Reaching New Markets with a Metered Software Licensing Business Model

What do you do when the high-end market for your high-end software product or high-tech intelligent device starts stagnating? Throwing more capabilities into your existing product to lure existing customers to upgrade might not do the trick. You might have to appeal to prospects in lower-end markets, some of which may be your former high-end prospects.

Should you Discount?
Luxury brand owners have known for years that you can't just reduce the price of your high-end product to reach lower-end prospects. Your high-end customers will get wind of that and demand the same discount, or worse, shun your brand because your reduced priced also reduces your product's perceived value.

Should you Retool?
If you can't change the price of your product to reach lower-end markets, then you have to change your product, but how? Lower-end markets may indeed have unique needs that cannot be satisfied by your existing product or even by a derivative of your existing product. If this is the case, then you have a much harder decision regarding the direction of your business. However, often your lower-end prospects today aspire to be your high-end customers tomorrow. They currently need all the capabilities in your high-end product, but can't yet afford it. So even as they acknowledge that your current product is out of reach for them, they would like to see a straightforward path that gets them from where they are today to where they aspire.

Should you Offer to Lease?
L
easing of luxury items has long been a way to reach lower-end markets without discounting or retooling. Here are two metering options to consider when considering leasing: by time and by usage.

  • Meter by TimeSome of your lower-end prospects may value the ability to use as much of your product as they need within the lease period. The pricing of the meter by time will be based on the assumption that the customer will be heavily using your product through the lease period. When the lease period ends, your software will be controlled with an expiring electronic license that is enforced by the software itself.
  • Meter by UsageSome lower-end prospects won't be using your product continuously, so will want to extend the lease period. However, an extended lease period may be too expensive for them. These prospects will want to pay for only the amount of your product they actually use regardless of how long they possess your product. The payment for this type of model can range from pre-paying for a specific amount of usage, to post-paying for the amount of actual usage, to putting down a deposit toward the eventual post-use payment.

Defining Usage
A key component to metering by usage is the ability to define usage in a way that is satisfying to you and your prospects. After all, prospects that need such fine-grained pricing will scrutinize the metric to which their price is tied.

Your pricing metric can be based on transactions processed by your application or time spent using your application. If your product offers very discreet units of value to your customers, say, number of tests performed or number of gigabytes processed, then those would be ideal metrics to base price upon. However, if your product doesn't offer such discreet metrics, metering based on time spent in your application is the best option.

Here are some other considerations as you try to define time spent using your application:

  • Is application idle time counted as usage?
  • Is the time the customer is navigating menu items counted as usage?
  • Is one second of usage rounded up to one hour of usage?
  • Is thirty minutes and one second of usage rounded up to one hour of usage?
  • Is only sixty continuous minutes of usage considered one hour of usage?
  • If, say, twenty minutes of usage is immediately followed by, say fifteen minutes of usage, but both within the same hour, is that two (rounded up) hours of usage, or added together (then rounded up) to be one hour of usage?

Regardless of whether you choose transactions or time spent in your application, you will have to have a pricing policy in the event a bug in your software renders useless the transactions or time spent. Do you offer full credit? Partial credit? Refund? Neither?

Get Help
Once you have established the lease model you want to offer your lower-end prospects, you may need help managing this entire process in an automated fashion. Application usage management technology can help you process, monitor, and enforce whatever lease model you offer to your prospects.

                                                                                                                                        

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