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2011 Key Trends in Software Pricing
               & Licensing Survey
                 Sponsored by Flexera Software
2011 Key Trends in Software Pricing
& Licensing Survey
Sponsored by Flexera Software


Overview of Survey Findings

The 2011 Key Trends in Software Pricing and Licensing Survey of 348 participants, prepared with assistance from
IDC, found that:

         Perpetual/Subscription

              Application producers derived 79% of their software revenues from perpetual licenses, 15% via
              subscription.
              Application producers expect perpetual license revenues to decline an average of 10% over the next two
              years, and subscription revenues to increase by an average of 6% over the next two years.

         Metrics

              The number of application producers that are pricing based on a usage metric (number of uses, time
              used and number of transactions) is expected to double in the next two years, from 22% today to 43%.
              This is consistent with the results of last year's survey, with usage metrics expecting to experience the
              most growth as compared to other models.
              Of the total survey population, 47% of application producers do not monitor customer usage. Of the
              survey population that is either doing usage-based pricing today or plans on doing usage-based pricing
              in the next two years, 48% do not monitor customer software usage.
              In terms of hardware-based metrics, the number of application producers offering processor-based
              metrics is expected to decline by 18%, while the number of application producers offering processor core
              is expected to grow by 34%.
              The most common metrics used today, per seat and concurrent user, will remain relatively flat in the next
              two years, with an 8% decrease in per seat offerings and a 7% increase in concurrent user offerings.

         Enforcement

              The most common means of enforcement is network-based licensing and product activation. According
              to enterprises, these are their favored approaches as well.
              These means of enforcement will also increase by the greatest margin in the next two years (48% and
              54%, respectively).
              Most enterprises (53%) rely primarily on software asset management for tracking, management and
              reporting of their software licensing/usage today. 20% are doing this manually, relying primarily on
              spreadsheets.
              The most common primary reason that customers are tracking usage is for compliance purposes;
              however 31% are tracking usage primarily to reduce shelfware.



2011 Key Trends in Software Pricing and Licensing Survey                                                            2
Of the ways that customers track usage, the highest satisfaction rating is for vendor provided tools, with
              90% of customers that primarily use that approach indicating that they are satisfied. The least favored
              approach—manual/spreadsheets — registers only 22% satisfaction.
              Enterprises believe that it is harder to maintain compliance for infrastructure (not applications) software.
              The primary reason for difficulty, according to customers, is that licensing is too complex.

         Audits

              Most application producers did not perform any audits at all in the last year (60%)
              Most application producers that did perform audits did 10 or less.
              For the vast majority of application producers that performed audits, the award was less than $100,000.
              Our enterprise survey corroborated this data.
              The application producers listed by enterprises as conducting audits within the last year included
              Microsoft, Oracle, IBM, and SAP.

         Licensing Effectiveness

              55% of application producers think their current licensing strategy does a good job of capturing value.
              And 70% in that population plan on making additional licensing strategy changes to capture more value
              in the next two years.
              Application producers with concurrent licensing were most likely to rate their licensing/value equation as
              being effective (77%). In addition, 40% of enterprises listed concurrent licensing as their preferred
              approach, the highest percentage of any category.
              Application producers with processor-based licensing were most likely to rate their licensing/value
              equation as being ineffective or very ineffective (60%).

         Entitlements

              Most application producers (62%) believe that it is difficult to somewhat difficult for customers to
              determine which products they are entitled to use and what they are using.




Survey Background

The 2011 Key trends in Software Pricing and Licensing survey was conducted by Flexera Software with input from
IDC‘s Software Pricing and Licensing Research division under the direction of Amy Konary, research vice president -
software licensing and provisioning at IDC. This annual research project looks at software licensing, pricing and
enforcement trends and best practices. The survey reaches out to executives at application producers and
enterprises who use and manage software and devices. Now in its seventh year, the survey is previewed at the
                   ®
annual SoftSummit Conference and made available to the industry at large each year.




2011 Key Trends in Software Pricing and Licensing Survey                                                                3
Methodology and Sampling

In total, 348 respondents participated in the survey, including 98 enterprise executives and 250 application producers
(defined as software vendors and intelligent device manufacturer) executives.


         Enterprise Demographics

         More than one-half of the enterprise respondents were from larger enterprises of more than $1 billion in
         revenues, and more than a third were from companies with $3 billion in revenues or more. 45% were from
         North America, 38% from Europe, 13% from Asia Pacific, and 2% from the Middle East.



             Which of the following best represents your
                    annual company revenues?
                                                                   Less than $100
                                                                   million
                                                                   $101 - $999
                                                                   million
                                                                   $1 billion - $3
                                                                   billion
                                                                   > $3 billion

                                                                   Do not know




         Application Producer Demographics

         The largest segment of application producer respondents (47%) came from companies with under $10
         million in revenues. The remainder were divided relatively equally across all revenue levels. 72% were from
         North America, 21% from Europe, 6% from Asia/Pacific, and 1% from the
         Middle East.


             Which of the following represents your annual
                     product licensing revenues?         Less than $10 million

                                                                 $11 - $30 million

                                                                 $31 - $50 million

                                                                 $51 - $100 million

                                                                 $101 - $500 million

                                                                 $501 million - $1 billion

                                                                 Over $1 billion

                                                                 Do not know


2011 Key Trends in Software Pricing and Licensing Survey                                                           4
Individual Findings


Pricing Flexibility and Value

         Usage-Based Pricing Remains Popular, but Seat-Based Pricing Gaining Popularity

         The most popular software pricing model for enterprises (40%) is concurrent user (floating/network) licensing
         (down from 60% last year). However, the demand for usage-based pricing remains significant at 17%.
         Seat-based licensing models (per machine/server and named user) have gained popularity, with 30% of
         respondents preferring those models, compared to 9% in 2010.



                 What is the software pricing model you prefer for
                           enterprise class applications?
                                                                               Processor


                                                                               Processor core


                                                                               Seat (per machine/per server)


                                                                               Seat (named user)


                                                                               Concurrent user (floating/network)


                                                                               Usage metric (number of uses,
                                                                               time used, number of
                                                                               transactions)
                                                                               Financial metric (revenue, cost,
                                                                               royalty)




2011 Key Trends in Software Pricing and Licensing Survey                                                            5
Application Producers Continue to Offer a Wider Variety of Software Pricing Models:

         Application producers continue to offer a growing variety of pricing models in response to greater demand by
         customers. More are offering seat (per machine/per server) – 70% in 2011 vs. 65% in 2010, seat (named
         user) – 34% in 2011 vs. 27% in 2010, concurrent user (69% this year vs. 63% last year) and financial metric
         (12% this year vs. 6% in 2010). There have been slight decreases over last year in the number of
         application producers offering processor, processor core and usage metric models. Over the course of the
         next two years, we can expect to see a large increase in the number of application producers offering usage
         metric pricing models (43%).


                        Which pricing models do you offer for your packaged
                        software or intelligent device today? Product that is
                                             priced per…
           80%
           70%
           60%
           50%
           40%
           30%
           20%
           10%
            0%
                                                                                            (floating/network
                                                                     Seat (named
                                                       machine/per




                                                                                                                                          Financial metric
                         Processor




                                                                                                                    (number of uses,
                                      Processor core




                                                                                                                                                             Other (please
                                                                                            Concurrent user




                                                                                                                                          (revenue, cost,
                                                        Seat (per




                                                                                                                      Usage metric


                                                                                                                      number of…
                                                         server)




                                                                                                                                                               specify)
                                                                                                                       time used,
                                                                        user)




                                                                                                                                              royalty)
                                                                                                     )




                        Looking forward in the next two years, which pricing
                        models do you expect to offer? (Select all that apply).
                                    Product that is priced per…
           80%
           70%
           60%
           50%
           40%
           30%
           20%
           10%
            0%
                         Processor




                                                                                                                                          Financial metric
                                      Processor core




                                                                                                                                                             Other (please
                                                       machine/per




                                                                                                                    time used, number
                                                                        Seat (named user)




                                                                                               (floating/network)




                                                                                                                                          (revenue, cost,
                                                                                                Concurrent user



                                                                                                                      (number of uses,
                                                        Seat (per




                                                                                                                       of transactions)
                                                                                                                        Usage metric
                                                         server)




                                                                                                                                                               specify)
                                                                                                                                              royalty)




2011 Key Trends in Software Pricing and Licensing Survey                                                                                                                     6
Revenue Generation & Customer Satisfaction Driving Changes:

         42% of application producers indicate that they have changed their pricing and licensing policies over the
         past two years to make them more flexible. The top two reasons for this shift have been to improve
         customer relations (46%) and generate more revenue (40%). Accelerating the sales cycle (27%) was also
         cited as a key reason for broadening pricing and licensing policies.



                                    Did providing more flexible licensing and pricing
                                               policies help the company:
                        50%
                        45%
                        40%
                        35%
                        30%
                        25%
                        20%
                        15%
                        10%
                         5%
                         0%
                                              customers
                                  Generate




                                                                                    developmen
                                                           Accelerate




                                                                        Free R&D




                                                                                                 applicable




                                                                                                              specify)
                                                                        resources




                                                                                                              (please
                                  revenue




                                                            the sales
                                               relations




                                                                                                               Other
                                               Improve




                                                                                     Decrease
                                    more




                                                              cycle
                                                  with




                                                                                                    Not
                                                                                       t cost

         Both Enterprises and Application Producers Are Largely Satisfied with Current
         Pricing Models:

         The survey asked enterprises to rate their satisfaction of pricing for database, middleware, ERP, CRM,
         engineering and desktop applications. The applications eliciting the highest satisfaction (responses of ‗highly
         satisfied‘ or ‗satisfied‘) included desktop applications (44 respondents) and engineering/technical
         applications (38 respondents). Those eliciting the lowest (responses of ‗unsatisfied‘ or highly unsatisfied‘)
         included ERP software (19 respondents) and database software (18 respondents).




2011 Key Trends in Software Pricing and Licensing Survey                                                                 7
How would you rate your price-to-value satisfaction of
                                          the following types of software?
             # of respondents

                                120
                                100
                                 80
                                                                                                               Highly satisfied
                                 60
                                 40                                                                            Satisfied
                                 20                                                                            Neutral
                                  0
                                                                                                               Unsatisfied




                                                                                                Applications
                                                                     CRM



                                                                           Engineering/Tech
                                       Database




                                                               ERP
                                                  Middleware




                                                                           nical Applications



                                                                                                 Desktop
                                                                                                               Highly unsatisfied
                                                                                                               N/A




         62% of application producers said that their pricing and licensing strategies captured the value of their
         software effectively, down considerably from 2010 when the response was 79%. 23% consider their pricing
         strategies either ‗ineffective or ‗very ineffective‘, compared to 14% in 2010.


                          How would you rate the overall effectiveness of your
                       company’s pricing and licensing strategies in capturing the
                            value that your product provides to customers?



                                                                                                                     Very ineffective
                                                                                                                     Ineffective
                                                                                                                     Effective
                                                                                                                     Very effective
                                                                                                                     Don't know




Software Usage, Delivery and Enforcement

         Software Budgets Starting to Increase

         43% of enterprises report that, looking ahead two years, they expect their software budgets to increase – up
         from 33% in 2010. 28% expect their budgets to stay the same, and 22% expect them to decrease.




2011 Key Trends in Software Pricing and Licensing Survey                                                                                8
Looking forward two years, do you expect your
                               software budgets to...



                                                                                                 Decrease
                                                                                                 Stay the same
                                                                                                 Increase
                                                                                                 Do not know




         Percentage of Total Software Budgets Assigned to New Software Varies

         The percentage of total software budget within enterprises assigned to new software purchases varies
         greatly. 23% report that between 1-10% of budget is assigned to new software, 21% report the figure being
         between 11-20% of their budgets, and 24% report it being more than 20%.


                    What percentage of your total software budget is
                          assigned to new software licenses?

                                                                                            0%
                                                                                            1-10%
                                                                                            11-20%
                                                                                            21-30%
                                                                                            31-40%
                                                                                            41-50%
                                                                                            51-60%
                                                                                            61-70%
                                                                                            > 70%
                                                                                            Do not know




         Managing Software Licensing & Usage is Critically Important for Enterprises



2011 Key Trends in Software Pricing and Licensing Survey                                                         9
72% of enterprises indicated that compared to other objectives, managing software licensing and usage is
         important or very important. Only 12% indicated it is unimportant.



                        Compared to your other objectives, how important is
                              managing software licensing/usage?



                                                                                                   Very unimportant
                                                                                                   Unimportant
                                                                                                   Neutral
                                                                                                   Important
                                                                                                   Very important




Application Producers Aware of Customers’ Usage & Entitlement Tracking Challenges

         62% of application producers believe it is somewhat or very difficult for customers to determine their software
         product entitlements. 34% believe customers have no difficulty.


                                     How difficult do you believe it is for your customers to
                                    determine which of your products they are entitled to use
                                               and what they are actually using?
                               50
            # of respondents




                               40

                               30

                               20                                                                     Answer Choice

                               10

                                0
                                    No difficulty   Somewhat difficult   Very difficult   N/A




         Moderated Approach to Adopting Cloud Licensing Strategies


2011 Key Trends in Software Pricing and Licensing Survey                                                              10
Application producers are taking a gradual view in anticipating licensing strategy changes to accommodate
         the Cloud. 46% indicate the changes they‘ll need to make will be moderate over the next two years. 34%
         anticipate no change. While 21% indicate changes will be significant or dramatic.


             Please rate the level of your agreement with the following
              statement: In the next 24 months, my company's current
             licensing strategy will need to change in order to adapt to
                       the requirements of cloud computing.




                                                                                1 = Stay the same/no change
                                                                                2 = Moderate changes
                                                                                3 = Significant changes
                                                                                4 = Dramatic changes




2011 Key Trends in Software Pricing and Licensing Survey                                                         11
Subscription Software Licensing Models Continue to Grow

         Subscription-based license models represent an important source of revenue for application producers today
         – though the majority still derive most of their revenue from perpetual licenses.




                          Thinking of your total software licensing revenue, what
                         percentage is associated with the following license types?


           81
           77
           73                                                                               Percent of Revenue
                                                                                            Associated with
           69                                                                               Perpetual Licenses
           65
           61
           57
           53
           49
                                                                                            Percent of Revenue
           45                                                                               Associated with
           41                                                                               Subscription/Term
           37                                                                               Licenses
           33
           29
           25
           21                                                                               Percent of Revenue
           17                                                                               Associated with
           13                                                                               Other License Types
                                                                                            (such as usage
            9
                                                                                            based)
            5
            1
                0%             20%               40%       60%       80%           100%




2011 Key Trends in Software Pricing and Licensing Survey                                                          12
Over the next two years, subscription-based licenses will represent an increasing source of revenue for
         application producers.




                        Looking forward in the next two years, what percentage of
                          your total packaged software and/or intelligent device
                           license revenue will be associated with the following
                                              license types?

           81
           77                                                                                Percent of Revenue
                                                                                             Associated with
           73
                                                                                             Perpetual Licenses
           69
           65
           61
                                                                                             Percent of Revenue
           57
                                                                                             Associated with
           53                                                                                Subscription/Term
           49                                                                                Licenses
           45
           41                                                                                Percent of Revenue
           37                                                                                Associated with
           33                                                                                Other License
           29                                                                                Types (such as
           25                                                                                usage-based)
           21
           17
           13
            9
            5
            1
                0%             20%               40%       60%         80%           100%




2011 Key Trends in Software Pricing and Licensing Survey                                                           13
Virtualization on the Rise Within Enterprises

         Most enterprises report that they have adopted some level of virtualization technology. The type of
         virtualization deployed and the extent of that adoption vary widely across respondents.


                                             What virtualization technologies has your
                                                      organization adopted?
                      100
                       90
           # of Respondents




                       80
                       70                                                                                                        < 20%
                       60                                                                                                        20-40%
                       50                                                                                                        40-60%
                       40                                                                                                        60-80%
                       30                                                                                                        > 80%
                       20
                       10
                        0
                              Server virtualization (% Desktop virtualization        Application       Hard partitioning (% of
                                   of servers)           (% of desktops)        virtualization (% of     physical servers)
                                                                                   desktop apps)




         Strategies for Managing Software Licenses in Virtual Environments Vary

         36% of enterprises use automated commercial license management software to manage their virtual
         licenses. 26% do so manually, while 21% use the tools supplied by their virtualization vendor.


                      How do you manage software licenses in your
                                virtual environments?

                                                                                                          Automated commercial license
                                                                                                          management software
                                                                                                          Software provided by the
                                                                                                          (virtualization) vendor
                                                                                                          Automated homegrown
                                                                                                          software
                                                                                                          Manual methods, including
                                                                                                          spreadsheets
                                                                                                          We don‘t manage software
                                                                                                          licenses in our virtual
                                                                                                          environments




2011 Key Trends in Software Pricing and Licensing Survey                                                                                  14
Varied Software License Optimization Approaches for Virtualized Environments

         While 83% of enterprises take into account license entitlements such as software product use rights, and
         upgrade/downgrade rights when managing licenses in a virtualized environment, 50% do so for only key,
         high-value vendors and only 33% do so across all vendors.


             Do you take into account license entitlements (e.g., software
             product use rights such as upgrade rights, downgrade rights,
            etc.), which are part of all software license agreements, in your
            analysis when reconciling your organization’s software license
                                             pos


                                                                                 Yes, for all vendors

                                                                                 Yes, for key high-value
                                                                                 vendors
                                                                                 No




         Shelfware and License Non-Compliance Challenges Persist for Enterprises

         Only 15% of companies report that none of their software spend is associated with out of compliance
         applications – down from 30% last year. 35% report that between 1-10% of their software license spend is
         associated with applications that are out of compliance – slightly lower than 2010 (37%), 16% report that 11-
         20% of their applications are associated with out of compliance applications (up from 7% last year).



                 What percentage of software license spend within your
             organization do you estimate is associated with applications that
                     are overused and therefore out of compliance?


                                                                                              0%
                                                                                              1-10%
                                                                                              11-20%
                                                                                              21-30%
                                                                                              31-40%
                                                                                              41-50%
                                                                                              > 50%
                                                                                              Do not know

2011 Key Trends in Software Pricing and Licensing Survey                                                            15
The levels of software underuse (―shelfware‖) have not changed substantially over 2010 and suggest there
         still is room for improvement. Only 4% of enterprises report no spend associated with shelfware, 25% report
         that up to 10% of their application spend is associated with shelfware, and 27% say that up to 30% is
         associated with underused applications.



                What percentage of software license spend within your
            organization do you estimate is associated with applications that
                are underused (shelfware) and therefore over-licensed?


                                                                                             0%
                                                                                             1-10%
                                                                                             11-20%
                                                                                             21-30%
                                                                                             31-40%
                                                                                             41-50%
                                                                                             > 50%
                                                                                             Do not know




         Tracking Customer Usage Remains Blind Spot for Application Producers

         Of the application producers responding, the largest proportion, 47%, report that they do not monitor
         customer usage of their products. For those that do, 20% report doing so using internally developed tracking
         tools, and 16%, using manual audits. Only 10% use third party tracking tools.


                  How do you primarily monitor your customers’ usage
                                  of your product?


                                                                                We do not monitor customer
                                                                                software usage
                                                                                Manual audits

                                                                                Third-party usage-tracking
                                                                                tool(s)
                                                                                Using internally developed
                                                                                usage-tracking tool(s)
                                                                                Do not know

                                                                                Other (please specify)

2011 Key Trends in Software Pricing and Licensing Survey                                                          16
Enterprises Use a Variety of Tracking Methods

         98% of all enterprises track, manage and report on their software usage – the majority of which (53%) use
         commercial software asset management systems. 20%, however, still track usage manually using
         spreadsheets. The top two reasons for tracking usage were the same in both 2011 and in 2010 – but the
         ratios were reversed. In 2011 56% cited ‗ensuring compliance‘ (32% in 2010), and 55% in 2011 cited
         ‗reducing software costs/minimizing shelfware spending‘ as their primary reasons (32% in 2010). 66% of
         respondents are satisfied or very satisfied with their current methods for tracking licensing and usage.


           How do you primarily perform tracking, management and reporting
                       of your software licensing/usage today?


                                                                      Automated (commercial) software, which is
                                                                      part of our asset management system

                                                                      Use software provided by the vendor


                                                                      Automated (homegrown) software, our own
                                                                      system used only for license management

                                                                      Manual methods, including the use of
                                                                      spreadsheets

                                                                      Do not currently track




           If you are currently managing your software licensing/usage, what
                       is the most important reason for doing so?


                                                                        Reduce software costs/minimize
                                                                        shelfware spending

                                                                        Ensure compliance with vendor
                                                                        agreements (and reduce cost and
                                                                        risk of an audit)
                                                                        Prevent downtime due to denials in
                                                                        the middle of critical projects
                                                                        (concurrent licenses)
                                                                        Do not manage software
                                                                        licensing/usage




2011 Key Trends in Software Pricing and Licensing Survey                                                             17
If you are currently managing your software licensing/ usage, how
                           satisfied are you with the current method?




                                                                                              Very dissatisfied
                                                                                              Dissatisfied
                                                                                              Satisfied
                                                                                              Very satisfied




         Enterprises Would Prefer Enforcement via Network Licensing

         48% of enterprises prefer enforcement of their software license via network licensing (activation by an
         internally shared license) down from 67% in 2010. Lesser-preferred methods include product activation,
         vendor-supplied monitoring with annual true-up, and compliance audits. Dongles and locally-checked serial
         numbers are the least preferred enforcement mechanism.


            If a software vendor gave you a choice, which of
          the following means of software license enforcement
                         would you prefer most?
                                                                              Product activation (software
                                                                              activated over the internet by
                                                                              vendor key)
                                                                              Network licensing (software
                                                                              activated by internally shared
                                                                              license)
                                                                              Trust-based licensing with manual
                                                                              vendor compliance audit
                                                                              Vendor-supplied automated
                                                                              monitoring mechanism with annual
                                                                              true-up
                                                                              Serial numbers checked locally


                                                                              Dongle/USB




2011 Key Trends in Software Pricing and Licensing Survey                                                          18
Lack of Automation Hinders Usage Tracking in Enterprises

         Enterprises most frequently cited desktop, engineering and middleware software as being difficult or very
         difficult to track usage and maintain license compliance. They most frequently (33%) cite lack of automated
         tracking mechanisms as the reason.




                               For which types of software is it difficult to track usage and maintain
                                                       license compliance?
                         120
           # of Respondents




                         100                                                                                                   No difficulty
                          80                                                                                                   Difficult
                          60
                          40                                                                                                   Very difficult
                          20                                                                                                   N/A
                           0




                                                                                          Applications
                                                                     Engineering/Techni
                                                             CRM
                               Database




                                                       ERP
                                          Middleware




                                                                                                              Based Software
                                                                                                               Other Server-
                                                                      cal Applications



                                                                                           Desktop



             If you checked "difficult" or "very difficult" to any software type in the
                      previous question, what is the primary reason why?



                                                                                                         Licensing policy is too complex

                                                                                                         IT environment is too complex

                                                                                                         IT management is too
                                                                                                         decentralized
                                                                                                         No automated tracking
                                                                                                         mechanisms in place




2011 Key Trends in Software Pricing and Licensing Survey                                                                                        19
Application Producers Cite Numerous Methods Their Customers Use to Track Entitlements

         Application producers believe their customers use a variety of methods to manage entitlements including
         web-based entitlement management systems, home grown systems, manually, and through customer
         inquiries. 24% do not think their customers manage entitlements.




                                             How do you believe your customers manage their
                                                          entitlements today?
           40%
           35%
           30%
           25%
           20%
           15%
           10%
             5%
             0%




                                                                                                                                                                                                          Don't know
                       Via access to web-based




                                                                                Manually, with some automation




                                                                                                                                               They don't manage their
                                                                                                                    Manually, with almost no
                                                 By using their own homegrown




                                                                                                                                                                         By calling customer support to
                       entitlement management




                                                                                for spreadsheets or similar tools
                        system provided by us




                                                                                                                                                                           get up-to-date entitlement
                                                    entitlement management




                                                                                                                                                    entitlements
                                                                                                                         automation




                                                                                                                                                                                   information
                                                             system




2011 Key Trends in Software Pricing and Licensing Survey                                                                                                                                                               20
Many Application Producers Lack Automation to Monitor Usage; Recognize Need to modify
         Licensing Strategies

         47% of application producers say they either do not have technology in place that enables them to know
         what product, product version or platforms their customers are using – or they simply do not know. They see
         the need to change their licensing strategies to deploy technologies that better track licensing (42%), that
         better enforce their licenses (40%), that support pay-as-you-go schemes (26%), and that accommodate
         short bursts of use (19%).




            Do you have technology in place that enables you to know
                what product, product versions or platforms your
                             customers are using?



                                                                                                                                                                    Yes

                                                                                                                                                                    No

                                                                                                                                                                    Do not know




                              In the next year, in what ways will your licensing strategy
                                                    need to change?
           45%
           40%
           35%
           30%
           25%
           20%
           15%
           10%
            5%
            0%
                                                               Need to move away




                                                                                   better enforcement
                                          accommodate micro-




                                                                                                                                 Need to develop a




                                                                                                                                                     Need to support a
                                                                                                        better track licensing
                      accommodate short




                                                                                                                                                                          making any changes
                                                                                                                                 temporary license




                                                                                                                                                                           We do not plan on
                                                                from CPU-based




                                                                                                                                                      pay-as-you-go
                                                                                                         technologies that
                                                                                     Need to deploy




                                                                                                          Need to deploy




                                                                                                                                                                            to our licensing
                                                                                      technologies
                         bursts of use




                                                                                                                                                         scheme
                                                                    licensing
                           Need to




                                               licensing




                                                                                                                                                                                strategy
                                                Need to




                                                                                                                                       type




2011 Key Trends in Software Pricing and Licensing Survey                                                                                                                                       21
Compliance Audits Continue to Gain Steam

         Network licensing (56%) continues to be application producers‘ most predominantly used enforcement
         mechanism, followed by product activation (48%). ‗Compliance audits‘ tied with ‗serial numbers‘ (28%) for
         the third most used method. 15% indicated that within the next two years, the need for compliance audits
         will increase.


                                        Which of the following means of enforcement does your
                                                          company use today?
           60%
           50%
           40%
           30%
           20%
           10%


                                                                                                                 activated over…




                                                                                                                                       activated by…
            0%
                                     None




                                                              checked locally



                                                                                             Dongle/USB




                                                                                                                                                             compliance audit




                                                                                                                                                                                                     Other (please
                                                                                                                                                                                Vendor-supplied
                                                              Serial numbers




                                                                                                                                         (software
                                                                                                                                          licensing
                                                                                                                                          Network
                                                                                                                     activation
                                                                                                                     (software




                                                                                                                                                                                 mechanism…
                                                                                                                      Product




                                                                                                                                                               (trust-based



                                                                                                                                                                                  automated-
                                                                                                                                                                                  monitoring




                                                                                                                                                                                                       specify)
                                                                                                                                                                 licensing)
                                                                                                                                                                  Vendor-

                                       Looking at your license enforcement practices today and
                                       projecting ahead two years, do you see your need for the
                                     following as increasing, decreasing, or remaining the same?
                               100
                                90                                                                                                                                                                Don't know
              # of responses




                                80
                                70                                                                                                                                                                Will Not Use
                                60
                                50                                                                                                                                                                Increase
                                40
                                30                                                                                                                                                                Stay Same
                                20                                                                                                                                                                Decrease
                                10
                                 0
                                                                                                                                                                        mechanism with…
                                                                                                   over the internet by
                                            checked locally




                                                                                Dongle/USB




                                                                                                                                                 Vendor-compliance




                                                                                                                                                                         Vendor-supplied
                                                                                                                          by internally-shared
                                            Serial numbers




                                                                                                   (software activated




                                                                                                                          (software activated
                                                                                                    Product activation




                                                                                                                                                  audit (trust-based
                                                                                                                           Network licensing




                                                                                                                                                                           automated-
                                                                                                                                                                           monitoring
                                                                                                       vendor key)




                                                                                                                                                      licensing)
                                                                                                                                license)




2011 Key Trends in Software Pricing and Licensing Survey                                                                                                                                                             22
Application Producers Commonly Use Compliance Audits as Enforcement Means
         40% of all application producers reported having conducted software license audits within the past year.
         15% of those conducted 21 or more audits as part of their enforcement efforts. 60% did not conduct any
         audits.


            How many license compliance audits did your company perform
                               within the last year?


                                                                                          0
                                                                                          1-10
                                                                                          11-20
                                                                                          21-50
                                                                                          51-100
                                                                                          More than 100




         Software True-Ups Usually Small, but Can Represent a Substantial Revenue Stream for
         Some Application Producers

         The vast majority (84%) of application producers report that the average true-up revenue received per audit
         over the last year was less than $100,000, though 6% reported that the average was more than $1,000,000.
         10% reported the average to be between $100,000 and $1,000,000. 79% of respondents said their total
         true-up revenue last year was less than $100,000. 12% reported that the total was more than $1,000,000.


             What is the average true-up revenue per audit your company
                            received within the past year?
                                                                                 More than $1 million

                                                                                 $300,000 to $1
                                                                                 million
                                                                                 $100,000 to
                                                                                 $300,000
                                                                                 < $100,000




2011 Key Trends in Software Pricing and Licensing Survey                                                            23
What is the total true-up revenue from compliance audits
                  your company received within the past year?
                                                                    More than $100 million

                                                                    $50 - $100 million

                                                                    $20 - $50 million

                                                                    $5 - $10 million

                                                                    $1 - $5 million

                                                                    $500,000 to $1 million

                                                                    $100,000 to $500,000

                                                                    < $100,000




         The Majority of Enterprises Have Been Audited Within the Last Year

         56% of enterprises reported having been audited over the past year, and almost a third report having been
         audited more than once. 17% were audited three times or more.


           How often have you been audited (or had a license review)
                    by your vendor(s) within the last year?

                                                                               More than 3 times in the past year

                                                                               3 times

                                                                               2 times

                                                                               1 time

                                                                               We have not been audited or had a
                                                                               license review within the past year




2011 Key Trends in Software Pricing and Licensing Survey                                                            24
Microsoft is the Most Frequent Auditor

         Half of all respondents report that they have been audited by Microsoft over the last year, making it the most
         frequent auditor. Oracle (41%) SAP (35%) and Adobe (24%) were the next most frequent auditors.


                         If you have been audited within the last year, which vendors
                                             have audited you?
                60%

                50%

                40%

                30%

                20%

                10%

                 0%
                             Adobe               IBM       Microsoft      Oracle           SAP          Symantec




         Average Size of Enterprise Compliance True-Ups Vary

         Consistent with the application producer survey findings, 68% of enterprises report that their average, true-
         up penalty was less than $100,000 per audit. But some enterprises reported broader exposure, with 8%
         reporting true-up costs of more than $1 million per audit, and 24% reporting average true-up per audit in the
         $100,000 to $1 million range.


            What is the average true-up cost per audit for
                         your organization?

                                                                                              More than $1 million


                                                                                              $300,000 to $1 million


                                                                                              $100,000 to $300,000


                                                                                              < $100,000


2011 Key Trends in Software Pricing and Licensing Survey                                                             25
Total True-Up Exposure Moderate for Most, but in the Millions for Some Enterprises

         64% of enterprises report their total software true-up bills were less than $100,000 over the past year. But
         11% reported theirs to be more than $1 million. $25% reported their total true-up exposure to be between
         $100,000 and $1 million.


            What was your total software audit true-up cost within the
                       last year for your organization?



                                                                                              More than $1 million

                                                                                              $300,000 to $1 million

                                                                                              $100,000 to $300,000

                                                                                              < $100,000




2011 Key Trends in Software Pricing and Licensing Survey                                                               26
SOFTWARE LICENSING AND PROVISIONING RESEARCH AT IDC
            IDC's global Software Licensing and Provisioning research practice is directed by Amy Konary. In this role,
            Ms. Konary is responsible for providing coverage of software go-to-market trends including volume license
            programs, evolving license models, global price management, and licensing technologies through market
            analysis, research and consulting. In her coverage of software maintenance, subscription, electronic
            software distribution and licensing technologies, Ms. Konary has been instrumental in forecasting future
            market size and growth. Ms. Konary was also the lead analyst for IDC's coverage of software as a service
            (SaaS) for eight years prior to focusing exclusively on pricing, licensing, and delivery. International Data
            Corporation (IDC) is the premier global provider of market intelligence, advisory services, and events for the
            information technology, telecommunications, and consumer technology markets. For more information about
            IDC, please see www.idc.com



            ABOUT FLEXERA SOFTWARE
            Flexera Software is the leading provider of strategic solutions for Application Usage Management; solutions
            delivering continuous compliance, optimized usage and maximized value to application producers and
            enterprises. Flexera Software is trusted by more than 80,000 customers that depend on our comprehensive
            solutions- from installation and licensing, entitlement and compliance management to application readiness
            and enterprise license optimization - to strategically manage application usage and achieve breakthrough
            results realized only through the systems-level approach we provide. For more information, please go to:
            http://www.flexerasoftware.com.




Flexera Software, LLC.      Schaumburg (Global Headquarters), United Kingdom (Europe,      Japan (Asia,             For more locations visit:
1000 East Woodfield Road,   +1 800-809-5659                   Middle East Headquarters):   Pacific Headquarters):   www.flexerasoftware.com
Suite 400                                                     +44 870-871-1111             +81 3-4360-8291
Schaumburg, IL 60173 USA                                      +44 870-873-6300
 2011 Key Trends in Software Pricing and Licensing Survey                                                                                       27
2011 Key Trends in Software Pricing & Licensing Survey Sponsored by Flexera Software

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2011 Key Trends in Software Pricing & Licensing Survey Sponsored by Flexera Software

  • 1. 2011 Key Trends in Software Pricing & Licensing Survey Sponsored by Flexera Software
  • 2. 2011 Key Trends in Software Pricing & Licensing Survey Sponsored by Flexera Software Overview of Survey Findings The 2011 Key Trends in Software Pricing and Licensing Survey of 348 participants, prepared with assistance from IDC, found that: Perpetual/Subscription Application producers derived 79% of their software revenues from perpetual licenses, 15% via subscription. Application producers expect perpetual license revenues to decline an average of 10% over the next two years, and subscription revenues to increase by an average of 6% over the next two years. Metrics The number of application producers that are pricing based on a usage metric (number of uses, time used and number of transactions) is expected to double in the next two years, from 22% today to 43%. This is consistent with the results of last year's survey, with usage metrics expecting to experience the most growth as compared to other models. Of the total survey population, 47% of application producers do not monitor customer usage. Of the survey population that is either doing usage-based pricing today or plans on doing usage-based pricing in the next two years, 48% do not monitor customer software usage. In terms of hardware-based metrics, the number of application producers offering processor-based metrics is expected to decline by 18%, while the number of application producers offering processor core is expected to grow by 34%. The most common metrics used today, per seat and concurrent user, will remain relatively flat in the next two years, with an 8% decrease in per seat offerings and a 7% increase in concurrent user offerings. Enforcement The most common means of enforcement is network-based licensing and product activation. According to enterprises, these are their favored approaches as well. These means of enforcement will also increase by the greatest margin in the next two years (48% and 54%, respectively). Most enterprises (53%) rely primarily on software asset management for tracking, management and reporting of their software licensing/usage today. 20% are doing this manually, relying primarily on spreadsheets. The most common primary reason that customers are tracking usage is for compliance purposes; however 31% are tracking usage primarily to reduce shelfware. 2011 Key Trends in Software Pricing and Licensing Survey 2
  • 3. Of the ways that customers track usage, the highest satisfaction rating is for vendor provided tools, with 90% of customers that primarily use that approach indicating that they are satisfied. The least favored approach—manual/spreadsheets — registers only 22% satisfaction. Enterprises believe that it is harder to maintain compliance for infrastructure (not applications) software. The primary reason for difficulty, according to customers, is that licensing is too complex. Audits Most application producers did not perform any audits at all in the last year (60%) Most application producers that did perform audits did 10 or less. For the vast majority of application producers that performed audits, the award was less than $100,000. Our enterprise survey corroborated this data. The application producers listed by enterprises as conducting audits within the last year included Microsoft, Oracle, IBM, and SAP. Licensing Effectiveness 55% of application producers think their current licensing strategy does a good job of capturing value. And 70% in that population plan on making additional licensing strategy changes to capture more value in the next two years. Application producers with concurrent licensing were most likely to rate their licensing/value equation as being effective (77%). In addition, 40% of enterprises listed concurrent licensing as their preferred approach, the highest percentage of any category. Application producers with processor-based licensing were most likely to rate their licensing/value equation as being ineffective or very ineffective (60%). Entitlements Most application producers (62%) believe that it is difficult to somewhat difficult for customers to determine which products they are entitled to use and what they are using. Survey Background The 2011 Key trends in Software Pricing and Licensing survey was conducted by Flexera Software with input from IDC‘s Software Pricing and Licensing Research division under the direction of Amy Konary, research vice president - software licensing and provisioning at IDC. This annual research project looks at software licensing, pricing and enforcement trends and best practices. The survey reaches out to executives at application producers and enterprises who use and manage software and devices. Now in its seventh year, the survey is previewed at the ® annual SoftSummit Conference and made available to the industry at large each year. 2011 Key Trends in Software Pricing and Licensing Survey 3
  • 4. Methodology and Sampling In total, 348 respondents participated in the survey, including 98 enterprise executives and 250 application producers (defined as software vendors and intelligent device manufacturer) executives. Enterprise Demographics More than one-half of the enterprise respondents were from larger enterprises of more than $1 billion in revenues, and more than a third were from companies with $3 billion in revenues or more. 45% were from North America, 38% from Europe, 13% from Asia Pacific, and 2% from the Middle East. Which of the following best represents your annual company revenues? Less than $100 million $101 - $999 million $1 billion - $3 billion > $3 billion Do not know Application Producer Demographics The largest segment of application producer respondents (47%) came from companies with under $10 million in revenues. The remainder were divided relatively equally across all revenue levels. 72% were from North America, 21% from Europe, 6% from Asia/Pacific, and 1% from the Middle East. Which of the following represents your annual product licensing revenues? Less than $10 million $11 - $30 million $31 - $50 million $51 - $100 million $101 - $500 million $501 million - $1 billion Over $1 billion Do not know 2011 Key Trends in Software Pricing and Licensing Survey 4
  • 5. Individual Findings Pricing Flexibility and Value Usage-Based Pricing Remains Popular, but Seat-Based Pricing Gaining Popularity The most popular software pricing model for enterprises (40%) is concurrent user (floating/network) licensing (down from 60% last year). However, the demand for usage-based pricing remains significant at 17%. Seat-based licensing models (per machine/server and named user) have gained popularity, with 30% of respondents preferring those models, compared to 9% in 2010. What is the software pricing model you prefer for enterprise class applications? Processor Processor core Seat (per machine/per server) Seat (named user) Concurrent user (floating/network) Usage metric (number of uses, time used, number of transactions) Financial metric (revenue, cost, royalty) 2011 Key Trends in Software Pricing and Licensing Survey 5
  • 6. Application Producers Continue to Offer a Wider Variety of Software Pricing Models: Application producers continue to offer a growing variety of pricing models in response to greater demand by customers. More are offering seat (per machine/per server) – 70% in 2011 vs. 65% in 2010, seat (named user) – 34% in 2011 vs. 27% in 2010, concurrent user (69% this year vs. 63% last year) and financial metric (12% this year vs. 6% in 2010). There have been slight decreases over last year in the number of application producers offering processor, processor core and usage metric models. Over the course of the next two years, we can expect to see a large increase in the number of application producers offering usage metric pricing models (43%). Which pricing models do you offer for your packaged software or intelligent device today? Product that is priced per… 80% 70% 60% 50% 40% 30% 20% 10% 0% (floating/network Seat (named machine/per Financial metric Processor (number of uses, Processor core Other (please Concurrent user (revenue, cost, Seat (per Usage metric number of… server) specify) time used, user) royalty) ) Looking forward in the next two years, which pricing models do you expect to offer? (Select all that apply). Product that is priced per… 80% 70% 60% 50% 40% 30% 20% 10% 0% Processor Financial metric Processor core Other (please machine/per time used, number Seat (named user) (floating/network) (revenue, cost, Concurrent user (number of uses, Seat (per of transactions) Usage metric server) specify) royalty) 2011 Key Trends in Software Pricing and Licensing Survey 6
  • 7. Revenue Generation & Customer Satisfaction Driving Changes: 42% of application producers indicate that they have changed their pricing and licensing policies over the past two years to make them more flexible. The top two reasons for this shift have been to improve customer relations (46%) and generate more revenue (40%). Accelerating the sales cycle (27%) was also cited as a key reason for broadening pricing and licensing policies. Did providing more flexible licensing and pricing policies help the company: 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% customers Generate developmen Accelerate Free R&D applicable specify) resources (please revenue the sales relations Other Improve Decrease more cycle with Not t cost Both Enterprises and Application Producers Are Largely Satisfied with Current Pricing Models: The survey asked enterprises to rate their satisfaction of pricing for database, middleware, ERP, CRM, engineering and desktop applications. The applications eliciting the highest satisfaction (responses of ‗highly satisfied‘ or ‗satisfied‘) included desktop applications (44 respondents) and engineering/technical applications (38 respondents). Those eliciting the lowest (responses of ‗unsatisfied‘ or highly unsatisfied‘) included ERP software (19 respondents) and database software (18 respondents). 2011 Key Trends in Software Pricing and Licensing Survey 7
  • 8. How would you rate your price-to-value satisfaction of the following types of software? # of respondents 120 100 80 Highly satisfied 60 40 Satisfied 20 Neutral 0 Unsatisfied Applications CRM Engineering/Tech Database ERP Middleware nical Applications Desktop Highly unsatisfied N/A 62% of application producers said that their pricing and licensing strategies captured the value of their software effectively, down considerably from 2010 when the response was 79%. 23% consider their pricing strategies either ‗ineffective or ‗very ineffective‘, compared to 14% in 2010. How would you rate the overall effectiveness of your company’s pricing and licensing strategies in capturing the value that your product provides to customers? Very ineffective Ineffective Effective Very effective Don't know Software Usage, Delivery and Enforcement Software Budgets Starting to Increase 43% of enterprises report that, looking ahead two years, they expect their software budgets to increase – up from 33% in 2010. 28% expect their budgets to stay the same, and 22% expect them to decrease. 2011 Key Trends in Software Pricing and Licensing Survey 8
  • 9. Looking forward two years, do you expect your software budgets to... Decrease Stay the same Increase Do not know Percentage of Total Software Budgets Assigned to New Software Varies The percentage of total software budget within enterprises assigned to new software purchases varies greatly. 23% report that between 1-10% of budget is assigned to new software, 21% report the figure being between 11-20% of their budgets, and 24% report it being more than 20%. What percentage of your total software budget is assigned to new software licenses? 0% 1-10% 11-20% 21-30% 31-40% 41-50% 51-60% 61-70% > 70% Do not know Managing Software Licensing & Usage is Critically Important for Enterprises 2011 Key Trends in Software Pricing and Licensing Survey 9
  • 10. 72% of enterprises indicated that compared to other objectives, managing software licensing and usage is important or very important. Only 12% indicated it is unimportant. Compared to your other objectives, how important is managing software licensing/usage? Very unimportant Unimportant Neutral Important Very important Application Producers Aware of Customers’ Usage & Entitlement Tracking Challenges 62% of application producers believe it is somewhat or very difficult for customers to determine their software product entitlements. 34% believe customers have no difficulty. How difficult do you believe it is for your customers to determine which of your products they are entitled to use and what they are actually using? 50 # of respondents 40 30 20 Answer Choice 10 0 No difficulty Somewhat difficult Very difficult N/A Moderated Approach to Adopting Cloud Licensing Strategies 2011 Key Trends in Software Pricing and Licensing Survey 10
  • 11. Application producers are taking a gradual view in anticipating licensing strategy changes to accommodate the Cloud. 46% indicate the changes they‘ll need to make will be moderate over the next two years. 34% anticipate no change. While 21% indicate changes will be significant or dramatic. Please rate the level of your agreement with the following statement: In the next 24 months, my company's current licensing strategy will need to change in order to adapt to the requirements of cloud computing. 1 = Stay the same/no change 2 = Moderate changes 3 = Significant changes 4 = Dramatic changes 2011 Key Trends in Software Pricing and Licensing Survey 11
  • 12. Subscription Software Licensing Models Continue to Grow Subscription-based license models represent an important source of revenue for application producers today – though the majority still derive most of their revenue from perpetual licenses. Thinking of your total software licensing revenue, what percentage is associated with the following license types? 81 77 73 Percent of Revenue Associated with 69 Perpetual Licenses 65 61 57 53 49 Percent of Revenue 45 Associated with 41 Subscription/Term 37 Licenses 33 29 25 21 Percent of Revenue 17 Associated with 13 Other License Types (such as usage 9 based) 5 1 0% 20% 40% 60% 80% 100% 2011 Key Trends in Software Pricing and Licensing Survey 12
  • 13. Over the next two years, subscription-based licenses will represent an increasing source of revenue for application producers. Looking forward in the next two years, what percentage of your total packaged software and/or intelligent device license revenue will be associated with the following license types? 81 77 Percent of Revenue Associated with 73 Perpetual Licenses 69 65 61 Percent of Revenue 57 Associated with 53 Subscription/Term 49 Licenses 45 41 Percent of Revenue 37 Associated with 33 Other License 29 Types (such as 25 usage-based) 21 17 13 9 5 1 0% 20% 40% 60% 80% 100% 2011 Key Trends in Software Pricing and Licensing Survey 13
  • 14. Virtualization on the Rise Within Enterprises Most enterprises report that they have adopted some level of virtualization technology. The type of virtualization deployed and the extent of that adoption vary widely across respondents. What virtualization technologies has your organization adopted? 100 90 # of Respondents 80 70 < 20% 60 20-40% 50 40-60% 40 60-80% 30 > 80% 20 10 0 Server virtualization (% Desktop virtualization Application Hard partitioning (% of of servers) (% of desktops) virtualization (% of physical servers) desktop apps) Strategies for Managing Software Licenses in Virtual Environments Vary 36% of enterprises use automated commercial license management software to manage their virtual licenses. 26% do so manually, while 21% use the tools supplied by their virtualization vendor. How do you manage software licenses in your virtual environments? Automated commercial license management software Software provided by the (virtualization) vendor Automated homegrown software Manual methods, including spreadsheets We don‘t manage software licenses in our virtual environments 2011 Key Trends in Software Pricing and Licensing Survey 14
  • 15. Varied Software License Optimization Approaches for Virtualized Environments While 83% of enterprises take into account license entitlements such as software product use rights, and upgrade/downgrade rights when managing licenses in a virtualized environment, 50% do so for only key, high-value vendors and only 33% do so across all vendors. Do you take into account license entitlements (e.g., software product use rights such as upgrade rights, downgrade rights, etc.), which are part of all software license agreements, in your analysis when reconciling your organization’s software license pos Yes, for all vendors Yes, for key high-value vendors No Shelfware and License Non-Compliance Challenges Persist for Enterprises Only 15% of companies report that none of their software spend is associated with out of compliance applications – down from 30% last year. 35% report that between 1-10% of their software license spend is associated with applications that are out of compliance – slightly lower than 2010 (37%), 16% report that 11- 20% of their applications are associated with out of compliance applications (up from 7% last year). What percentage of software license spend within your organization do you estimate is associated with applications that are overused and therefore out of compliance? 0% 1-10% 11-20% 21-30% 31-40% 41-50% > 50% Do not know 2011 Key Trends in Software Pricing and Licensing Survey 15
  • 16. The levels of software underuse (―shelfware‖) have not changed substantially over 2010 and suggest there still is room for improvement. Only 4% of enterprises report no spend associated with shelfware, 25% report that up to 10% of their application spend is associated with shelfware, and 27% say that up to 30% is associated with underused applications. What percentage of software license spend within your organization do you estimate is associated with applications that are underused (shelfware) and therefore over-licensed? 0% 1-10% 11-20% 21-30% 31-40% 41-50% > 50% Do not know Tracking Customer Usage Remains Blind Spot for Application Producers Of the application producers responding, the largest proportion, 47%, report that they do not monitor customer usage of their products. For those that do, 20% report doing so using internally developed tracking tools, and 16%, using manual audits. Only 10% use third party tracking tools. How do you primarily monitor your customers’ usage of your product? We do not monitor customer software usage Manual audits Third-party usage-tracking tool(s) Using internally developed usage-tracking tool(s) Do not know Other (please specify) 2011 Key Trends in Software Pricing and Licensing Survey 16
  • 17. Enterprises Use a Variety of Tracking Methods 98% of all enterprises track, manage and report on their software usage – the majority of which (53%) use commercial software asset management systems. 20%, however, still track usage manually using spreadsheets. The top two reasons for tracking usage were the same in both 2011 and in 2010 – but the ratios were reversed. In 2011 56% cited ‗ensuring compliance‘ (32% in 2010), and 55% in 2011 cited ‗reducing software costs/minimizing shelfware spending‘ as their primary reasons (32% in 2010). 66% of respondents are satisfied or very satisfied with their current methods for tracking licensing and usage. How do you primarily perform tracking, management and reporting of your software licensing/usage today? Automated (commercial) software, which is part of our asset management system Use software provided by the vendor Automated (homegrown) software, our own system used only for license management Manual methods, including the use of spreadsheets Do not currently track If you are currently managing your software licensing/usage, what is the most important reason for doing so? Reduce software costs/minimize shelfware spending Ensure compliance with vendor agreements (and reduce cost and risk of an audit) Prevent downtime due to denials in the middle of critical projects (concurrent licenses) Do not manage software licensing/usage 2011 Key Trends in Software Pricing and Licensing Survey 17
  • 18. If you are currently managing your software licensing/ usage, how satisfied are you with the current method? Very dissatisfied Dissatisfied Satisfied Very satisfied Enterprises Would Prefer Enforcement via Network Licensing 48% of enterprises prefer enforcement of their software license via network licensing (activation by an internally shared license) down from 67% in 2010. Lesser-preferred methods include product activation, vendor-supplied monitoring with annual true-up, and compliance audits. Dongles and locally-checked serial numbers are the least preferred enforcement mechanism. If a software vendor gave you a choice, which of the following means of software license enforcement would you prefer most? Product activation (software activated over the internet by vendor key) Network licensing (software activated by internally shared license) Trust-based licensing with manual vendor compliance audit Vendor-supplied automated monitoring mechanism with annual true-up Serial numbers checked locally Dongle/USB 2011 Key Trends in Software Pricing and Licensing Survey 18
  • 19. Lack of Automation Hinders Usage Tracking in Enterprises Enterprises most frequently cited desktop, engineering and middleware software as being difficult or very difficult to track usage and maintain license compliance. They most frequently (33%) cite lack of automated tracking mechanisms as the reason. For which types of software is it difficult to track usage and maintain license compliance? 120 # of Respondents 100 No difficulty 80 Difficult 60 40 Very difficult 20 N/A 0 Applications Engineering/Techni CRM Database ERP Middleware Based Software Other Server- cal Applications Desktop If you checked "difficult" or "very difficult" to any software type in the previous question, what is the primary reason why? Licensing policy is too complex IT environment is too complex IT management is too decentralized No automated tracking mechanisms in place 2011 Key Trends in Software Pricing and Licensing Survey 19
  • 20. Application Producers Cite Numerous Methods Their Customers Use to Track Entitlements Application producers believe their customers use a variety of methods to manage entitlements including web-based entitlement management systems, home grown systems, manually, and through customer inquiries. 24% do not think their customers manage entitlements. How do you believe your customers manage their entitlements today? 40% 35% 30% 25% 20% 15% 10% 5% 0% Don't know Via access to web-based Manually, with some automation They don't manage their Manually, with almost no By using their own homegrown By calling customer support to entitlement management for spreadsheets or similar tools system provided by us get up-to-date entitlement entitlement management entitlements automation information system 2011 Key Trends in Software Pricing and Licensing Survey 20
  • 21. Many Application Producers Lack Automation to Monitor Usage; Recognize Need to modify Licensing Strategies 47% of application producers say they either do not have technology in place that enables them to know what product, product version or platforms their customers are using – or they simply do not know. They see the need to change their licensing strategies to deploy technologies that better track licensing (42%), that better enforce their licenses (40%), that support pay-as-you-go schemes (26%), and that accommodate short bursts of use (19%). Do you have technology in place that enables you to know what product, product versions or platforms your customers are using? Yes No Do not know In the next year, in what ways will your licensing strategy need to change? 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Need to move away better enforcement accommodate micro- Need to develop a Need to support a better track licensing accommodate short making any changes temporary license We do not plan on from CPU-based pay-as-you-go technologies that Need to deploy Need to deploy to our licensing technologies bursts of use scheme licensing Need to licensing strategy Need to type 2011 Key Trends in Software Pricing and Licensing Survey 21
  • 22. Compliance Audits Continue to Gain Steam Network licensing (56%) continues to be application producers‘ most predominantly used enforcement mechanism, followed by product activation (48%). ‗Compliance audits‘ tied with ‗serial numbers‘ (28%) for the third most used method. 15% indicated that within the next two years, the need for compliance audits will increase. Which of the following means of enforcement does your company use today? 60% 50% 40% 30% 20% 10% activated over… activated by… 0% None checked locally Dongle/USB compliance audit Other (please Vendor-supplied Serial numbers (software licensing Network activation (software mechanism… Product (trust-based automated- monitoring specify) licensing) Vendor- Looking at your license enforcement practices today and projecting ahead two years, do you see your need for the following as increasing, decreasing, or remaining the same? 100 90 Don't know # of responses 80 70 Will Not Use 60 50 Increase 40 30 Stay Same 20 Decrease 10 0 mechanism with… over the internet by checked locally Dongle/USB Vendor-compliance Vendor-supplied by internally-shared Serial numbers (software activated (software activated Product activation audit (trust-based Network licensing automated- monitoring vendor key) licensing) license) 2011 Key Trends in Software Pricing and Licensing Survey 22
  • 23. Application Producers Commonly Use Compliance Audits as Enforcement Means 40% of all application producers reported having conducted software license audits within the past year. 15% of those conducted 21 or more audits as part of their enforcement efforts. 60% did not conduct any audits. How many license compliance audits did your company perform within the last year? 0 1-10 11-20 21-50 51-100 More than 100 Software True-Ups Usually Small, but Can Represent a Substantial Revenue Stream for Some Application Producers The vast majority (84%) of application producers report that the average true-up revenue received per audit over the last year was less than $100,000, though 6% reported that the average was more than $1,000,000. 10% reported the average to be between $100,000 and $1,000,000. 79% of respondents said their total true-up revenue last year was less than $100,000. 12% reported that the total was more than $1,000,000. What is the average true-up revenue per audit your company received within the past year? More than $1 million $300,000 to $1 million $100,000 to $300,000 < $100,000 2011 Key Trends in Software Pricing and Licensing Survey 23
  • 24. What is the total true-up revenue from compliance audits your company received within the past year? More than $100 million $50 - $100 million $20 - $50 million $5 - $10 million $1 - $5 million $500,000 to $1 million $100,000 to $500,000 < $100,000 The Majority of Enterprises Have Been Audited Within the Last Year 56% of enterprises reported having been audited over the past year, and almost a third report having been audited more than once. 17% were audited three times or more. How often have you been audited (or had a license review) by your vendor(s) within the last year? More than 3 times in the past year 3 times 2 times 1 time We have not been audited or had a license review within the past year 2011 Key Trends in Software Pricing and Licensing Survey 24
  • 25. Microsoft is the Most Frequent Auditor Half of all respondents report that they have been audited by Microsoft over the last year, making it the most frequent auditor. Oracle (41%) SAP (35%) and Adobe (24%) were the next most frequent auditors. If you have been audited within the last year, which vendors have audited you? 60% 50% 40% 30% 20% 10% 0% Adobe IBM Microsoft Oracle SAP Symantec Average Size of Enterprise Compliance True-Ups Vary Consistent with the application producer survey findings, 68% of enterprises report that their average, true- up penalty was less than $100,000 per audit. But some enterprises reported broader exposure, with 8% reporting true-up costs of more than $1 million per audit, and 24% reporting average true-up per audit in the $100,000 to $1 million range. What is the average true-up cost per audit for your organization? More than $1 million $300,000 to $1 million $100,000 to $300,000 < $100,000 2011 Key Trends in Software Pricing and Licensing Survey 25
  • 26. Total True-Up Exposure Moderate for Most, but in the Millions for Some Enterprises 64% of enterprises report their total software true-up bills were less than $100,000 over the past year. But 11% reported theirs to be more than $1 million. $25% reported their total true-up exposure to be between $100,000 and $1 million. What was your total software audit true-up cost within the last year for your organization? More than $1 million $300,000 to $1 million $100,000 to $300,000 < $100,000 2011 Key Trends in Software Pricing and Licensing Survey 26
  • 27. SOFTWARE LICENSING AND PROVISIONING RESEARCH AT IDC IDC's global Software Licensing and Provisioning research practice is directed by Amy Konary. In this role, Ms. Konary is responsible for providing coverage of software go-to-market trends including volume license programs, evolving license models, global price management, and licensing technologies through market analysis, research and consulting. In her coverage of software maintenance, subscription, electronic software distribution and licensing technologies, Ms. Konary has been instrumental in forecasting future market size and growth. Ms. Konary was also the lead analyst for IDC's coverage of software as a service (SaaS) for eight years prior to focusing exclusively on pricing, licensing, and delivery. International Data Corporation (IDC) is the premier global provider of market intelligence, advisory services, and events for the information technology, telecommunications, and consumer technology markets. For more information about IDC, please see www.idc.com ABOUT FLEXERA SOFTWARE Flexera Software is the leading provider of strategic solutions for Application Usage Management; solutions delivering continuous compliance, optimized usage and maximized value to application producers and enterprises. Flexera Software is trusted by more than 80,000 customers that depend on our comprehensive solutions- from installation and licensing, entitlement and compliance management to application readiness and enterprise license optimization - to strategically manage application usage and achieve breakthrough results realized only through the systems-level approach we provide. For more information, please go to: http://www.flexerasoftware.com. Flexera Software, LLC. Schaumburg (Global Headquarters), United Kingdom (Europe, Japan (Asia, For more locations visit: 1000 East Woodfield Road, +1 800-809-5659 Middle East Headquarters): Pacific Headquarters): www.flexerasoftware.com Suite 400 +44 870-871-1111 +81 3-4360-8291 Schaumburg, IL 60173 USA +44 870-873-6300 2011 Key Trends in Software Pricing and Licensing Survey 27