Software industry opts for subscription fees
The software industry is poised to move from a one-off licence payment system, to a subscription-based model, based on the needs of vendors and customers.
These are the findings of a new report from research firm IDC, which found that more than 50 per cent of enterprise software vendors are likely to change their licensing model over the next twelve months.
Currently, around 75 per cent of vendors' revenues come from traditional licensing methods, whereby a licence is purchased once and held in perpetuity. For the customer this means a large capital expenditure up-front, even if the software turns out to be obsolete, before it has justified its purchase price. For the vendor, this means a one-off payment for their product, even if the software is extremely productive for the client over a long period.
"Software vendors generally agree that traditional licensing models are not longer suitable in today's environment," said Amy Mizoras Konary, software licensing program manager at IDC. "The software market will move toward licensing models and practices that increase the predictability of vendor revenues, make it easier for customers to manage and comply with software license contracts, and clearly establish the business value of software."
The issue of business value is of equal concern to vendors and customers, with 72 per cent and 70 per cent respectively strongly believing that the software industry must place a greater focus on clearly establishing the business value of software.
Both vendors and customers are coming to terms with the idea of a subscription-based model, with 43 per cent of vendors and 26 per cent of customers believing that the majority of worldwide software revenues will be derived from subscription-based software by the year 2010.
But the complexity of current licensing arrangements will also drive change, according to IDC. Medium and large-sized companies manage an average of 40 software contracts and 70 per cent of customers expect their complexity to increase.