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THE STATE OF SOFTWARE MONETIZATION: REVENUE AND IP AT RISK

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The State of Software MonetizationAs the Internet changes the way organizations conduct business and how they secure their critical intellectual property (IP), companies

are continuously struggling to find a balance between business enablement and security. The migration of the physical to the virtual

workforce is forcing software developers to rethink how best to streamline their back office functionality, monetize their software and

ensure that their intellectual property is not stolen.

The survey shows that software developers continue to view security and business

enablement as mutually exclusive. Inflexible licensing models, insufficient protection

techniques and complex, disjointed operational processes continue to be pervasive, and

as a result, companies are putting their critical IP, revenue base and brand reputation

at risk.

In today’s difficult macro environment, many companies feel that they are forced to

choose between security and business efficiency. One of the easiest ways to strike a

delicate balance is to develop a tailored software monetization strategy and implement

a licensing and entitlement management strategy that will be flexible enough to meet

customers’ emerging business and security needs while providing robust IP protection.

As the power to decide how, when, and to what extent applications are consumed

shifts from the software publisher to the consumer, the ability of publishers to remain

competitive in the software industry critically depends on flexible software pricing,

packaging and control. Despite knowing this, 61 percent of the 620 software publishers

surveyed admitted that they struggle with the ability to flexibly price and package their

applications, making it no surprise that 53 percent also reported significant revenue loss

due to the limited flexibility of licensing models. These results make it clear that today’s

licensing models are not meeting customers’ needs. Of the 196 enterprise business

software end-users surveyed, 35 percent reported that inflexible licensing was their

biggest software licensing impediment.

While the loss of potential revenue is alarming, not being fairly compensated for actual use of your application remains a key concern

for software publishers globally. The pressure on software publishers to increase availability of their applications across a multitude of

devices and to offer a wider variety of consumption options (i.e., subscription, pay-as-you-go, etc.) has only exacerbated the problem

of software piracy. More than 48 percent of software developers responding to the survey stated that they lost revenue due to software

piracy, and more than 70 percent stated that piracy prevention remains one of their greatest challenges. Despite the revenue loss and

the high level of awareness of the risks of piracy, it is surprising that only 58 percent of software publishers claimed that they employed

proper compliance enforcement mechanisms to combat piracy efforts.

Methodology

SafeNet and the SIIA commissioned ‘The

State of Software Monetization’ survey from

September through November of 2012. They

contacted a total of 814 respondents, including

620 respondents who identified themselves

as software developers and 200 that identified

themselves as enterprise software end-users.

Among respondents, forty-three percent

identified themselves as developers; 34

percent as executives and six percent as

marketers.

The respondents hailed from a wide variety of

industries, including manufacturing, financial

services, healthcare, telecommunications,

utilities, construction, government and retail,

among others.

More than 84 percent of respondents stated that more effective monetization strategies could enhance their revenues by 50%. However, organizations are not working fast enough to implement the correct software monetization strategies to realize the revenue potential.

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Although piracy prevention and compliance management continue to be focal points for protecting revenue, another form of control

is emerging as a new top priority for software publishers – the ability to protect one’s software code or Intellectual Property (IP) from

tampering, theft and reverse engineering. Nearly half (48%) of software publisher respondents thought that competitive IP theft had

a significant impact on their business; 63 percent reported challenges with reverse-engineering protection; and 51 percent reported

challenges with code tampering prevention. Without the proper controls in place to ensure the integrity and confidentiality of one’s IP,

a software publisher faces the risk of brand erosion, competitive vulnerability, poor customer experience and revenue leakage. Today,

less than half of the software publishers surveyed reported implementing any IP protection techniques.

In addition to external threats, a common inability to effectively build and maintain software licensing and customer entitlement

management processes continues to be cited a key problem area for most software organizations. As many industries undergo

consolidation, the disruption to the back office only intensifies. Due to budgetary constraints and the complexity surrounding the

integration, it is not uncommon for a company to not want to evolve or change their back office functionality for risk of disrupting their

customer experience. Software publishers continue to struggle with back office licensing processes with only 31 percent stating that

they have integrated entitlement management processes. End users are also feeling the pain with nearly a third stating that the loss of

license keys is their biggest disruptor. Both the software publisher and the end-user expressed that this had negatively impacted their

business from both a financial and operational perspective.

As demonstrated by the key findings above, software monetization is all about

one’s ability to both increase revenue and reduce costs. Preventing piracy,

enabling new business models, and protecting intellectual property are all

examples of this. The identification and implementation of efficient back-

office processes and procedures focuses on cost reduction and customer

satisfaction, ultimately resulting in increased profitability as well. However,

the ability to track, what, how and by how one’s application is being consumed

remains a challenge.

As the survey results indicate, software publishers are losing a significant

amount of money due to the factors detailed above. While more than 84 percent

of the respondents stated that more effective software monetization strategies

could enhance their revenues by 50 percent, the survey also indicated that

organizations are not working fast enough to implement the correct software

monetization strategies and security measures to improve their efficiency and

keep their corporate information safe.

Software publishers admitted that they struggle with licensing models, software piracy, code tampering prevention and back office integration.

39%

34%

2%1%

22%

*2% of respondents did not idenfitify a legitimate location

Geographic Breakdown Of Global Respondents

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Tipping Point for Licensing ModelsWith the software landscape changing so rapidly, it is readily apparent that software developers are in dire need of flexible software

licensing models to meet the emerging challenges that the new landscape poses. Flexible licensing models are essential components

to developing effective business models, ensuring customer satisfaction and enhancing revenue for global companies. However, 56

percent of global respondents reported struggling with the flexibility of their software packaging and the adaptability of their product

portfolio. As a result, those same respondents admitted that they left revenue on the table, with the issue being more of a challenge in

the United States (63%) and in China (86%) where publishers seemed to struggle more with software licensing models.

In order to better understand what features software developers need, SafeNet and SIIA asked them about the most challenging

aspects of current licensing models. Respondents mentioned that the biggest challenges with regards to adaptability were feature-

level product bundling; the ability to repackage offerings without engineering involvement; and the ability to effectively support

licensing models demanded by their customers. In addition, inflexible pricing and usage models were cited as a deterrent by many of

the respondents, with less than 20 percent stating that they have not implemented any subscription or usage-based licensing models.

Forty-six percent of publishers surveyed stated that enterprise site licenses are still the most commonly supported/deployed business

models today.

Taken together, it was not surprising that more than 52 percent of the respondents stated that flexible packaging enablement and

pricing features were critical to their software monetization and business strategies going forward. More than 85 percent of those

same respondents stated that better enforcement and more flexible licensing could create additional revenue.

Inflexible software packaging and licensing models continue to hamper business models. Product bundling, ability to repackage offerings and effectively support licensing models continue to be an issue.

Software Publishers Reveal Inflexible Licensing Models Leave Revenue on the Table

Finding1

Inflexible licensing models leave 11-25% value untapped

Inflexible licensing models leave 26-50% value untapped

Inflexible licensing models leave more than 50% value untapped

12%

38%

5%

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Revenue and Brand Reputation Being Placed at Risk

The ability to control access to and use of one’s intellectual property is

critical to software monetization success. Software publishers reported

piracy prevention (70%), reverse engineering prevention (63%) and

tampering prevention (51%) to be the top challenges associated with

maintaining control of their intellectual property. Forty-five percent of the

respondents believe that they have suffered some form of revenue loss due

to unintentional violation of licensing agreements.

While unauthorized use and distribution is still the top concern weighing

on software publishers, an increasing number of publishers are focusing on

how to protect the code of the application itself. This is largely due to the

irreversible damage that can be done to brand and product integrity when

intellectual property falls into the wrong hands. Nearly three-quarters

of respondents (74%) expressed a concern that their software could be

compromised.

Back-Office Dysfunction Leads to Operational Inefficiency and Revenue Loss

While implementing changes to the back office is often a risky and challenging process, the survey results indicate that not making

the necessary changes to improve back-office functionality is costing companies time and money. According to the survey results, 59

percent of global respondents reported struggling with back-office licensing processes. As a result, it was no surprise that 55 percent

of global respondents felt that this dysfunction is leading to some sort of tangible revenue loss. Respondents from the United States,

Japan and China reported this was a major issue for them.

When asked specifically what was causing issues in the back office, global respondents cited entitlement generation, delivery and

activation as the most troublesome tasks related to licensing operations, with 71 percent of German respondents stating these are

major issues for them. End-user support and self-service were also cited as common challenges for software publishers. End-users

themselves are feeling the pain as well, with 32 percent stating that the process associated with lost license keys is their biggest

licensing headache.

Despite this, less than 30 percent of global respondents reported implementation of any sort of end-user self service tools and less

than a third of software publishers admitted to implementing an integration management process. This despite the fact that end-

users stated that only 28 percent of software vendors offered them self service tools to manage their keys. These implementations

are critical in alleviating back-office inefficiency and would greatly enhance the end-user experience, overall efficiency and revenue

generation for both the software publisher and end-user.

Global Software Publishers Continue to Struggle with Back Office Licensing Processes

Global Software Publishers Cite Key Challenges Related to Software Copy and IP Protection

70%

63%

51%

46%

Software copy protection to prevent piracy

Software code protection to prevent reverse engineering

Software code protection to prevent tampering

Software license compliance tracking to understand the cope of potential piracy issues

Back Office Licensing is no longer an issue for respondents

Back Office Licensing remains a challenge for respondents

41%59%

Finding2

Finding3

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Key RecommendationsWhen asked what was their most important software monetization criteria was for 2013 and beyond, software publishers stated that

strong security features (63%), ease of use (62%), flexible packaging/bundling functionality (52%) and automated license provisioning

and enforcement (51%) were critical features needed going forward.

As this survey demonstrates, there needs to be a shift in how software developers design and implement their software monetization

strategy. They need to stop viewing their IP security and business model enablement strategies in silos and instead design their

business model and security strategies as one. The right software monetization strategy will help software publishers and end-users

protect their critical IP while at the same time, deliver operational efficiencies and boost revenues. Below, we have outlined how

companies can begin that process.

Lack of Usage Visibility Restricts Business Intelligence

Business intelligence is critical for decisions related to new markets,

product packaging and efficient internal resource management.

Therefore software publishers’ ability to track who is using their software,

as well as when, how, and to what extent is critically important. This is

a struggle for most publishers, however; 68 percent struggle with usage

visibility. More specifically, more than half of all respondents reported

challenges with tracking feature usage (60%), information about end-

users (52%) and entitlement status (51%). Less than 25 percent of the

respondents reported implementation of any application strategy tools,

with less than nine percent doing so in Germany. Without this information,

executive management lacks the insight they need to effectively drive

product investment plans, packaging strategies, and make other critical

business decisions.

Feature usage tracking

End-user data collection

Entitlement tracking

Data aggregation and reporting

52%38%

51%60%

Struggle for Usage Visibility

Most Important Software Monetization Features Citing for 2013 and Beyond

Finding4

63%

Strong security features

Ease of use

Flexible packaging/bundling functionality

Automated license provisioning and enforcement

Minimizing the burden on engineering

Total cost of ownership

Ability to work with both on-premise and SaaS-based solutions

Analytics

38%

43%

23%

49%

51%

52%

62%

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Developing an Efficient and Effective Software Monetization Strategy

Create a Software Monetization Blueprint That Aligns With Business Objectives. In order to implement the right technology,

software publishers need to recognize and understand their objectives.

Prior to making a decision on the software monetization strategy that is right for your organization, key stakeholders

must agree on the answers to a standard set of questions:

• How do we want to package your application – how many variations of each product, how many products, and which license models will need to be supported?

• How will we deliver the software to end users – on-premise, in the cloud?

• What should the end-user entitlement activation and ongoing management experience look like?

• What information will we need in order to support billing, marketing, sales and customer-enablement tasks?

• How does licensing interact with our other back office systems?

Answering these questions prior to implementing a software monetization strategy will not only dramatically improve the usefulness of

the implementation, it will also save time and money.

Price and Package Software the Way Customers Want to Consume It. Today, successful packaging is about understanding

who your customers are, what aspects of the product they are using, the perceived value of the software to that customer, and how each

customer prefers to consume the solutions.

This means that for every deal a sales organization works on, software publishers need to ask themselves three things:

• What aspects of this solution does the customer need?

• How does this customer want to consume our offering?

• How much is the combination of the two options above worth?

The answer to these questions will help you determine which software licensing models, delivery channels, and enforcement mechanisms

to employ. This is an ongoing task and will need constant refinement. It is for this reason that it’s critical to implement a software licensing

solution that meets the broadest range of flexible licensing scenarios in way that is easy to manage and change over time – without any

engineering involvement. This will ensure the ability to provide the right product, the right way to every customer every time – ultimately

driving maximum market penetration and increased revenue.

Accept That IP is Vulnerable and Implement Tools to Mitigate Risk. Risk mitigation is about controlling access to and use

of your IP. The potential impact of casual piracy, code tampering, and source code theft varies from organization to organization and is

dependent on a variety of factors ranging from geographic location, nature of the application, user profile, etc.

The best practice when it comes to software control is to implement a software licensing system to help prevent unauthorized use and

distribution of products and services. Beyond copy control, it is recommended that software publishers implement an IP-protection

mechanism to protect source code from theft, manipulation and tampering. The combination of a secure IP-protection solution with a

trusted software licensing platform provides the best level of protection against malicious or accidental threats.

Build Licensing Into the Back Office; Don’t Just Drop it in. Cleaning up the back office is all about centralization and automation. Licensing touches so many aspects of an organization – from sales and product management to IT, operations, tech

support and customer service. Each one of these functions will need access to the data in your entitlement management system. Role-

based limited access to the entitlement management system can be provided to groups that don’t have their own systems; however, many

of these functions do have systems in which they work from on a daily basis (e.g., customer resource management, marketing automation,

and enterprise resource planning systems). Integration of these systems with the product licensing and entitlement management

software is critical to smooth back-office operations.

Despite the concerns with unauthorized use and/or distribution of their applications, only 58 percent of software publishers have attempted to implement any license compliance management solutions and only 46 percent have proactively implemented any technology to protect their software IP.

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©2013 SafeNet, Inc. All rights reserved. SafeNet and SafeNet logo are registered trademarks of SafeNet. All other product names are trademarks of their respective owners. SvSum (EN) 03.19.13

Leverage Usage Tracking and Entitlement Data to Drive Future Business Decisions. In order to effectively support usage-based

billing models, software publishers are now forced to collect more data than ever before. With an entitlement management system, this data is

not only easily collected, but also available for analysis and reporting. This data should be used for identifying usage trends and driving future

product packaging decisions. This data can also be made available to end-users, delivering much-appreciated transparency between the end-

user and the software vendor – ultimately improving customer experience and increasing the likelihood of repeat business.

Think Like an End-User. The software industry is highly competitive and full of options for end-users. Successful software

vendors will be those who start thinking like end-users and focus on all of the aspects that impact customer decision-making and the ongoing

customer experience.

Think like an End-User:

• Can a customer buy what they need or are they forced to buy more due to inflexible packaging?

• Is there a wide variety of pricing models with flexible licensing to make offerings accessible to the broadest range of users?

• Is it easy for an end-user to see what they have purchased, what they have used, and what their next steps are?

• With the right software monetization stagey, the answer to all of these questions is yes and the potential for success is limitless.

Stop viewing IP security and business model enablement strategies in silos and instead design business model and security strategies as one.

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