IDC recently completed a research effort looking at software publishers with roots in the perpetual on-premise world that are transitioning to subscription and Cloud models. Most of these companies profess to be driven by the desire to offer customers flexibility and choice. To the software publishers, choice means that the customer can choose the deployment model and payment structure that works best for them. To the software publishers, flexibility comes naturally with this strategy: by having a variety of options, they are giving the customer the flexibility to choose. However, choice and flexibility are two very different things.
In the context of software licensing, choice means the ability to select how to buy and deploy software from a few good options. (It isn't choice if one of the options is so inferior to the other that no one would consider it). Choice can be very beneficial to customers, and without it today's software customers will be dissatisfied (even if they would only ever buy or deploy one way). Choice can also be a hindrance if there are too many choices, and it is becomes difficult to assess the benefits and pitfalls of each option. A lot of software publishers are doing a pretty good job of offering customers software licensing choices that are viable alternatives to one another.
Flexibility, on the other hand, does not comes as easy as choice in the software industry. Customers are going through a time of immense technological change brought about in part by the advent of cloud/mobile/social/big data. Their businesses are changing so rapidly that the idea of being locked-in to a long term pricing arrangement (no matter what type) is not attractive. I have observed that flexibility from the customer's perspective usually falls into one of three categories. The ability to:
- Transition from one model to another (and back again)
- Mix- and- match
- Scale-Up and Scale-Down
Customers want the ability to transition from one model to the other with relative ease and with some financial consideration for their prior investments with the software provider. They also want the ability to transition back at some point. Concerns about being locked-in to a model that seems advantageous now but later proves not to be-or a model that the vendor does not end up supporting in the future-are driving the desire for this kind of flexibility.
They also want the ability to choose one or more pricing models and mix and match these where appropriate. For example, a usage-based model might make sense for one module or feature that is used less frequently than the rest of the core product or service, while a perpetual license model might be desired for the core product.
Finally, scale-up and scale-down has been on the list of customer requirements for some time now. All-you-can-eat models have fallen out of favor in exchange for models that align costs more closely with need or experience. Subscription models generally support this kind of flexibility better than perpetual models have in the past.
Customers expect to pay for flexibility, and most pricing models "scale-up" according to the level of flexibility offered. Flexibility can also lead to increased risk and lack of predictability, which means that customers must carefully consider when flexibility is truly needed versus being a nice to have.
While the opposite of flexibility is rigidity, flexibility must have structure in order to be a viable "choice" for customers. Without structure, it is impossible for the vendor to support flexibility from a process and systems perspective. It can also appear to the customer that the vendor is making this stuff up as they go along and that does not instill confidence. However, some traditional licensing structures such as enterprise license agreements may not translate well into this new era of choice and flexibility. Customers want to buy more efficiently, which is one reason that usage-based pricing and software license optimization are hot topics. As software providers look to meet emerging customer requirements and respond to competitive market pressures, expect to see lots more choice and flexibility in software licensing in 2014.