Flexible licensing plans gain momentum

Bentley Systems is going against the grain with a new licensing program that lets customers turn in user licenses they don’t want anymore in exchange for seats of a different product in Bentley’s portfolio of architecture, engineering and construction s

Bentley Systems is going against the grain with a new licensing program that lets customers turn in user licenses they don’t want in exchange for seats of a different product in Bentley’s portfolio of architecture, engineering and construction software.

For Architects Design Partnership, that means instead of writing off its investment in print-management software that’s not being used, the firm can get a credit for the licenses – based on current list prices – and use it to buy seats of Bentley’s latest architectural design and documentation software.

“That’s something I’m definitely going to take advantage of,” says Marc Thomas, IT director at Architects Design Partnership in London. “We have a piece of software called Digital InterPlot that doesn’t fit in with our needs, so I’m planning to trade that in, probably for Bentley Architecture.”

While Bentley operates in a niche market, its efforts to keep customers happy reflect a challenge all software makers face: customer retention. In particular, software makers with traditional licensing models are trying to compete with vendors that offer lower start-up costs via open source products or hosted options, says Joshua Greenbaum, a principal at Enterprise Applications Consulting.

“On-demand and open source have had the combined effect of disrupting a lot of traditional licensing models and, therefore, a lot of traditional revenue models,” Greenbaum says. “When there’s a potentially disruptive player involved, customer retention becomes even more critical.”

But despite the increased competition, most packaged software makers aren’t making concessions in favor of customers.

“Things are still very much geared toward the vendor,” says Ray Wang, a principal analyst at Forrester Research. “Once you lock in, after the initial purchase, everything is kind of stacked against you. You’ve made this major investment, and if you want to switch off the software, the switching costs are very high.”

For example, most software vendors make it difficult for companies to stop paying maintenance and support fees on licenses they aren’t using. “A lot of vendors require a renegotiation of a license if you want to downgrade the number of users,” Greenbaum says.

Bentley’s license-exchange program is an exception, Wang says. “It’s definitely unique, it’s definitely very innovative,” he says.

While Bentley may be leaving money on the table by letting customers acquire new products through trade-ins rather than purchasing new licenses, in the big picture the vendor could come out ahead.

“License revenue is important, but maintenance revenue is often the real cash cow,” Greenbaum says. “It’s cheaper to a certain extent to send [customers] another DVD and keep them paying 15% or 18% maintenance than it is to let them to walk out the door.”

Plus, the exchange program sends a user-friendly message to customers, Wang says. “If you share everything you have in your portfolio of licenses, you really give customers the impression that you’re there to help, to partner with them,” he says. “It’s much more of a long-term play, whereas a lot of other vendors are thinking short-term, quarter to quarter.”

Bentley also offers concurrent licensing options that let companies pool the available licenses for use by all employees. The pooled licensing model is very attractive, Thomas says. “We can load the software onto every machine in the organization, and people get a license when they need it,” he says. It’s much easier to make a business case for purchasing 20 licenses of software that 50 people will be able to share than it is to find funds for 50 licenses of software that most users only need to access occasionally, he adds.

More packaged software makers used to offer pooled licensing, but most have moved away from that and require companies to get a license for every named user, Wang says. One exception is Microsoft, which still offers a concurrent usage license for its Dynamics (formerly Great Plains) business software. “Everyone else has gone to named user,” he says.

Wang expects that as software-as-a-service models gain greater traction, more vendors will experiment with licensing flexibility.

“With software-as-a-service and different hosting options, there are all these ways to reduce the cost of ownership as well as the cost of the licenses,” Wang says, adding that while vendors such as SAP and Oracle have a tight hold on the largest enterprises, there are no clear leaders in the midmarket. “Right now it’s still a land grab for the midmarket,” he says.

But neither Wang nor Greenbaum expects sweeping licensing changes overnight. Business software makers have been adding on-demand products to their portfolios to keep up with the competition, but few have done any serious rejiggering of traditional licensing models, Greenbaum says.

Wang suggests companies carefully negotiate contracts to limit the chance of paying maintenance on unused software. For example, a company with plans to purchase 1,000 licenses could make arrangements to begin paying for maintenance on 100 licenses in the first year, 500 in the second year and 400 licenses in the third year.