Protect from revenue loss due to software piracy and license oversubscription
This is revenue lost due to unauthorized use of your software – whether these are installed applications, cloud services offered as a subscription, or extra features in your hardware system that you are monetizing.
With the exception of large enterprise end customer environments having rigorous compliance processes in place, legal software license agreements are an ineffective safeguard and expensive to enforce on any significant scale – a pre-emptive technology-based approach such as a license management tool is required.
Protection from software piracy for installed applications
Revenue loss for installed applications due to software piracy ranges from 10% to 90% depending on the geographic region and industry segment. The most common enabling factor contributing to software piracy in this category is the complete absence of license protection.
Another common contributing factor is the use of easy-to-circumvent simplistic and non-secure home-grown software licensing mechanisms improvised by ISVs as a way to save on fees for commercial license management solutions, which are viewed as an expense rather than an investment with a return. In reality, this factor alone justifies investing in a commercial license management solution, as the return on investment can be shown to easily exceed 30:1 and usually more than pay for itself within the first year itself.
Protection from unauthorized sharing of licenses
A less-recognized source of revenue leakage stems from legitimately purchased licenses for software that is in fact protected to some degree with licensing tools. The revenue loss is due to oversubscription of the number of seats, concurrent-user limits, expiration dates of time-limited licenses, and resetting of metered licenses.
Oversubscription may occur for virtually any type of installed application. A less-recognized oversubscription scenario applies to cloud-based applications, including mobile applications, that are licensed based on named users: by the very nature of cloud applications, the user identification can be multiplexed among multiple physical users over short periods of time.
Although the percentage of revenue loss is lower than that due to outright piracy, it is nevertheless in the double-digits.
Monetize your software / system for additional revenue
The term “license management” is conventionally equated with “node locking” of a software license to a machine (ie. restricting the software from running on any other machine even if its license key is copied). For traditional installed applications, monetization via features and subscription are usually secondary to the core objective of node locking a perpetual license.
As a consequence, it is often assumed that license management does not apply to certain categories of systems, notably cloud-based services, embedded systems and hardware / software systems.
Limiting software licensing to node locking effectively leaves money on the table on the one hand, and shuts off entire market segments due to product unafforability or mismatch of business parameters on the other hand.
By offering some or all features of a product, cloud service or embedded / hardware system on a subscription or utility pricing basis and using software licensing technology to manage the subscription or utility licenses, you can effectively substantially increase your revenue by resegmenting your market and capturing otherwise inaccessible customers.
Traditionally, cloud applications are offered on a monthly or annual subscription basis, or possibly based on usage, with a selection of feature / limit bundles. This is generally viewed to be adequate.
There are two issues with this simple model, aside from the limitations of the simple subscription model:
- As described earlier, there is no control over the degree of sharing of user accounts among multiple physical users. Cloud service vendors attempt to get around this constraint by defining, for example, a 5-user minimum, which essentially shuts out the long-tail customer segment.
- When a cloud service is offered on both an individual-license basis and an enterprise-license basis (for example a CRM system), often the enterprise licensing is managed separately via an installed product, rather than as part of the same cloud service. This is due to perceived limitations on offering and managing pools of enterprise licenses over the cloud.
The use of appropriate software licensing technology addresses the above issues, in addition to enabling sophisticated subscription models such as software rental models and utility pricing.
Embedded systems are typically priced per unit – in essence a perpetual license. When embedded system vendors wish to offer their product at different price points for different levels of capabilities, this business model is accommodated by manufacturing multiple product lines, and an upgrade by a user is processed by physically returning a unit and receiving a replacement unit. Also, typically, embedded system vendors don’t have the option to market advanced features of their products on a subscription or utility pricing basis.
The use of an appropriate software licensing technology enables an embedded system vendor to streamline their manufacturing assembly line to a single physical product that can be sold with basic functionality enabled, with additional features enabled on-site upon payment of additional fees, either perpetually or on a subscription or utility pricing basis.
The chief challenge in utilizing software licensing technology for embedded systems licensing is availability of technology that will run on often-esoteric and constrained embedded operating system platforms. This is the reason why few software licensing solutions are available for embedded systems, and fewer still are readily available without extensive custom development and porting.
Integrated hardware / software systems that are packaged into appliances are typically priced per unit – in essence a perpetual license. When the system vendors wish to offer their product at different price points for different levels of capabilities, this business model is accommodated by manufacturing multiple product lines, and an upgrade by a user is processed by physically returning a unit and receiving a replacement unit. Also, typically, system vendors don’t have the option to market advanced features of their products on a subscription or utility pricing basis.
The use of an appropriate software licensing technology enables a system vendor to streamline their manufacturing assembly line to a single physical product that can be sold with basic functionality enabled, with additional features enabled on-site upon payment of additional fees, either perpetually or on a subscription or utility pricing basis.
Get insight into usage of your products for a specific customer & across multiple customers
A functionally complete software licensing solution yields benefits that go beyond license protection and monetization: it maintains a database of all current licensing activity (for example the number of licenses that are active and / or expiring) as well as an audit trail of all licensing activity (for example identifying the administrative actions that were performed, along with their initiators).
Together, the information in the license database is useful for solving a number of high-business-value problems ranging from auditing individual customers’ activities, to proactively alerting sales representatives of expiring subscription licensing, to gaining business insight into one’s customers (for example, to answer questions such as who are the most active customes and what is the trend in their license usage).
Common Software Licensing Pitfalls: Case Studies
What are the issues that some users of home-grown and commercial software licensing solution have encountered? Here are real-world case studies, with names redacted for privacy.
Security software vendor uses watermarking for accountability-based license protection
A vendor offering obfuscation software for protecting applications implemented in interpreted languages from reverse engineering custom-generates a watermarked binary for each customer. The watermarked binary displays the licensed customer’s name whenever it is run. Unfortunately, copies of the binary can run on any machine.
Lesson: software licensing must be enforced – techniques such as watermarking and trust are wishful thinking.
Consumer / small-business software vendors unwittingly (?) use simple license keys for weak license protection
Several software vendors offer their installed products on a freemium basis: you download their time-limited trial product, and then purchase a production license and installed in the product. Unfortunately, the same key can be used on any number of installation. Furthermore, it is simple to serially perform endless time-limited evaluations.
Lesson: software licensing technology must be thought through.
Consumer desktop software vendor retracts use of intrusive licensing technology
A well-known consumer desktop software vendor, alarmed at the revenue loss due to software piracy and license oversubscription of its unprotected product, decided to incorporate a certain competitors “license activation” technology that locked a software installation to its machine. Sales dropped due to a backlash from irate customers who were inconvenienced due to the inability to seamlessly use their license on a desktop and laptop, or to effortlessly move their license to another machine. The vendor concluded that all software licensing technology was bad, and yanked the licensing technology from its products ie. they chose what they perceived was the lesser evil: living with software piracy.
Lesson: software licensing technology must be non-intrusive to the end customer, otherwise it can backfire.
Computer Aided Design software vendors use a leading but security-challenged license server for floating licensing
The CAD industry has standardized on a leading competitor’s floating license server. Unfortunately, the concurrent-user limits that are defined in the license keys for the server are easily circumvented through simple well-known techniques, resulting in license oversubscription. While this is not so much of a problem for the CAD vendors so long as their customers are restricted to a small number of large players in the close-knit US semiconductor industry, licensing oversubscription becomes an issue when selling to large numbers of much smaller customers, especially international customers. Furthermore, large customers often have to operate multiple license server installations, making pooling of licenses among regional offices more cumbersome.
Lesson: it is more important for a software licensing technology to be effective than for it to be offered by the largest vendor in the space.
