Usage-Based Software Licensing Examples and Patterns

For the last year, I've been talking to a large number of software vendors and device manufacturers about pricing their products using usage-based licensing models.

There seems to be an explosion of new licensing models being considered. I personally believe that this new approach will be the default pricing model within the next 5 years and therefore wanted to share some potential applications (to stir up the creative juices).  I have kept these examples anonymous, as most of these licensing models have not been released in the market place yet (but soon)…  

  • Marketing application vendor
    • Old: moving from user/size of database
    • New: # of emails sent on a monthly basis
  • Development platform/ hosted RDMS
    • Old: # of developers, perpetual license
    • New: # of gigs managed on a quarterly basis
  • CAD/CAM vendor
    • Old: perpetual license based on features/capabilities
    • New: # of drawings rendered in 3D on a monthly basis
  • Telephone equipment provider
    • Old: perpetual license based on features/capabilities
    • New: peak throughput # of text messages sent per month
  • Translation services
    • Old: each job was priced based on complexity, language, speed of job
    • New: # of characters translated by the month (regardless of all other factors)
  • Video data conversion provider
    • Old: hardware
    • New: # of megs converted per month
  • Project management vendor
    • Old: perpetual software based on size of hardware (# CPU cores)
    • New: # of active projects managed per month
  • Chip design software vendor
    • Old: perpetual software based on size of hardware (#CPUs)
    • New: # of designs compiled per month
  • Application converter
    • Old: perpetual software-per seat
    • New: # of applications "managed" for conversion & perpetual license for capabilities
  • Software development tool vendor
    • Old: perpetual concurrent # of users
    • New: # of users exceeding perpetual license per month

There seems to be some patterns:

  1. Combination of "usage" (pay-for-use) and "capabilities" (pay perpetual or time-based for access to these services)
  2. A significant reduction in what is being monetized (2-3 meters, no more than that)
  3. Meters are aligned much closer to the value derived from the use (# of megs converted vs. #CPU)
  4. All producers are providing a predictable/consistent pricing meter and a variable component so that CIOs/finance can budget

I think the combinations of:

  • Simple
  • Easily tied to value
  • Mostly predictable

 Is right on the money….

Learn more about compliance management solutions that enable usage-based licensing and pricing.

2 comments on “Usage-Based Software Licensing Examples and Patterns

  1. Paul DeGroot on   # Reply

    Usage-based models have value, but you always need to watch what they incent customers to do.
    From the examples here: a marketing campaign based on emails creates an incentive to send fewer emails, which hurts my marketing. In effect, a disincentive to use the product! Put your money and your product on the line and license it by email responses, so vendor and customer incentives are aligned.
    CAD/CAM based on number of drawings. Incentive is to do fewer drawings, so it discourages iterative design–each iteration costs me money, so don’t ask me for small changes that require re-rendering.
    Translation services per character. Great for languages based on logograms, like Chinese. French/German? Not so good.
    Video conversion based on megs converted. Highly efficient compression algorithms may require more CPU power to convert, so there’s an incentive to use maximum compression to create small files, but the vendor’s costs per meg go up.
    In short, if you go this route, make sure you’re not creating customer incentives that will come back to hurt you. Also keep in mind that your brilliant licensing model may limit your market to a subset of customers (Chinese customers who want English manuals will do well. American manufacturers who want Chinese manuals won’t). It may also make competitive price comparisons impossible. For example, how am I supposed to calculate how many more/fewer drawings I will create with this product and the impact that has on what I pay for CAD/CAM?

  2. Workshop Software on   # Reply

    Software License Protection is means the security solution where software developers use to integrate into their software applications with the intention to prevent unauthorized usage or illegal execution of their software.

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