Three Pricing Strategies Publishers Use for Revenue Generation. Mark Horler Macrovision Director, Global Consulting Services

Transcription

1 Three Pricing Strategies Publishers Use for Revenue Generation Mark Horler Macrovision Director, Global Consulting Services

2 Agenda Key Trends Impacting Software Industry Strategy 1: Enable Remote Activation Strategy 2: Optimize Conventional Licensing Strategy 3: Add Utility Pricing Summary Q & A

3 Key Trends Impacting Software Industry Software management complexity has increased exponentially 80 s 90 s Today

4 Key Trends Impacting Software Industry Software management complexity has increased exponentially 1 company = 1 application 1 company = many applications 1 company = many applications + modules 1 company = many applications + modules X acquired companies 1 company = many applications + modules X acquired companies X Web service components 80 s 90 s Today

5 Key Trends Impacting Software Industry Software management complexity has increased exponentially 1 company = 1 application 1 company = many applications 1 company = many applications + modules 1 company = many applications + modules X acquired companies 1 company = many applications + modules X acquired companies X Web service components Paper license Paper license + node lock Paper license + node lock + concurrent user Paper license + node lock + concurrent user + borrowed + +Usage based +On-demand +Activation +Try b4u buy +SaaS 80 s 90 s Today

6 Key Trends Impacting Software Industry Software management complexity has increased exponentially 1 company = 1 application Paper license Demand for Custom Pricing 80 s 1 company = many applications Paper license + node lock 1 company = many applications + modules Need for Software Audit Compliance Paper license + node lock + concurrent user 90 s 1 company = many applications + modules X acquired companies Paper license + node lock + concurrent user + borrowed 1 company = many applications + modules X acquired companies X Web service components + +Usage based +On-demand +Activation +Try b4u buy +SaaS Today

7 Key Trends Impacting End Users Corporations & Government IT budgets under pressure Driving vendors for flexible licensing Driving demand for Utility Pricing Decentralized purchasing vs. Centralized procurement Driving cross-dept bill backs Consumers P2P file sharing $15 billion worldwide piracy problem

8 IDC Industry Analysis Report April 2003 Amy Amy Mizoras Mizoras Program Program Manager Manager for for Software Software Pricing, Pricing, Licensing, Licensing, and and Delivery Delivery Research Research Software Vendors Are About to to Earn their MBA

9 Software Revenues and Computing Eras Log Worldwide Software Revenues ($) Individual systems Technology solution Vertical integration Global Software Market Complexity Crisis Software suites Business solution Bi-polar approach Granular apps to solve business process problems Process solution Ecosystems, camps and coalitions Source: IDC Beacon III Software Forecaster tm

10 Strategic Responses to the Complexity Crisis Shift in How Software Is Valued Shift from License to Maintenance Compliance Shift from Important to IMPORTANT!!! LICENSING Shift from Product to Service SOFTWARE Shift in Coverage Models DELIVERY PARTNERING Shift in Evaluation and Reward Models

11 2 Ways to Increase Revenue Get your product into more hands Charge more for more value Expand Distribution & Evaluation Improve Pricing 3 Strategies (1) Enable Remote Activation (2) Optimize Conventional Licensing (3) Add Utility Pricing Enable broad, secure evaluation with registration Charge by user, feature, etc. Charge more during peak usage

12 Get your product into more hands Strategy 1: Enable Remote Activation Expand Distribution & Evaluation (1) Enable Remote Activation Enable broad, secure evaluation with registration

13 Strategy 1: Enable Remote Activation Core Concept Convert users into paying customers Provide product line CDs and Websites for evaluations Increase the rate of product trials at a lower cost Use license stickers at trade shows Provide teaser licenses for secondary products Automatically shipped with purchased license

14 Strategy 1: Enable Remote Activation The Traditional Delivery Model... Source: Bearing Point: Transformation to Digital Licensing 2003

15 Strategy 1: Enable Remote Activation Is Evolving to License Enabled Single Binaries Source: Bearing Point: Transformation to Digital Licensing 2003

16 Strategy 1: Enable Remote Activation Evaluation Strategies Try & Die Take control of the sales process End trials on a specific day Try & Buy Suitable for consumer products Product activation results in a permanent license Try & Subscribe Suitable for products with an on-going content stream (such as anti-virus products) At end of trial period the user has the ability to subscribe to a license or to a license with an update service Discontinuation of payment results in the product reverting to a trial state with potentially reduced functionality

17 Strategy 2: Optimize Conventional Licensing Charge more for more value Improve Pricing (2) Optimize Conventional Licensing Charge by user, feature, etc.

18 Strategy 2: Optimize Conventional Licensing Core Concept Customers have different user types The value the customer places on your product varies based on who the user is However, most companies price for their most intensive users Different user types have different use patterns Some are heavy users others are less frequent Some make limited use of functionality Some frequently use a product with other products Set different prices for different users in order to maximize revenue potential Licensing & Pricing should discriminate between different user types, enabling you to reach the largest number of users

19 Optimize Strategy 2: Conventional Optimize Conventional Licensing>Sample Licensing Product Example: Studio Artware Components Oils Watercolors Acrylics Instrumented via Electronic Licensing Canvas size Colors supported Paintings that can be worked on at a time

20 Strategy 2: Optimize Conventional Licensing > Example Licensing Studio: Customer Centric Approach Studio Artware Pro Edition Standard Edition Jr Edition Fingerpaints Watercolors Oils License by Product Components

21 Strategy 2: Optimize Conventional Licensing > Example Licensing Studio: Customer Centric Approach Studio Artware Related Products Pro Edition Standard Edition Jr Edition Fingerpaints Watercolors Oils Sketch Sculpt License by Product Components

22 Strategy 2: Optimize Conventional Licensing > Example Licensing Studio: Customer Centric Approach Maximum Canvas Size License by Usage Metrics Maximum # of colors Maximum concurrent paintings Studio Artware Pro Edition Standard Edition Jr Edition Fingerpaints Watercolors Oils Related Products Sketch Sculpt License by Product Components

23 Strategy 2: Optimize Conventional Licensing > Example Licensing Studio: Customer Centric Approach Maximum Canvas Size License by Usage Metrics Maximum # of colors Maximum concurrent paintings License by User Jr Edition Fingerpaints Site License Disconnected Network User Networked User Single User Studio Artware Standard Edition Watercolors Pro Edition Oils Related Products Sketch Sculpt License by Product Components

24 Strategy 2: Optimize Conventional Licensing Customer Centric Approach continued Common licensing approach has been to combine point products into product lines Offer 2 for the price of 4 (for example) Favors vendors with broadest product lines Also led to site licenses for multiple products

25 Strategy 2: Optimize Conventional Licensing Customer Centric Approach continued Current evolution of Suite approach is Concurrent Dollar Licensing Customers wish to utilize a broad product range, but are not willing to license at a maximum usage level for individual products Vendors can respond by licensing usage across all products concurrently Best for product lines where the mix of products in use change over time (e.g., project cycles)

26 Strategy 2: Optimize Conventional Licensing Pricing Depth and Multiple License Models Multiple price points/ multiple license rights Cover a wider range of user types Don't discount for infrequent users - offer an infrequent use license Customers see the pricing as "fair" Unit Volume Floating Suite Having multiple license/price points changes the demand curve Floating Named User Price / User

27 Strategy 3: Add Utility Pricing Charge more for more value Improve Pricing (3) Add Utility Pricing Charge more during peak usage

28 Strategy 3: Add Utility Pricing Market Trends Customers are encouraging Software Publishers to adopt additional, more flexible, licensing models New models of interest include: Subscriptions based on number of unique users during the period (with minimum threshold) Usage-based pricing on top of pre-purchased licenses Peak-usage pricing Hourly/Daily pricing Application mix/token-based pricing

29 Strategy 3: Add Utility Pricing Market Trends Software Publishers wish to support the new models, but need a high degree of automation/integration in order to broadly deploy and reduce costs Software Publishers also keenly interested in better understanding their customers: Applications/Features used (by customer, by segment, etc.) Pricing-parity analysis between node-locked, floating, nameduser, etc. What-If scenarios (varying linger time, timeout, etc.) Version numbers used, platform, etc. Application-specific data

30 Strategy 3: Add Utility Pricing FLEXlm Licensing Models LEGEND License usage granted, no additional payment License usage granted, reported to Software Publisher, triggers some type of additional payment based on usage License usage denied, no additional payment

31 Strategy 3: Add Utility Pricing Traditional concurrent Denial of Service Usage Time

32 Strategy 3: Add Utility Pricing Concurrent with overdraft Overdraft Denial of Service Licensed Nagware Usage Time

33 Strategy 3: Add Utility Pricing FLEXbill 2.0: Enabling Usage-Based Licensing Credit Limit (set by Software Publisher could be unlimited) Licenses Pre-Sold (Potentially reduced by end-user) End- User Defined Limit Report logs sent to ISV Requests above end-user defined limit results in denial of service Usage-Based Data Auditing Billing Market Intelligence Time Actual Concurrent Usage

34 Strategy 3: Add Utility Pricing Concurrent with additional usage Additional usage reported to Software Publisher, triggers payment Licensed Usage Time

35 Strategy 3: Add Utility Pricing Concurrent with usage-based and max pay New Max Pay Limit Max Pay Limit Licensed Usage reported to Software Publisher New Licensed Level Usage Range increased based on previous year s usage Year 1 Year 2

36 Strategy 3: Add Utility Pricing Straight usage-based Usage Time

37 Strategy 3: Add Utility Pricing Usage-based with varying end-user imposed limit End-user imposed limit Usage Special project requiring additional capacity Time

38 Summary

39 Balance Multiple License Types Users will choose the model with the best fit Do any license types dominate: i.e., if the price of a floating and nodelocked license were too close, only floating will be sold Do some after the fact market research Do users buy the intended licenses? Are there other license types that will motivate new users to buy? Utility Floating Suite

40 2 Ways to Increase Revenue Get your product into more hands Charge more for more value Expand Distribution & Evaluation Improve Pricing (1) Enable Remote Activation 3 Strategies (2) Optimize Conventional Licensing (3) Add Utility Pricing Enable broad, secure evaluation with registration Charge by user, feature, etc. Charge more during peak usage

41 Maximizing Revenue Is Not the Only Objective Greater operating profit Mature markets Maximize sales growth & market share The battleground for new markets Enhance customer loyalty Fundamental to high profitability Lifetime value of customers Account penetration & control Block competition from the market How companies with broad product lines of related products beat point product vendors

42 Questions & Answers

43 October 6-7, San Jose, CA. SoftSummit.com