What is Elastic Licensing?
Elastic licensing (also referred to as elastic access) typically combines pay-per-use and subscription monetization models whereby customers lease a base-level of usage rights, but can expand capacity at any time to ensure supply always meets demand.
This form of software licensing is highly practical for products and services that have fluctuating usage patterns, with customers able to increase volume whenever necessary – perhaps for specific projects, seasonal peaks, or short-term, occasional use.
Common scenarios include producers enabling on-demand access to a broad suite of applications – potentially charging different rates for each – or cloud platforms that offer high-performance computing power that can instantly scale upon request.
The term ‘elastic licensing’ refers to the agile nature of this approach, with flexible usage rights that can stretch to accommodate sporadic periods of higher consumption before returning to the baseline.
How does elastic access work?
Base subscriptions cover expected, day-to-day usage levels, but customers can purchase extra credits (or tokens) in advance, which can be exchanged when additional access is required.
For instance, if an organization has an annual subscription for 70 users, they may also decide to buy 50 tokens that can be traded for additional use as needed.
A rate table will define the cost of each available item, and the tokens will burn down accordingly. Items can be any application, feature, capability, or resource the producer offers.
In the example below, Item C costs three tokens and the customer will be charged at this rate per hour until the item is either ‘returned’ (i.e., no longer required) or they run out of sufficient tokens and need to buy more.
What are the benefits of elastic licensing?
Usage-based monetization models present various advantages for both software suppliers and buyers, such as:
- Flexibility: Customers can utilize the right tools at the right time, scaling capacity to manage demand bursts or instantly accessing resources that only require intermittent use. This ensures projects and workflows continue without delay, creating a happy user experience.
- Cost optimization: An elastic licensing model helps prevent shelfware (unused software), as customers ultimately only pay for what they use. This safeguards against waste while also facilitating OpEx (Operational Expense) rather than CapEx (Capital Expense) accounting, which many companies view as simpler and more efficient. Furthermore, costs can be traced and charged to specific business units.
- Detailed usage reporting: With the ability to track peak usage, fluctuations in use, and the most requested items, customers can plan and manage subscriptions accordingly. Automated expiration and threshold alerts can also prevent surprise bills and ensure continuity of service. Additionally, producers can leverage usage data to see what features are driving the most value, while also identifying cross-sell and upsell opportunities within customer accounts.
- Reduced friction: The streamlined procurement allows customers to gain immediate access rather than going through traditional sales processes. Barriers to entry are also removed for small and medium-sized enterprises, or even home users, as the hurdle of upfront investment is replaced with a flexible plan that adapts to needs.
- Lower risk: With fewer barriers to entry and convenient pay-as-you-go functionality, the potential for software piracy and overuse is significantly reduced. As the risk of revenue leakage decreases, producers can expect healthier profit margins.
- Rapid updates: With a centralized cloud system, producers can make dynamic changes to product SKUs, swiftly introducing new pricing and packaging options to the rate table. Rapidly deploying new releases and reacting to market demands can help producers stay ahead of the competition, while also boosting customer satisfaction.
Ultimately, elastic access provides an agile framework that can help producers align price with value, increasing the ‘stickiness’ of solutions by offering a personalized approach that corresponds with how customers want to buy.
Producers looking to implement an elastic license model must ensure their system is designed with the following capabilities:
- Flexible rate tables to manage charges and pricing offers
- Elastic usage reporting that provides in-depth analysis
- Identity associated with consumption to see who or what is using tokens
- Exact charging for whole or part tokens based on precisely how long items are in use
- Budgetary controls for enterprise administrators to manage allocations
Example of elastic licensing
One of the leading proponents of this modern approach to flexible use rights is Ansys, who operate in the Engineering Simulation and Design (EDA) space.
Previously, some customers expressed frustration at not being able to scale access in a timely manner, resulting in project delays. However, the evolution of Ansys Elastic Licensing has greatly improved efficiency, as outlined in this short video:
With the 2023 Monetization Monitor reporting consumption-based models are expected to grow by 59% by 2025, elastic access is a hot topic for producers aiming to grow annual recurring revenue by optimizing the value delivered to customers.
You can learn more about the potential of elastic licensing in this webinar:
Future-Proofing Your Software Monetization Strategy