When software license models and product structures become too complex, it will ultimately undermine your goal of increased revenue and market penetration through the channel. If it becomes increasingly difficult for your channel partners to develop a working solution from your software product line and/or for customers to understand how to buy your product, your software licensing and product structure is too complex. In addition, a complex product and license model undermines your products' value proposition.
Complexity in the world of software licenses is typically the result of several issues: too many products, complex product pre-requisite relationships, different product structure paradigms, or, too many solution bundles. The successful ordering of a new product may require your channel partner to have a complete understanding of what has been installed in the customer environment. If that is the case, your channel partner may find it easier to turn to a competitor whose value and structure are easier to explain. In addition, order velocity will become limited as orders either have to be re-processed due to an incorrect assumption about what has to be ordered, or, as an order configuration process has to be developed and used.
A tell-tale sign that product complexity may be excessive is the need to use an order configurator in the sales process in order to successfully order a product. The order configurator is typically an ERP order entry module and process used by sales or order management personnel. The order configurator provides expert assistance based upon a set of rules associated with product ordering (including what the customer may already have installed) to ensure that correct products and associated options are ordered to deploy successful configuration of products. There is no doubt that an order configurator is a powerful module that makes sense for many situations.
But more times than not in software companies, the real problem is not simply that the underlying problem is complex to configure, but rather, the product and license structures themselves have become too complex to understand.
Before turning to configurators as a way to configure the correct combination of products to order, ensure that your underlying product structures are simple, intuitive, and obvious. In a sense, see if you can eliminate the need for a configurator to order products. Some rules of thumb to adopt are:
- Adopt one or two basic paradigms for product growth. One paradigm is the Base/Option model where up-sells to a product line are accomplished through the purchase of add-on options. The other paradigm is the Base/Upgrade model, where the up-sell is accomplished through an upgrade to a higher level editions (e.g. Upgrade from Personal to Professional Edition).
- Use consistent terms for naming/describing different products in the product packaging paradigm. For example, if you have an option product (in a Base/Option model) that provides optional functionality to a base product, then consider naming it something like Payroll Option to ERP Base. The name itself implies the relationship. In a Base/Upgrade model, a product may be named something like Upgrade from ERP Base to Payroll Edition. Again, the relationship is implied.
- Minimize the use of bundles and other super-structures. A simple-to-understand product line should eliminate the need for many bundles that are created for simplification.
- Avoid too many low-revenue/low-value product and license options – try to increase the capability of existing products to include new functions. This in turn, can increase the value of your software maintenance stream.
- Avoid product and license options based upon a pricing tier and don't create a different product option that provides an increase in function based upon how much I have already purchased. For example, when adding 50 more users to a CRM package don't offer a new product option, instead, simply add a pricing option – create a single product option for the up-sell of 50 users.
However, DO use a configurator to adjust pricing based upon volume or configuration. Instead of creating product bundles or pricing-tier based product options, simply use the configurator to adjust the pricing to reflect the current volume discount or pricing option in place.
This was a lot of information for a short blog, but hopefully it helps you to develop an awareness of the need for software licensing and product structure simplicity.