In the previous blogs, we discussed subscription based software licensing which combines the right-to-use along with access to software updates for typically a yearly fee. This week’s blog looks at a few examples of Usage Based Models.
All of the commonly usage-based license models will have five important elements that are often “throttled” to achieve different business results:
- The breadth of software access (some or all products)
- The term (or combination of terms) over which the license can be used or is applicable
- Maintenance/support inclusion
- Payment terms (upfront, or in arrears after usage occurs)
- And associated business policies to govern acquisition.
Most usage-based license models have some built-in pricing premium to account for the increased value, the flexibility of usage provides to the user.
Below is a sampling of some common usage models that we have helped our customers deploy:
Term Licenses: Licenses are available in a variety of pre-configured terms and price-points, such as 3-year, 2-year, 1-year, 6-month, 3-month, 1-month, etc. This allows the customer to establish a budget and purchase products when needed. Some frequently used products can be purchased for the longer terms such as 3-year, whereas sometimes products may only be required for 1-month to meet seasonal or peak-usage demands. Term licenses are often sold with caveats or business conditions, such as licenses sold with a term less than a year can only be purchased when the same software license for 1 year or more has been purchased (because they are sold as “overdraft protection”), or whether or not maintenance is included (as one way to control the revenue recognition effects).
Remix: The customer has access to an identified set of software for a term such as a year, but the customer can change the quantities or some percentage of the software periodically (e.g., 25% of the list price value can be changed quarterly) to phase out software that isn’t being used and replace it with software that is in high demand. Extreme care must be given to revenue recognition affects when allowing customers to access software over the term of the license that were not available at the time the remix license arrangement is initially constructed. Maintenance is typically included. This is used often in the Electronic Design Automation (EDA) industry.
Token: There are many variants of tokens, but in general a token is a granular unit of measure, either in dollars (to represent cost), or activity (e.g. 1 transaction) that can be applied across multiple products in the product portfolio. The customer will typically buy “X” number of tokens, which will then be counted and “consumed” as the software is used. Tokens are typically purchased in advance of usage and counted down until exhausted. For example, an hour of using Product A may consume 1 token, whereas using an hour of Product B may consume 2 tokens. Typically, maintenance is included. Tokens are used by various companies in the design and engineering markets, including Silvaco, Accelrys, Aspen Technology, and others.
Workbench: A defined set of software is licensed as a unit based upon the role of the user of the software (e.g. basic accountant, expert accountant, etc). There is a billing event if any of the software is used during the course of a period (e.g., a quarter). Since the software is sold based upon a user’s role, there shouldn’t be a huge amount of usage variance among different types of users, but some variance is tolerated and built into the license model and associated price structure. Maintenance is typically included with the license. Wind River has employed such an approach.
Debit Card: This is not so much a license model as it is a financial arrangement and fulfillment mechanism to deploy pre-defined term licenses or tokens. With a debit card, the customer pre-pays a dollar or token amount, and then draws-down against the dollar amount the software as it is needed, in the quantity and timeframe required. There may be business rules such as the minimum value of the “deal”, and the timeframe over which the software must be deployed, as part of the T’s and C’s. Sometimes the dollars are also called “tokens”. Maintenance is typically provided along with the software provided in the debit card. Cadence Design systems employs such a system called EDA-on-Tap.
Acresso Global Consulting Services has developed a tool that can help you determine if a usage-based model is appropriate for you. The results will help facilitate a discussion on which of the different flexible models may apply best for you. If you would like to have access to the tool, please let us know!
Tell me about the models you are using?
If you are an enterprise, what models are most attractive to you financially and for your business?