Software Monetization for the Now! Economy

August Event Review: “Software Monetization for the Now! Economy” with Austin Chiu, VP Sales and Marketing, Gemalto

By Geoff Anderson

Trends and Dynamics

Since the year 2000, fully 50% of the Fortune 500 companies have dropped off the Fortune listings.  Furthermore, the S&P 500 firms currently have an average tenure of just 17 years (whereas in the first half of the 20^th century, it was 40 – 60 years.  Clearly, the market dynamics at the top are changing, and the speed of the business cycle is increasing.

There also have been notable failures, companies who were at the top of the game, clear leaders, who have vanished, or have become so diminished as to be irrelevant.  Companies like Blackberry (Research in Motion), Friendster, and Myspace are three in the tech space alone, but are hardly the only examples.

Clearly, digital disruption is upon us, and it has components across 5 key attributes:

• Mobile technology
• Social Media
• Cloud
• Big Data
• IoT

Various parts of these combine to disrupt even the most entrenched old world businesses.

Take Amazon as an example.  Starting as a book seller, it targeted the Brick and Mortar giants of the mid to late 1990’s (Barnes and Noble, Borders notably).  But as they grew, and became the leader, they have strategically challenged the general products space, groceries, and media.  In each segment, Amazon has attacked the leaders or the top businesses, and their relentless focus and desire to succeed/dominate.

This goes back to the prescient Marc Andreesen quote from 2011 that software will take over the world. It seemed a bit far-fetched at the time, but has come true in 2016.  Think about what Uber did to the taxi business, or FillD is doing for refueling your automobile.   Even SpaceX is disrupting NASA and traditional space operations.

Looking at the trends of software use and smartphone use brings some interesting contrasts:

Not surprisingly, the time spent on apps on smartphones/tablets is increasing significantly year on year, but the surprising fact is that the total number of regularly used apps has remained relatively constant.

This tells us that just having an app, or a plethora of app options isn’t driving customer usage, but instead the quality of the customer experience, and customer satisfaction is critical to break into that list of commonly used apps.

Looking at it from the time management and choices available, clearly in this day and age the average user or consumer is bombarded by options.  To gain, and win mindshare requires that you provide a superior customer experience.

Gartner predicts that in 2016, 89% of companies will compete on customer experience.

Some Examples of Customer Experience

The Disney corporation, masters of entertainment for family, and providing a seamless experience at their theme parks, properties and resorts, is combining smartphone apps, a “magic band” for the part patrons.  It provides point of use identification, and experience customization.  With it, a patron family can choose where they want to dine, order from the app, and when they arrive, they swipe their magic bands, and the restaurant will know what they ordered, where they are sitting, and seamlessly serve them.

This is an example of apps coupled with IoT, and their back end servers/services to provide an excellent experience to the visitors.  At the end of the day, it enables Disney to more effectively extract money from their visitors.

Another example is General Electric (GE).  As their businesses mature, and become more software centric, they found some trends in their customers.  Issues were that 81% of their customers wanted a subscription based model, with a solid 63% preferring to pay for consumption (or Pay as you Go).  In addition to these purchasing trends, they noted that IP theft and license non-compliance were high, often not caused by nefarious actions, but by virtualization and duplication that the technology makes possible.

Software Monetization

In the past, software was mostly sold via a perpetual license, and if it was business or enterprise, it had an annual maintenance fee that gave access to updates, or support.  With SaaS and Cloud solutions, it has become more prevalent to pay for software as a subscription.  Either by seats, or by components used, it is commonly a monthly or other periodic expense.

Lately, it has been a growing trend to offer software, or even tech hardware, in a pay per use scenario.  One example is Stryker, a maker of medical devices.  One of their most popular pricing options is the usage based pricing, where a very expensive instrument is paid for in the number of procedure or tests performed.  One benefit is that it greatly reduced the support overhead, and the activation issues.

One benefit of usage-based pricing is that to achieve it requires the gathering of a great deal of granular usage data.  This is a benefit to the vendors of the solution, as it allows the measurement of what features and options are used most frequently.  Thus for product managers, it offers a quantitative look at the efficacy of each option, feature, and capability.  We can know what is popular, and what is rarely used.

Additionally, for the business minded, this enables entitlement tracking, ensuring that the number of licenses used matches the number sold, tracking the versions, and even assisting in the support.  Imagine being able to accurately measure trials versus commercial activations, and the usage patterns of the software.

Gemalto Solutions

From here, we began to get into more specifics on the Gemalto offerings, a wide range of software licensing and activation mechanisms that provide a great deal of flexibility, connections to a wide range of back office automation (think SAP, Oracle, SalesForce).

A case study was offered: HP Enterprise.  A company that grew via a multitude of acquisitions, their activation technologies was all over the map.  Gemalto was brought in to create a single portal for activation that handled the behind the scenes coordination.  This led to reduced confusion in the market, and improved customer experience.

One more strength of the Gemalto solution is how to handle virtualization, where an installation can be virtualized and replicated/pushed throughout the data center(s).  Their solutions allow tracking and accounting for such tricky environments, helping vendors capture the revenue due to them, without restricting unduly the end user paradigm.  Using a cloud based solution, it provides tracking and accountability for the vendor of software.

Additionally, they have strength in multidevice environments, providing flexibility, and transparency for the users, yet capturing value for the vendors without alienating the user experience.

Summary

The take-aways that Austin wanted to leave us with were:

• Focus on the customer experience. It is the differentiation of the current realm.
• Truly understand how end users are using your products
• Provide flexibility in how you sell (monetize) your software
• Don’t lose sight of the value of the generated granular data on usage and use trends

Geoff Anderson has been in product management and product marketing for nearly 20 years in industries ranging from semiconductor capital equipment, to networking hardware, enterprise software, and industrial measurement equipment.  He is currently available for product management and marketing consulting.  gander@tralfaz.org