2011 Key Trends in Software Pricing & Licensing Survey

Sponsored by Flexera Software

2011 Key Trends in Software Pricing & Licensing Survey

Sponsored by Flexera Software
Overview of Survey Findings
The 2011 Key Trends in Software Pricing and Licensing Survey of 348 participants, prepared with assistance from IDC, found that: Perpetual/Subscription Application producers derived 79% of their software revenues from perpetual licenses, 15% via subscription. Application producers expect perpetual license revenues to decline an average of 10% over the next two years, and subscription revenues to increase by an average of 6% over the next two years. Metrics The number of application producers that are pricing based on a usage metric (number of uses, time used and number of transactions) is expected to double in the next two years, from 22% today to 43%. This is consistent with the results of last year's survey, with usage metrics expecting to experience the most growth as compared to other models. Of the total survey population, 47% of application producers do not monitor customer usage. Of the survey population that is either doing usage-based pricing today or plans on doing usage-based pricing in the next two years, 48% do not monitor customer software usage. In terms of hardware-based metrics, the number of application producers offering processor-based metrics is expected to decline by 18%, while the number of application producers offering processor core is expected to grow by 34%. The most common metrics used today, per seat and concurrent user, will remain relatively flat in the next two years, with an 8% decrease in per seat offerings and a 7% increase in concurrent user offerings. Enforcement The most common means of enforcement is network-based licensing and product activation. According to enterprises, these are their favored approaches as well. These means of enforcement will also increase by the greatest margin in the next two years (48% and 54%, respectively). Most enterprises (53%) rely primarily on software asset management for tracking, management and reporting of their software licensing/usage today. 20% are doing this manually, relying primarily on spreadsheets. The most common primary reason that customers are tracking usage is for compliance purposes; however 31% are tracking usage primarily to reduce shelfware.

2011 Key Trends in Software Pricing and Licensing Survey

Of the ways that customers track usage, the highest satisfaction rating is for vendor provided tools, with 90% of customers that primarily use that approach indicating that they are satisfied. The least favored approachmanual/spreadsheets registers only 22% satisfaction. Enterprises believe that it is harder to maintain compliance for infrastructure (not applications) software. The primary reason for difficulty, according to customers, is that licensing is too complex. Audits Most application producers did not perform any audits at all in the last year (60%) Most application producers that did perform audits did 10 or less. For the vast majority of application producers that performed audits, the award was less than $100,000. Our enterprise survey corroborated this data. The application producers listed by enterprises as conducting audits within the last year included Microsoft, Oracle, IBM, and SAP. Licensing Effectiveness 55% of application producers think their current licensing strategy does a good job of capturing value. And 70% in that population plan on making additional licensing strategy changes to capture more value in the next two years. Application producers with concurrent licensing were most likely to rate their licensing/value equation as being effective (77%). In addition, 40% of enterprises listed concurrent licensing as their preferred approach, the highest percentage of any category. Application producers with processor-based licensing were most likely to rate their licensing/value equation as being ineffective or very ineffective (60%). Entitlements Most application producers (62%) believe that it is difficult to somewhat difficult for customers to determine which products they are entitled to use and what they are using.

Survey Background
The 2011 Key trends in Software Pricing and Licensing survey was conducted by Flexera Software with input from IDCs Software Pricing and Licensing Research division under the direction of Amy Konary, research vice president software licensing and provisioning at IDC. This annual research project looks at software licensing, pricing and enforcement trends and best practices. The survey reaches out to executives at application producers and enterprises who use and manage software and devices. Now in its seventh year, the survey is previewed at the annual SoftSummit Conference and made available to the industry at large each year.

2011 Key Trends in Software Pricing and Licensing Survey

Methodology and Sampling

In total, 348 respondents participated in the survey, including 98 enterprise executives and 250 application producers (defined as software vendors and intelligent device manufacturer) executives.

Enterprise Demographics
More than one-half of the enterprise respondents were from larger enterprises of more than $1 billion in revenues, and more than a third were from companies with $3 billion in revenues or more. 45% were from North America, 38% from Europe, 13% from Asia Pacific, and 2% from the Middle East.

Which of the following best represents your annual company revenues?

Less than $100 million $101 - $999 million $1 billion - $3 billion > $3 billion Do not know

Application Producer Demographics

The largest segment of application producer respondents (47%) came from companies with under $10 million in revenues. The remainder were divided relatively equally across all revenue levels. 72% were from North America, 21% from Europe, 6% from Asia/Pacific, and 1% from the Middle East.

Which of the following represents your annual product licensing revenues? Less than $10 million
$11 - $30 million $31 - $50 million $51 - $100 million $101 - $500 million $501 million - $1 billion Over $1 billion Do not know 2011 Key Trends in Software Pricing and Licensing Survey 4

Individual Findings

Pricing Flexibility and Value Usage-Based Pricing Remains Popular, but Seat-Based Pricing Gaining Popularity
The most popular software pricing model for enterprises (40%) is concurrent user (floating/network) licensing (down from 60% last year). However, the demand for usage-based pricing remains significant at 17%. Seat-based licensing models (per machine/server and named user) have gained popularity, with 30% of respondents preferring those models, compared to 9% in 2010.

What is the software pricing model you prefer for enterprise class applications?
Processor Processor core Seat (per machine/per server) Seat (named user) Concurrent user (floating/network) Usage metric (number of uses, time used, number of transactions) Financial metric (revenue, cost, royalty)

2011 Key Trends in Software Pricing and Licensing Survey

Application Producers Continue to Offer a Wider Variety of Software Pricing Models:

Application producers continue to offer a growing variety of pricing models in response to greater demand by customers. More are offering seat (per machine/per server) 70% in 2011 vs. 65% in 2010, seat (named user) 34% in 2011 vs. 27% in 2010, concurrent user (69% this year vs. 63% last year) and financial metric (12% this year vs. 6% in 2010). There have been slight decreases over last year in the number of application producers offering processor, processor core and usage metric models. Over the course of the next two years, we can expect to see a large increase in the number of application producers offering usage metric pricing models (43%).

Which pricing models do you offer for your packaged software or intelligent device today? Product that is priced per
80% 70% 60% 50% 40% 30% 20% 10% 0% Concurrent user (floating/network )

Seat (named user)

Usage metric (number of uses, time used, number of

Financial metric (revenue, cost, royalty) Financial metric (revenue, cost, royalty)

Seat (per machine/per server)

Processor

Looking forward in the next two years, which pricing models do you expect to offer? (Select all that apply). Product that is priced per
80% 70% 60% 50% 40% 30% 20% 10% 0% Processor Processor core Usage metric (number of uses, time used, number of transactions) Seat (named user) Concurrent user (floating/network) Other (please specify) Seat (per machine/per server)

2011 Key Trends in Software Pricing and Licensing Survey

Processor core

Other (please specify)

Revenue Generation & Customer Satisfaction Driving Changes:

42% of application producers indicate that they have changed their pricing and licensing policies over the past two years to make them more flexible. The top two reasons for this shift have been to improve customer relations (46%) and generate more revenue (40%). Accelerating the sales cycle (27%) was also cited as a key reason for broadening pricing and licensing policies.

Did providing more flexible licensing and pricing policies help the company:
50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Improve relations with customers Generate more revenue Decrease developmen t cost Accelerate the sales cycle Free R&D resources Not applicable Other (please specify)

Both Enterprises and Application Producers Are Largely Satisfied with Current Pricing Models:
The survey asked enterprises to rate their satisfaction of pricing for database, middleware, ERP, CRM, engineering and desktop applications. The applications eliciting the highest satisfaction (responses of highly satisfied or satisfied) included desktop applications (44 respondents) and engineering/technical applications (38 respondents). Those eliciting the lowest (responses of unsatisfied or highly unsatisfied) included ERP software (19 respondents) and database software (18 respondents).

2011 Key Trends in Software Pricing and Licensing Survey

How would you rate your price-to-value satisfaction of the following types of software?
# of respondents 120 100 80 60 40 20 0
Database

Highly satisfied Satisfied Neutral

Engineering/Tech nical Applications Desktop Applications

Middleware

CRM

ERP

Unsatisfied Highly unsatisfied N/A

62% of application producers said that their pricing and licensing strategies captured the value of their software effectively, down considerably from 2010 when the response was 79%. 23% consider their pricing strategies either ineffective or very ineffective, compared to 14% in 2010.

How would you rate the overall effectiveness of your companys pricing and licensing strategies in capturing the value that your product provides to customers?

Very ineffective Ineffective Effective Very effective Don't know

Software Usage, Delivery and Enforcement Software Budgets Starting to Increase

43% of enterprises report that, looking ahead two years, they expect their software budgets to increase up from 33% in 2010. 28% expect their budgets to stay the same, and 22% expect them to decrease.

2011 Key Trends in Software Pricing and Licensing Survey

Looking forward two years, do you expect your software budgets to...

Decrease Stay the same Increase Do not know

Percentage of Total Software Budgets Assigned to New Software Varies

The percentage of total software budget within enterprises assigned to new software purchases varies greatly. 23% report that between 1-10% of budget is assigned to new software, 21% report the figure being between 11-20% of their budgets, and 24% report it being more than 20%.

What percentage of your total software budget is assigned to new software licenses?
0% 1-10% 11-20% 21-30% 31-40% 41-50% 51-60% 61-70% > 70% Do not know

Managing Software Licensing & Usage is Critically Important for Enterprises

2011 Key Trends in Software Pricing and Licensing Survey

72% of enterprises indicated that compared to other objectives, managing software licensing and usage is important or very important. Only 12% indicated it is unimportant.

Compared to your other objectives, how important is managing software licensing/usage?

Very unimportant Unimportant Neutral Important Very important

Application Producers Aware of Customers Usage & Entitlement Tracking Challenges

62% of application producers believe it is somewhat or very difficult for customers to determine their software product entitlements. 34% believe customers have no difficulty.

How difficult do you believe it is for your customers to determine which of your products they are entitled to use and what they are actually using?
50 # of respondents 40 30 20 10 0 No difficulty Somewhat difficult Very difficult N/A Answer Choice

Moderated Approach to Adopting Cloud Licensing Strategies

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Application producers are taking a gradual view in anticipating licensing strategy changes to accommodate the Cloud. 46% indicate the changes theyll need to make will be moderate over the next two years. 34% anticipate no change. While 21% indicate changes will be significant or dramatic.

Please rate the level of your agreement with the following statement: In the next 24 months, my company's current licensing strategy will need to change in order to adapt to the requirements of cloud computing.

1 = Stay the same/no change 2 = Moderate changes 3 = Significant changes 4 = Dramatic changes

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Subscription Software Licensing Models Continue to Grow

Subscription-based license models represent an important source of revenue for application producers today though the majority still derive most of their revenue from perpetual licenses.

Thinking of your total software licensing revenue, what percentage is associated with the following license types?

81 77 73 69 65 61 57 53 49 45 41 37 33 29 25 21 17 13 9 5 1 0% 20% 40% 60% 80% 100%

Percent of Revenue Associated with Perpetual Licenses

Percent of Revenue Associated with Subscription/Term Licenses

Percent of Revenue Associated with Other License Types (such as usage based)

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Over the next two years, subscription-based licenses will represent an increasing source of revenue for application producers.

Looking forward in the next two years, what percentage of your total packaged software and/or intelligent device license revenue will be associated with the following license types?
81 77 73 69 65 61 57 53 49 45 41 37 33 29 25 21 17 13 9 5 1 0% 20% 40% 60% 80% 100%

Percent of Revenue Associated with Perpetual Licenses

Percent of Revenue Associated with Subscription/Term Licenses Percent of Revenue Associated with Other License Types (such as usage-based)

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Virtualization on the Rise Within Enterprises

Most enterprises report that they have adopted some level of virtualization technology. The type of virtualization deployed and the extent of that adoption vary widely across respondents.

What virtualization technologies has your organization adopted?

100 90 80 70 60 50 40 30 20 10 0
Server virtualization (% Desktop virtualization of servers) (% of desktops) Application virtualization (% of desktop apps) Hard partitioning (% of physical servers)

# of Respondents

< 20% 20-40% 40-60% 60-80% > 80%

Strategies for Managing Software Licenses in Virtual Environments Vary

36% of enterprises use automated commercial license management software to manage their virtual licenses. 26% do so manually, while 21% use the tools supplied by their virtualization vendor.

How do you manage software licenses in your virtual environments?

Automated commercial license management software Software provided by the (virtualization) vendor Automated homegrown software Manual methods, including spreadsheets We dont manage software licenses in our virtual environments

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Varied Software License Optimization Approaches for Virtualized Environments

While 83% of enterprises take into account license entitlements such as software product use rights, and upgrade/downgrade rights when managing licenses in a virtualized environment, 50% do so for only key, high-value vendors and only 33% do so across all vendors.

Do you take into account license entitlements (e.g., software product use rights such as upgrade rights, downgrade rights, etc.), which are part of all software license agreements, in your analysis when reconciling your organizations software license pos
Yes, for all vendors Yes, for key high-value vendors No

Shelfware and License Non-Compliance Challenges Persist for Enterprises

Only 15% of companies report that none of their software spend is associated with out of compliance applications down from 30% last year. 35% report that between 1-10% of their software license spend is associated with applications that are out of compliance slightly lower than 2010 (37%), 16% report that 1120% of their applications are associated with out of compliance applications (up from 7% last year).

What percentage of software license spend within your organization do you estimate is associated with applications that are overused and therefore out of compliance?

0% 1-10% 11-20% 21-30% 31-40% 41-50% > 50% Do not know

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The levels of software underuse (shelfware) have not changed substantially over 2010 and suggest there still is room for improvement. Only 4% of enterprises report no spend associated with shelfware, 25% report that up to 10% of their application spend is associated with shelfware, and 27% say that up to 30% is associated with underused applications.

What percentage of software license spend within your organization do you estimate is associated with applications that are underused (shelfware) and therefore over-licensed?

0% 1-10% 11-20% 21-30% 31-40% 41-50% > 50% Do not know

Tracking Customer Usage Remains Blind Spot for Application Producers

Of the application producers responding, the largest proportion, 47%, report that they do not monitor customer usage of their products. For those that do, 20% report doing so using internally developed tracking tools, and 16%, using manual audits. Only 10% use third party tracking tools.

How do you primarily monitor your customers usage of your product?

We do not monitor customer software usage Manual audits Third-party usage-tracking tool(s) Using internally developed usage-tracking tool(s) Do not know Other (please specify)
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Enterprises Use a Variety of Tracking Methods

98% of all enterprises track, manage and report on their software usage the majority of which (53%) use commercial software asset management systems. 20%, however, still track usage manually using spreadsheets. The top two reasons for tracking usage were the same in both 2011 and in 2010 but the ratios were reversed. In 2011 56% cited ensuring compliance (32% in 2010), and 55% in 2011 cited reducing software costs/minimizing shelfware spending as their primary reasons (32% in 2010). 66% of respondents are satisfied or very satisfied with their current methods for tracking licensing and usage.

How do you primarily perform tracking, management and reporting of your software licensing/usage today?

Automated (commercial) software, which is part of our asset management system Use software provided by the vendor Automated (homegrown) software, our own system used only for license management Manual methods, including the use of spreadsheets Do not currently track

If you are currently managing your software licensing/usage, what is the most important reason for doing so?

Reduce software costs/minimize shelfware spending Ensure compliance with vendor agreements (and reduce cost and risk of an audit) Prevent downtime due to denials in the middle of critical projects (concurrent licenses) Do not manage software licensing/usage

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If you are currently managing your software licensing/ usage, how satisfied are you with the current method?

Very dissatisfied Dissatisfied Satisfied Very satisfied

Enterprises Would Prefer Enforcement via Network Licensing

48% of enterprises prefer enforcement of their software license via network licensing (activation by an internally shared license) down from 67% in 2010. Lesser-preferred methods include product activation, vendor-supplied monitoring with annual true-up, and compliance audits. Dongles and locally-checked serial numbers are the least preferred enforcement mechanism.

If a software vendor gave you a choice, which of the following means of software license enforcement would you prefer most?
Product activation (software activated over the internet by vendor key) Network licensing (software activated by internally shared license) Trust-based licensing with manual vendor compliance audit Vendor-supplied automated monitoring mechanism with annual true-up Serial numbers checked locally Dongle/USB

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Lack of Automation Hinders Usage Tracking in Enterprises

Enterprises most frequently cited desktop, engineering and middleware software as being difficult or very difficult to track usage and maintain license compliance. They most frequently (33%) cite lack of automated tracking mechanisms as the reason.

For which types of software is it difficult to track usage and maintain license compliance?
# of Respondents 120 100 80 60 40 20 0 No difficulty Difficult Very difficult N/A
Engineering/Techni cal Applications Desktop Applications Database Middleware CRM ERP Other ServerBased Software

If you checked "difficult" or "very difficult" to any software type in the previous question, what is the primary reason why?

Licensing policy is too complex IT environment is too complex IT management is too decentralized No automated tracking mechanisms in place

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Application Producers Cite Numerous Methods Their Customers Use to Track Entitlements
Application producers believe their customers use a variety of methods to manage entitlements including web-based entitlement management systems, home grown systems, manually, and through customer inquiries. 24% do not think their customers manage entitlements.

How do you believe your customers manage their entitlements today?

40% 35% 30% 25% 20% 15% 10% 5% 0%
Via access to web-based entitlement management system provided by us Manually, with some automation for spreadsheets or similar tools By using their own homegrown entitlement management system Manually, with almost no automation They don't manage their entitlements By calling customer support to get up-to-date entitlement information Don't know

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Many Application Producers Lack Automation to Monitor Usage; Recognize Need to modify Licensing Strategies
47% of application producers say they either do not have technology in place that enables them to know what product, product version or platforms their customers are using or they simply do not know. They see the need to change their licensing strategies to deploy technologies that better track licensing (42%), that better enforce their licenses (40%), that support pay-as-you-go schemes (26%), and that accommodate short bursts of use (19%).

Do you have technology in place that enables you to know what product, product versions or platforms your customers are using?

Yes No Do not know

In the next year, in what ways will your licensing strategy need to change?
45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Need to move away from CPU-based licensing Need to deploy better enforcement technologies Need to accommodate microlicensing Need to develop a temporary license type Need to deploy technologies that better track licensing Need to accommodate short bursts of use Need to support a pay-as-you-go scheme We do not plan on making any changes to our licensing strategy
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2011 Key Trends in Software Pricing and Licensing Survey

Compliance Audits Continue to Gain Steam

Network licensing (56%) continues to be application producers most predominantly used enforcement mechanism, followed by product activation (48%). Compliance audits tied with serial numbers (28%) for the third most used method. 15% indicated that within the next two years, the need for compliance audits will increase.

Which of the following means of enforcement does your company use today?
60% 50% 40% 30% 20% 10% 0% None Serial numbers checked locally Dongle/USB

Product activation (software activated over

Network licensing (software activated by

Vendorcompliance audit (trust-based licensing)

Looking at your license enforcement practices today and projecting ahead two years, do you see your need for the following as increasing, decreasing, or remaining the same?
100 90 80 70 60 50 40 30 20 10 0 Product activation (software activated over the internet by vendor key) Serial numbers checked locally Dongle/USB Network licensing (software activated by internally-shared license) Vendor-compliance audit (trust-based licensing) # of responses Don't know Will Not Use Increase Stay Same Decrease Vendor-supplied automatedmonitoring mechanism with

2011 Key Trends in Software Pricing and Licensing Survey

Vendor-supplied automatedmonitoring mechanism

Other (please specify)

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Application Producers Commonly Use Compliance Audits as Enforcement Means

40% of all application producers reported having conducted software license audits within the past year. 15% of those conducted 21 or more audits as part of their enforcement efforts. 60% did not conduct any audits.

How many license compliance audits did your company perform within the last year?
0 1-10 11-20 21-50 51-100 More than 100

Software True-Ups Usually Small, but Can Represent a Substantial Revenue Stream for Some Application Producers
The vast majority (84%) of application producers report that the average true-up revenue received per audit over the last year was less than $100,000, though 6% reported that the average was more than $1,000,000. 10% reported the average to be between $100,000 and $1,000,000. 79% of respondents said their total true-up revenue last year was less than $100,000. 12% reported that the total was more than $1,000,000.

What is the average true-up revenue per audit your company received within the past year?
More than $1 million $300,000 to $1 million $100,000 to $300,000 < $100,000

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What is the total true-up revenue from compliance audits your company received within the past year?
More than $100 million $50 - $100 million $20 - $50 million $5 - $10 million $1 - $5 million $500,000 to $1 million $100,000 to $500,000 < $100,000

The Majority of Enterprises Have Been Audited Within the Last Year
56% of enterprises reported having been audited over the past year, and almost a third report having been audited more than once. 17% were audited three times or more.

How often have you been audited (or had a license review) by your vendor(s) within the last year?
More than 3 times in the past year 3 times 2 times 1 time We have not been audited or had a license review within the past year

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Microsoft is the Most Frequent Auditor

Half of all respondents report that they have been audited by Microsoft over the last year, making it the most frequent auditor. Oracle (41%) SAP (35%) and Adobe (24%) were the next most frequent auditors.

If you have been audited within the last year, which vendors have audited you?
60% 50% 40% 30% 20% 10% 0%
Adobe IBM Microsoft Oracle SAP Symantec

Average Size of Enterprise Compliance True-Ups Vary

Consistent with the application producer survey findings, 68% of enterprises report that their average, trueup penalty was less than $100,000 per audit. But some enterprises reported broader exposure, with 8% reporting true-up costs of more than $1 million per audit, and 24% reporting average true-up per audit in the $100,000 to $1 million range.

What is the average true-up cost per audit for your organization?
More than $1 million $300,000 to $1 million $100,000 to $300,000 < $100,000
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Total True-Up Exposure Moderate for Most, but in the Millions for Some Enterprises
64% of enterprises report their total software true-up bills were less than $100,000 over the past year. But 11% reported theirs to be more than $1 million. $25% reported their total true-up exposure to be between $100,000 and $1 million.

What was your total software audit true-up cost within the last year for your organization?

More than $1 million $300,000 to $1 million $100,000 to $300,000 < $100,000

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SOFTWARE LICENSING AND PROVISIONING RESEARCH AT IDC

IDC's global Software Licensing and Provisioning research practice is directed by Amy Konary. In this role, Ms. Konary is responsible for providing coverage of software go-to-market trends including volume license programs, evolving license models, global price management, and licensing technologies through market analysis, research and consulting. In her coverage of software maintenance, subscription, electronic software distribution and licensing technologies, Ms. Konary has been instrumental in forecasting future market size and growth. Ms. Konary was also the lead analyst for IDC's coverage of software as a service (SaaS) for eight years prior to focusing exclusively on pricing, licensing, and delivery. International Data Corporation (IDC) is the premier global provider of market intelligence, advisory services, and events for the information technology, telecommunications, and consumer technology markets. For more information about IDC, please see www.idc.com

ABOUT FLEXERA SOFTWARE

Flexera Software is the leading provider of strategic solutions for Application Usage Management; solutions delivering continuous compliance, optimized usage and maximized value to application producers and enterprises. Flexera Software is trusted by more than 80,000 customers that depend on our comprehensive solutions- from installation and licensing, entitlement and compliance management to application readiness and enterprise license optimization - to strategically manage application usage and achieve breakthrough results realized only through the systems-level approach we provide. For more information, please go to: http://www.flexerasoftware.com.

Flexera Software, LLC. 1000 East Woodfield Road, Suite 400 Schaumburg, IL 60173 USA

Schaumburg (Global Headquarters), United Kingdom (Europe, +1 800-809-5659 Middle East Headquarters): +44 870-871-1111 +44 870-873-6300

Japan (Asia, Pacific Headquarters): +81 3-4360-8291

For more locations visit: www.flexerasoftware.com

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