By Greg Holmes
As usual, IDC's Software Licensing and Pricing Predictions 2016 make some interesting food for thought. How are organizations going to plan their software spend and check their utilization against all of these trends?
Will companies organize their IT procurement teams differently to manage an increasing number of ongoing subscription based software purchasing programs rather than larger perpetual deals?
After reading Amy Konary’s article above, I thought it would be good to respond to each of the points in turn.
1. Software Subscription Revenue to Reach $130 B in 2016 - up 21%
This is a level of growth that seems natural - and we see many software publishers offering customers the option to switch to a subscription based model or even giving up on traditional perpetual models.
In many cases, new software companies are not even offering perpetual Licenses at all. This means a natural part of the software market will only be on subscription. This is a trend we’ve all been seeing, so the numbers are quite interesting.
2. Software License Complexity will Indirectly Cost Organizations 25% of Their Software License Budgets in 2016
How does software license complexity cost businesses money?
- Difficult to calculate metrics
- Lack of automated solutions
- Vendors not accepting home-grown calculations or analysis
- Ongoing purchasing of unused software (shelfware on a subscription basis)
Naturally this shows that instead of being less relevant in the future – Software License Optimization now takes on a larger and more strategic burden of optimizing subscriptions and planning future spend.
3. By 2018 50% of All Industries Will Be Disrupted by a Competitor Outside the Context of Their Industry that Embraces 3rd Platform Business Models
These new vendors will arise from unseen sources. How can we as software license managers quickly get our arms around these new vendors and ensure we measure spend and consumption appropriately? Often this spend will be in parts of the organization we don’t see as traditional sources of software spend. Therefore it will be more important than ever to have high level governance on all software purchases.
Examples of this kind of disruption (in the consumer world) are Uber and Airbnb. These powerful apps connect consumers directly with providers of a service via the 3rd platform (mobile) easier than ever before. With new platforms and services models come the need for new ways to optimize spend. It is still desirable for businesses to optimize these costs against other options.
As a vendor of Software License Optimization solutions, Flexera Software will be busier than ever adding new measurements and checking the consumption levels of new applications and related services.
A prediction of our own is that new technologies and tools will be needed for many of these disruptive vendors to accurately track usage and consumption of their products.
4. At Least Three Software Providers Will Announce in 2016 the Intent to End All Perpetual Licensing
As enterprise consumers, there will be a greater need to embrace subscription based models & cloud delivery, as these options might be the only available ones for the products we need to do our jobs. In addition, there are operating expense (OpEx) versus capital expense (CapEx) considerations for many organizations, with subscription based licensing typically falling under OpEx, which may have budgetary advantages.
In some cases, IT procurement teams will have to choose between legacy licensing and delivery models, and the new licensing and cloud/SaaS delivery models.
In terms of license management, optimization of the utilization and costs become more important than license compliance. When buying software, you are no longer owning an asset - you are renting one.
This change will be easier for some vendors than others.
5. Close to 50% of Organizations Will Have the Processes and Tools in Place to Meter Usage of Their Major On-Premises Software by 2018
The flip side of this prediction is that half of companies still won’t be able to manage usage and won’t have processes and tools allowing them to optimize their spend on software. This means that the opportunity is as large as it ever has been for organizations to ensure that their software is well managed and their needs are understood. For on premises software, and with the choices around switching to cloud and SaaS in some cases, it is best to know your current spend and utilization level before switching to a different licensing and delivery model.
6. By 2017, 65% of All U.S. Organizations Will Generate Revenue by Packaging, Brokering, and Selling APIs
More companies will essentially become software companies by packaging up their traditional information, IP and products as software offerings.
This leads to the following:
- More complex products which utilize 3rd party APIs
- Increased need for software intellectual property protection and efficient software delivery mechanisms
- More license metrics, vendors and spend to manage with Software License Optimization technology
Companies will have the challenge of tracking and understanding their consumption of all of these new metrics and vendors’ products.
7. By the End of 2016, 40% of U.S. Organizations Will Purchase Public Cloud Services via Enterprise Software Agreements
US organizations seem more in favor of using Public Cloud. Elsewhere in the world there is a need to use more "localized" cloud services to protect the information and data security.
Vendors are offering more products and services which operate in the cloud on Infrastructure as a Service (IaaS) offerings, as customers show their willingness to go for these models.
Mobility of existing licenses & assets will be a theme for many companies (on both sides). They’ll be interested in license mobility rights which allow them to later move more IT services into the cloud. (See prediction #8 for more of this theme).
Attractive enterprise deals often mean that one side is either buying too much, or giving away a lot of future value.
8. Outcomes-Based Software Pricing Models Will Be an Option for 20% of Applications by 2017
Outcome based software pricing means that prices will be focussed on the business value delivered, which can be measured in many different ways. Finding a way to accurately measure and analyse the value of the outcomes may be challenging in and of itself, and needs to be agreeable to both parties, to be successful.
As a result, Software License Optimization will be more focused at ensuring spend is appropriate to the value achieved.
9. Close to 75% of Software Vendors With Both On-Premises Software and Cloud Will Offer Discounts on Bundled Offers to Drive Cloud Adoption in 2016
Some software vendors already incentivize their sales staff on Cloud adoption. Offering customers a positive reason to go cloud will be a way to help drive this.
A bundled offering allows customers to try out the cloud with less risk - if they can go back to their on premises option—Microsoft allows this with Office 365, for example.
Canny purchasing staff will find opportunities to get more value from software vendors by taking up cloud options.
10. By 2018, 60% of Manufacturers of Connected Devices (Automobiles, Thermostats, Medical Devices, etc.) Will Generate Recurring Revenue via a Software-Based Offering or Service
This prediction is a consequence of #3 and #6. Many of these vendors are already utilizing technology to make their devices 'smarter' however this is a shift on finding additional value through new interfaces that have been built.
These connected devices and the licenses they are consuming will be a new item on the agenda for Software License Managers. As this market develops, people will want to ensure that they are getting value out of the transaction.
These trends do not seem surprising to me - and though some of the numbers are high, I believe it is just a matter of time until we hit them.
Is your organization ready to meet these new software license management challenges? What will it take to get there?
For more from IDC, please read this research report: IDC PeerScape: Practices for IT Asset Management. IDC's PeerScape report discusses ITAM best practices to enhance cybersecurity.