Advantages of Usage-Based Licensing for Software Vendors and Buyers



9 Advantages of Usage-Based Licensing in IP Protection (for Software Vendors and Users)

Software developers and vendors have faced challenges in protecting their intellectual property since the first commercially available applications were created. As software development and use expanded over the last 50 years, the variety of software licensing models has grown as well, to accommodate needs of both buyers and sellers.

Software makers have responded creatively to security issues and customer demands by building on the traditional “single user” paradigm and crafting more flexible licensing solutions outside of the perpetual use model.

One of the more common licensing models adopted by modern software manufacturers is usage-based licensing, or pay-per-use. One incredibly successful proponent of a usage-based pricing model is Amazon, whose Amazon Web Services provides an on-demand infrastructure platform with dozens of discrete services that are billed individually.

There are myriad ways to configure and price usage-based software licenses, with users paying per use or per feature, paying after a defined threshold is exceeded, or paying for a set number of days. Software pricing strategies are constantly evolving and becoming more sophisticated as technology improves and the competition for B2B software sales grows more fierce.

IP Protection Advantages of Usage-Based Licensing for Software Providers:

1. Encourages Greater Adoption and Market Expansion
A software maker may offer a suite or platform with optional extensions and features that incur additional costs when used. With a usage-based licensing plan, the vendor can charge for the extra features only as they are used. If users have access to the full application--and minimal charges to experiment with advanced features--they are much more likely to discover new processes that save time and money. This makes the software an essential productivity tool and increases the product’s “stickiness.” This principle also applies to free trial offers, during which users have access to the full version of a software package, but only for a limited period of time.

2. Enables an Easier and Shorter Sales Cycle
Long sales cycles are the norm for enterprise software, due to perceived risks to the buyer of a large upfront investment, implementation complications, worries about user adoption and a need for greater due diligence. Pay-as-you-go models ease many of these fears and objections. Initial cost is typically much lower, and if problems arise with adoption or deployment the client company has fewer perceived risks compared to traditional software investments.

3. Reduces Customer Churn and Improves Retention
When clients are billed based on actual use of a product, they can easily measure and track the product’s contribution to productivity and revenues. When the value provided by software is clearly attributed, the decision to renew or upgrade is simplified. Customers never feel that they are paying for “shelfware” that is purchased and not used or underutilized.

4. Allows Vendors to Offer Subscription-Based Licensing Features
Match the flexibility allowed by subscription-based pricing for locally installed and on-premise applications. Vendors can now meet buyer demands for payment per-use, payment based on specific types of transactions, transfer of a certain threshold of data, or other custom-defined use patterns.

IP Protection Advantages of Usage-Based Licensing for Software Buyers:

5. Control Costs
Purchasers know they can avoid wasted software expenditures for tools that aren’t used, along with a lower initial cost of implementation. While usage-based fees don’t necessarily reduce the cost of software, increased use (and cost) should lead to a corresponding increase in productivity. When a cost metric is directly tied to a revenue or productivity increase, it can be accurately projected for strategic planning purposes. If a counter-based payment system is used, buyers can predict a fixed cost with 100% confidence.

6. Encourage User Innovation
Users have greater flexibility to experiment with tools and workflows when they are paying incrementally and not investing everything in one tool and one way of accomplishing tasks. As an alternative to a “premium” feature package that is only available to be purchased in whole, users can try out optional tools and workflows without requesting an additional budget expenditure.

7. Maintain Business Flexibility
When companies purchase a software application, they are investing not only capital and training resources, but time to develop and optimize new processes. A large software investment can force a company to “lock in” to a certain process dictated by the application, and discourage process change. Lower costs typically incurred by usage-based models let users modify their tool stack and methodology based on current business conditions, rather than feeling like hostages to an expensive software platform.

8. Makes Compliance Management Simple
Reduce worries about license noncompliance and the threat of penalties and other negative consequences. With usage-based counters or other hard limits on access to intellectual property, companies reduce risk and increase the certainty that they are in compliance with licensing and user agreements.

9. Enable Multiple Users without Requiring Multiple Seat Licenses
Software users within the same organization often have very different roles that require varying levels of usage. One user may need to use an application once a month, while another may use it 10x per day. It makes no sense to require a company to buy each of these users an identical seat license, especially for premium enterprise software. This discrepancy can lead to extremely inefficient processes; for example, when only one licensed “seat” is authorized to use a critical application and team members are waiting for a task to be completed.

As you can see, there are many concrete benefits for software developers and vendors who choose to think outside the traditional software licensing model. As technology continues to advance and data systems are better integrated, business in every industry is moving toward more real-time decision making with big data and analytics at the core.

In this world, companies expect to pay only for products and services that genuinely impact the bottom line or grow revenues. Considering this environment, the development and adoption of more sophisticated forms of usage-based licensing should continue as well.

KEYLOK offers a variety of hardware-based solutions to accommodate a vast array of usage-based licensing scenarios. Easily integrated, platform independent, and customizable to meet the needs of nearly any licensing model, KEYLOK dongles are an economical way to protect and monetize software makers’ intellectual property with the security only hardware can provide. Call us today to discuss your optimal licensing objectives, and see how we can help!