frustrated by the cost of renewing and managing licenses, while more than 80 percent lament the time and money spent on projects that aren’t related to product development.

Nobody likes being audited, but it would appear to be a necessary evil in a world where even harmless looking grannies secretly can be ruthless software pirates. The percentage of ISVs worried about unlicensed use of their software ticked up from about 75 percent to 80 percent over the past three years in Gemalto’s study. (The open source software movement, which shows no signs of slowing down, undoubtedly has much to do with this.)

Similar findings can be found in another report from Flexera Software, which, like Gemalto, develops software that automates software usage and monetization. Flexera accuses ISVs of being in denial about the changing climate around business software in its new study, titled Are Application Producers In ‘Climate Change’ Denial?

“Even while producers clearly understand the extent and breadth of the changes in the technology climate impacting their businesses, the survey suggests they haven’t yet widely built sufficient agility and flexibility into their businesses to adapt,” the company says. (Story continues below graphic.)

Are you a business climate change denier?

Businesses cite the Internet of Things (IoT), rise of cloud computing, virtualization, and mobile devices as the primary drivers business climate change, Flexera finds in its report. These drivers can impact ISVs positively or negatively. On the positive side, 51 percent of survey takers said mobile applications offers a great opportunity, followed by virtualization (45 percent) subscription-based licensing (43 percent), public cloud computing (41 percent), and the IoT. The negative impacts appear to be smaller across the board, which points to general optimism among this group.

However, seeing the opportunity and actually taking it are two different things. Two-thirds of the survey respondents say none of their software is currently accessed via the cloud, while about 50 percent indicate the use of virtualization is zero or close to it. ISVs have a long way to go.

Change is on the wind. Today 26 percent of ISVs say that all of their revenues come from perpetual licenses, Flexera says. However, this percentage will decrease to 14 percent within two years, the company says. Similarly, only 14 percent of ISVs say that half or more of their revenues comes from subscription licenses delivered via SaaS. However, within two years, this will increase to 21 percent, Flexera says.

“Application producers lag far behind non-software industry counterparts that have long since automated critical operations with ERP, CRM, and other mission critical systems,” says Mathieu Baissac, vice president of product management at Flexera, which is based in Itasca, Illinois. “Many producers wrongly assume that because their ranks include software engineers and programmers, they can easily develop their own licensing and entitlement management systems in house.”

IBM i ISVs may have a bit more time than their counterparts in the open systems world, but those days are numbered. Even in the conservative IBM i market, customers are demanding the capability to access software on mobile devices, and the use of private cloud services is growing. Open source continues to have a big impact on IBM i software development trends (not to mention security vulnerabilities), and is contributing to an overall downward pressure on IBM i software prices. And while many IBM i vendors continue to use perpetual licenses based on software tiers, there is demand is clearly growing for more flexible subscription-based approaches.

As the IBM i software stack gets modernized, so too must the licensing and delivery methods. Anything less is insufficient.

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