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Comment Traditionally organisations have "bought" the software they use, although the range of licensing options available can be enough to confuse anyone. However, on both sides of the IT world (vendor and customer), surprisingly little attention has been given to acquiring the right to use software on a "subscription" basis rather than on perpetual use licenses. But this may be about to change.

At the end of last year, SmartFundIT.com, a company committed to setting up the first software financing market in the UK, surveyed over 100 ISVs to assess their plans regarding making their applications available on "subscription" models. The results are encouraging but do highlight some of the challenges that ISVs must tackle in order to be able to offer software via subscription licensing options.

Of those surveyed, nearly nine out of ten stated they either already offered their software on a subscription basis, were planning to adopt such a model, or were in the process of evaluating subscription licensing options. Of these software vendors, one third have used the services of a financing partner while another 28 per cent expect so do in the near future. It is interesting to note that while 45 per cent of ISVs today have the capability to deliver their software via a subscription service, only 37.5 per cent felt their organisation had a high level of familiarity with the model, and just over 20 per cent felt such understanding to be low.

Of even greater interest is that while almost half of those questioned felt there were no advantages or disadvantages to subscription licensing, 36 per cent agreed the benefits of subscription licenses outweighed those of perpetual models, with the remainder, only 18 per cent, disagreeing. Of the reported benefits associated with a subscription model, the guarantee of recurring revenue was the highest rated advantage (63 per cent), with building a better customer-vendor relationship (48 per cent) in second place. Better customer retention, increased sales, and shorter sales cycles all ranked as important advantages by around a third of vendors.

The perceived customer benefits were recognised to include lower initial project costs, reduced risk, greater flexibility and simplicity. The additional capability for customers to recognise subscription licenses as a business expense rather than a capital asset also ranked highly as a customer benefit.

A third of ISVs have already utilised financing providers to assist with subscription licensing and another 24 per cent have considered this approach with specialist software financing providers being the preferred source of funding. When it starts operations on January 30, Smartfundit.com will be keen to help address many of the inhibitors to embracing software financing models identified by ISVs, especially a lack of specialist knowledge of the software industry among finance partners, and the need for clear and transparent funding.

When Smartfundit.com launches the independent financing market place, it is hoped ISVs will take the opportunity to once again look at providing their offerings on subscription models. There is no doubt the demand for software to be supplied via subscription will continue to grow.

Smartfundit.com could be well placed to help bring software subscription to many organisations, benefiting both software houses and their customers.

Copyright © 2006, IT-Analysis.com

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