By Victor DeMarines, Revenera
Success for software suppliers in 2021 will rely on the ability to meet and exceed customers’ expectations. Offering new monetization models can not only meet the needs of users but accelerate time to value for your organization.
Today, many software suppliers are pivoting from offering perpetual models (which require a “sell once” approach) to offering subscription or usage- and outcome-based models (requiring an approach anchored in ongoing customer success and engagement). Subscription and usage-based models will be the two largest growth categories in the coming 12–18 months, growing 53% and 48%, respectively, as shown in the Revenera Monetization Monitor: Monetization Models and Pricing 2020 report.
As software suppliers evaluate how to adapt their monetization programs to deliver solutions that meet customer preferences, it’s important to ensure that monetization and compliance initiatives are evaluated together as part of a comprehensive strategy. Bringing multiple departments within an organization together will help successfully operationalize a monetization program.
Whether you’re evolving from a perpetual model to a subscription or usage-based model or if you’re supporting multiple models, consider the following five questions to help grow and improve your software monetization program.
1. What Are The Jump Off Points In Your Software?
Freemium offerings (in which basic or entry-level functionality is offered free of charge with the goal of enticing users to upgrade to paid premium packages) and software trials are growing in popularity. This makes pricing strategy increasingly important. While product usage analytics is being leveraged quite a bit on the web and in mobile apps, there’s a big gap—and a significant opportunity—in how it can be used for on-premises software, for example.
Where do people get stuck in a free evaluation? What do your users value? What are they willing to pay for? Do you offer the monetization models that meet users’ (and prospective users’) needs? Knowing if customers are using the software, if usage is increasing or decreasing, which features are being used, and where users are jumping off or disengaging are all important metrics. These can help software suppliers and product marketing managers identify the most valuable features, prioritize a product roadmap based on that information, and focus marketing on in-app messaging product onboarding initiatives that drive trial users to convert to paying customers.
Insights into users’ behavior drive effective pricing. Yet, as found in the Revenera Monetization Monitor: Software Usage Analytics 2020 report, not even 1 in 5 of the companies that have issues accurately tracking usage feel that pricing is aligned with value; among companies that are very good at collecting usage data, this number jumps to 58%. Delivering value that’s aligned with price is an important element of customer retention.
2. How Accessible Is Your Usage Analytics Data?
Software companies are increasingly interested in collecting—and taking actions based on—usage data. More than 3 out of every 4 are planning to collect usage data within the coming two years.
But whether you’re just beginning or if you have a well-established usage collection program, be sure to evaluate how accessible that data is. Creating a process that automates visualizing of key software adoption and usage trends and that can be easily shared within the organization is one of the most important steps to making that data actionable. When that data is available to various internal stakeholders, enterprises can leverage data in multiple ways. Knowing how products are being used:
- Provides insights into how to price a product,
- Spotlights the functionalities your customer base values the most,
- Identifies piracy and unauthorized usage scenarios,
- Informs policies around licensing and technology implementation.
With these goals in mind, make sure that usage analytics data is built to be accessible. Product management, marketing, DevOps, sales, and customer retention teams may all rely on it. If someone must rely on IT or needs to build an SQL query to access it, the data’s too hidden. Instead, expose and visualize that information and make it shareable among your product group
3. What Is Causing Revenue Leakage?
Tough economic times often make companies pay increased attention to revenue leakage. That certainly became clear again during the COVID-19 pandemic, as companies tried to maximize revenue.
To fix a revenue leakage problem, you must first be able to find it. Some suppliers may not be paying attention to it; others are but may not be able to pinpoint the cause. Types of revenue leakage to consider and measure include:
- Intentional piracy,
- Unintentional piracy, through the purchase of unauthorized software,
- Unauthorized credential sharing in user-based models,
- Unintentional overuse in user- or usage-based monetization models, and
- Unintentional overuses from cloning virtual machines.
Some products may have high exposure to intentional piracy. Others, such as those tied to specific hardware, may be of very high value to the user while being less at risk of piracy. Unintentional overuse may be very common, driven in part by a lack of usage transparency. Each organization’s tolerance will vary, but identifying leaks is the first step to recapturing lost revenue and protecting your intellectual property (IP).
4. How Are Your Compliance And Enforcement Goals Aligned?
As software buyers’ budgets tighten up in 2021, we’re likely to see an extension of a trend noted in 2020. To add revenue, suppliers may continue to invest in existing compliance programs and look to monetize unauthorized or overuse of their products. Companies may ramp up existing compliance programs, previously focused on IP protection, to increase revenue. Focusing on a compliance program can deliver more than revenue recovery; it can provide improved market insights and can help with the rollout of new monetization models (e.g., making the move from perpetual to subscription.)
To begin, look at your install base and identify the low-hanging fruit. Who are the unauthorized users who you can convert to—and keep as—paying customers?
When software suppliers take this approach, they must ensure that compliance and enforcement goals are aligned. If a user finds value in using your software, encouraging them to pay for access, rather than cutting off that previously non-compliant user, can help build a long-term paid user relationship. A growth-focused goal is to build customer relationships. Set compliance parameters and address how to flag issues before they significant problems.
5. What Role Do Audits Play?
In the past, audits have had a negative connotation. But a forward-focused, proactive audit model, executed to identify compliance issues before they become problems (rather than looking back months or year) can help both the software supplier and user.
With a data-driven approach, suppliers can pinpoint areas of concern regarding usage. Suppliers can not only audit customer usage but can target prospects, such as inactive customers that are running unlicensed software. Customers also have access to usage data, providing them with the ability to self-audit, as well. This can reduce clashes and help get to license compliance more quickly.
About The Author
Victor DeMarines is the Vice President of Software Monetization Product Management at Revenera (formerly known as Flexera’s Supplier Division). Vic joined Revenera via the acquisition of Revulytics and was a founding member of the team since 2006. He is now responsible for leading the Software Monetization product management team. Before Revenera, Vic held senior product management positions at RSA Security (now part of EMC) where he drove product strategy for the company’s strong authentication, Smart Card, and enterprise Single Sign-On client products. He also has held senior product roles at Authentica where he was instrumental in defining product strategy for the company’s enterprise rights management and secure email solutions, and at AXENT Technologies and Progress Software.