Software Licensing – still important for the Cloud?

Licensing has traditionally been the main means by which software vendors have controlled rights, access and usage of their products and applications.But how relevant is this in the Cloud? Where the ISV is effectively a service provider? InishTech CEO Aidan Gallagher looks at the role licensing might play in the rapidly developing world of Cloud Computing at the role licensing might play in the rapidly developing world of Cloud Computing.

 

The first time that I discovered that Software Vendors tended to think differently about licensing in the Cloud
was during a discussion at a trade show back in 2009. As usual, I was extolling the virtues of the InishTech
service. The Software Vendor, however, was having none of it. His view was that he had a simple SaaS
application. He believed that he did not need to differentiate his application in any way by offering different
packages, he didn’t need to issue product keys or licenses to his customers and he certainly did not see the
need to protect his code.
It was an eye opener. I realised that we needed to think long and hard about where we could provide value to
our customers as they transitioned their business models to the cloud and how we could benefit the many new
entrants developing Cloud based SaaS applications.
The Software Business is not a Green Field
The first thing we need to recognise is the fact that most substantial cloud software projects are being led by
ISVs that already have existing, successful, non-cloud technology, that they license, manage and protect
effectively today. People tend to automatically associate the Cloud with new to market SaaS applications, but
many ISVs are also hooking up more traditional On Premise apps to the Cloud solely for cost savings, either
by way of processing power, scalability, economy, storage etc. There will be many different software business
models ranging from the familiar On Premise solution disguised as a private cloud right through single tenant
hosted solutions and onwards to pure single instance / multi tenant SaaS. It is the challenge of the ISV to be
able to reflect and accommodate this reality in terms of their business model. Even in terms of payment
models – not all ISVs will employ a subscription model and some will even continue to charge based on their
legacy pricing structure. In fact, many ISVs will chose to maintain their entire existing licensing approach,
modified to reflect the fact that the application is now remote, provisioned as a service rather than deployed at
the customer site, so the need for a licensing solution remains every bit as valid.
Because of this phased approach we are seeing from the established ISVs that are the real engine of the
software sector, we need to ensure that our customers can continue to use the same licensing solution on all
potential deployment platforms. Very few ISVs will take the “big bang” approach and move everything across
to a cloud platform at once – it’s too risky and potentially too costly. Having said that, if established ISVs ignore
the clear shift apparent in the marketplace towards cloud, they run the very real risk of being left behind. So
they are going to have to deal with the fact that they will have multiple deployment and delivery platforms for a
period of time.

Are things different in the cloud?
Yes they are, and licensing is no exception. While certain aspects of licensing, like code protection, become
less of a concern in a trusted domain where no software is actually provided to customers, other aspects of
licensing, like the aforementioned entitlement management as well as SKU management and being able to
handle diverse commercial models are all more important in the cloud, where agility, customer focus &
differentiation are all very important.
On Premise licensing is reasonably well understood. The customer purchases, and is licensed for, say, the
installation and usage of an application for x users on y machines for z period of time etc. In a SaaS
environment the main difference is the lack of a physical install and the creation instead of a customer
instance. However all the other concepts of controlling access to particular features, number of users that can
have access, time constraints etc. are equally valid and there must be a way of managing this.
The ability to dynamically configure market propositions is also very important in the cloud. When I think back
to my conversation in 2009, it was a consumer application we were talking about, and yes, for many apps, a
one size fits all approach will be fine. But this is the exception rather than the rule for commercial software. You
need to be able to provide your customer with the right offering in order to drive business success. So, the
ability to create dynamic service SKUs for specific market segments and specific customer requirements – an
aspect of “licensing” which is routinely forgotten, becomes exceptionally important, not just from a cost saving
point of view, but in order to open up new channels and new routes to market that the cloud offers.
Licensing can also play an important role in determining how apps are sold in the cloud. The majority of apps
will be offered for sale online, in many cases via marketplaces. A key requirement will be the ISV’s ability to
offer time/resource controlled and managed trials. Vendors can also benefit from access to a much wider
audience if they can offer different configurations of their app (standard, professional, enterprise etc.) to suit
different levels of buyer in the market. Most ISVs are looking at how they can use the various marketplace
options available to increase their selling presence. Offering different application packages to suit particular
market segments is part and parcel of optimizing marketplace participation.
Finally, connecting this realm of packages, tariffs and entitlements to usage, metering and billing is, for SaaS,
the “holy grail” in terms of driving the successful monetization of a cloud application. Obviously, the more
flexibility the ISV can demonstrate in being able to adopt and offer business models to suit every kind of
customer, the more likely they are to monetize their software.
Licensing & the Cloud – the future
We haven’t figured it all out yet, by a long way. We are in the early days of the cloud. But lets be very clear,
what licensing delivers, ISVs will still need, in fact probably even more. But it’s going to be a little bit different. I
realized that back in 2009, and I realize it even more acutely today. I think one thing is certain though.
Historically, licensing was something you did to protect yourself, to avoid pain. In the future, in the cloud, the
same technology, with its ability to transform and monetize your business, will be seen in a much more positive
light, as a business enabler for ISVs.
Look out for our upcoming blogs on licensing for Silverlight and for Azure, where we explore the differences
the cloud is bringing to bear on this field in a little more detail.