All right, with that I'm going to introduce our returning champion. Amy Konary is going to come and talk to you about some of these software monetization opportunities as well from her perspective. Amy is the vice president of research with IDC. Amy. Good morning, everybody. Very nice to be here. I, too, am going to-- let's see if I can find my slides. This is a scary computer. [INAUDIBLE]. Yep, that works. That's me. Get us going. Great. OK. Again, good morning. Nice to see you. A lot of familiar faces from different events. I'm happy to be here. As Prakash said, it's nice to be called a returning champion. I've never been introduced that way. But yes, I've presented at this event before. I'm with IDC. I've been at IDC now for quite a while looking at the business of software. And I think there's actually a conference called the Business of Software on the East Coast this week as well. There's always something going on. But I'm happy to be here on the West Coast to talk with you about the new look of software monetization. And a lot of the same themes that were just brought up are going to be echoed in my presentation, which I think will be good for consistencies. We may duke it out on a couple of things, just to kind of make things a little more interesting. But I think for the most part, we're seeing a lot of the same types of things, which are probably a lot of the same types of things that you are experiencing as well. So I will jump right into it here. So the business of software in 4 easy steps. So the first step, make a killer product. Second step, drive down marginal costs. Pretty important. Step 3, sell as many units as possible. And then step 4, repeat steps 1 to 3. And that's been the software business for many, many years. And as long as I've been paying attention, either as an analyst or working at a software company. And one of things that is happening today, and I agree with your comments, you're not really in the business of selling 1's and 0's, people have lots of that. Which is, people have lots of software. And it gets very difficult, unless there's something brand new and, let's say like social might be something that's new for a lot of companies. It's kind of an offshoot of collaboration that you already have. So that's kind of new product. But for the most part, your accounting systems, your database management systems, a lot of the software that you have, it's probably good. Probably don't need a ton more products, features, et cetera. Just some tweaks and things going forward. So it gets very difficult from a model perspective to continue with this approach. Don't want to steal my thunder from my next slide. So the result is, we've got an industry where you've got lots and lots of feature-rich products. But from a customer experience perspective, it can be very poor. Not only because it takes us a really long time to configure this to how we need to use it or it doesn't work the way we need it to work, but also the experience of doing business with a software vendor who's continually motivated to get you to buy as much stuff as possible and to continue buying as much as possible can create a not great experience for customers. And that's something that we've been seeing a lot of, and the software industry continues to grow and do well. And companies continue to grow and do well. But when you talk to product managers within companies, when you talk to operations folks within companies, everybody is really feeling a pinch. Either because the systems that they have aren't supporting the way that they need to do business in the software industry, because of some of the underlying shifts in the way people consume software and the types of platforms that they install software on is causing a pinch in terms of operationally being able to manage that. And I think, also, because customers are starting to really push back and say, there is a better way of doing this. We have choices. We have options. This is how we want to buy. This is the type of company we want to engage with. So it's really putting software companies in a position where they need to make some fundamental changes to the business of how they get their software to customers and how customers consume that from them. So somebody posted this to a Facebook feed. There's been this similar meme that's been going on in the internet. And I saw it and i immediately thought, software licensing. And I will tell you why. Typical product management-- so I attend a lot of conferences where product management team will get up. They'll spend an hour and a half-- just two weeks ago. An hour and a half talking about features and the functions of a brand new product that they've got, how great it is, all the bells and whistles. The very last slide-- and here's the two editions. I don't have time to get into it right now. There's the pricing, contact your sales rep if you want more information. See you later. And that is how pricing and packaging is typically presented to the customer. It's like, here's this shiny thing. It's this awesome van with a unicorn. Just get in. Get in. We'll figure out the details later. Don't worry about it. We don't have a lot of time to go through the pricing and packaging, just get in the van. Once you get into the van, you'll love it. There's a disco ball in there. It's awesome. And you think about it from the customer experience perspective, like customers might have been like, yeah, all right. I'm going to get in the van. And they might have regretted it instantly. But if you bought a perpetual license to get in the van, what are you going to do? You already bought the license and you might need to continue paying maintenance or not. But if you subscribed to get in the van-- I'll pay $1 to get in the van and then I'll pay $1 every time you go around the block. If you don't enjoy the experience in the van, if it's not really cool, it's actually really creepy and really regret the fact that you got in this scary van with someone wearing a unicorn head, you're going to get out. And you're not going to continue to pay. And so I think that's the dilemma of a lot of-- the product management thinking is, let's just make something really cool with all these bells and whistles. And the pricing and packaging, we don't have time to get into it. Another great example of this, not just-- and how it's presented to customers, but how people come up with pricing and packaging, I did a call with a company. This is probably a year and a half ago. Multi-billion dollar company having a giant conference this week in San Francisco. I won't name any names. They had a new product that they were announcing, and the product manager called me and said, I really need some help with pricing. And we want to do it in a bunch of geographies. We want to figure out the best way to go about it. So I said, that's great. You're really thinking through this. Just give me some more detail. What's your timing? Well, the product was GA next week. So we were really hoping you could kind of give us an idea in the next couple of days or so. I was like, guys, there's nothing I can do for you at this point. I mean, you had to have thought about this at some point in the process. But they were all focused on the actual product and what it was going to look like, and not really the pricing and packaging too. And the frightening thing about this is as the software industry changes and we need to continue to make tweaks to the products over time, the pricing and packaging stuff, as an afterthought, becomes even more of a hurdle. Because you can't be as flexible as you need to be to meet the needs of customers as your product changes and as customer demands change. Also, there are different ways to go about monetizing software that your competitors are taking advantage of likely, that your customers are asking about that you might not be flexible enough to be able to do if pricing and packaging is an afterthought. So we'll go into a little bit more detail on some of these later in the presentation, and exactly how they're being applied and used. But it's really difficult to view, a product manager has a great idea. We want to run this promotion. And you bring this to the powers that be that actually do the nuts and bolts of licensing and they, say, yeah, we can do that in about 6 months to a year. Or we can't do that at all with our systems, which is a very common scenario. And it's very frustrating. And then, transparency is another thing. Also, big conference a couple weeks ago that I attended. And they had their ISV partners on stage, so lots and lots of different software companies. These were primarily cloud model companies. And the striking difference between cloud-focused companies and companies that maybe were on-premised focus first and are getting to the cloud, is the transparency around their pricing, and how pricing becomes a competitive differentiator. Not so much the price point or the list-- but how they come about their pricing. How they value the software and how that enhances the customer experience. And that is a striking change that's happening in the cloud space that is certainly starting to filter to other areas of software. Whether it be an on-premise type of software or not. And then, it can't take forever to get pricing done. If things are moving very quickly, there's new competitors. There's new ways of delivering software. There's new ways of monetizing software. And again, unless you have that framework in place to support that kind of flexible, nimble infrastructure, it's going to be very frustrating and very difficult to compete. I want to give you some data behind some of the trends that were already talked about in terms of mobile, and BYOD, and et cetera. So some IDC data. I kind of went through the big trends and kind of collected some data points so you'd have some nuggets on some of these big trends. So mobile access, 3 to 1. Other analyst firms will usually be in the 3 to 5 to 1 kind of user to device ratio. That's the assumption that a lot of software companies are operating on when they're coming up with licensing today, and trying to figure out the user to device ratio. Particularly if they've licensed a device in the past and they're trying to figure out what their pricing might look like. Bring Your Own Device, an IDC study that about 40 percent of devices used by folks to access business applications are, in fact, their own devices. And I would say of the two devices that I use-- or three that I use primarily for work, two of them are my devices. One is the work device. And I only use that for word processing functions. Everything else I use my own devices for. And I think, just kind of an informal survey of my peers, that's pretty accurate for the most part. Now, I'm an industry analyst. I might be a little bit different on the tech adoption curve as other types of knowledge workers, but this particular survey of 40 percent was a pretty broad survey. Virtualization. So just like a lot of innovations that you see on the infrastructure side-- file and print servers-- they eventually become part of the core platform at some point in time. And we're seeing that with virtualization where VM software is becoming less of a standalone product, but more of a feature embedded in base systems. And so that's important to think about. When I would present at these types of events years ago, when virtualization first started to become a topic in 2004, 2005, one of the big focuses for software companies was to try to discourage their customers from adopting virtualization. And that's very difficult to do where it just comes as part of the platform. They get it. Or they want to do virtualization, which is even the more important reason why it might be a challenge because most folks do want to, but there can be some definite licensing implications in doing that, which people realize and have started to figure out how to handle. Cloud. IDC's most recent cloud forecast you have here. And marketplace ecosystems, another one. There may be folks in the room that are part of marketplaces or that have their own marketplaces, so any of the big players in the software industry today are now looking to provide platforms where their partners can basically all come together, pre-integrated solutions, so that customers can easily find and consume complementary applications to their core applications. And we really see that these ecosystems are starting to drive interest from customers, consumers who are going to these marketplaces to find the applications that they're looking for to do their jobs. The CIO of Pandora was onstage a couple weeks ago at an event I attended and he said that for any application that they need, the first thing that they do is check the marketplace that they happen to work with, which is AppExchange, and they're a Salesforce.com customer. But they don't build anything else because they assume someone else already built it and it's in a marketplace somewhere. So also something to think about, because this has implications also for pricing and packaging. Obviously to be part of these marketplaces, it needs to be fairly easy to consume your software. Not as easy as the iTunes model on the consumer side. I don't think that's expected that business applications are going to completely all go to $0.99 or free. However, it needs to be something that's fairly straightforward and fairly self-explanatory. The other shift that I'm going to talk about is subscription. And not everybody in this room probably has a subscription model today, but many of you probably do. In most of the top 100 software companies, whether they're on-premise or delivered as a service, have some sort of subscription business. Subscription is not just for cloud. In fact, of the subscription revenue in the industry, only about half of that has to do with applications that are delivered as cloud services. The rest is for on-premise software. So there are a lot of the ways that subscription can enhance the customer experience for on-premise software, and a lot of software companies are doing that. There are a lot of, also, gotchas, though, when you're transforming your company from a perpetual model-focused company to a subscription-focused company. And one of the first ones that people bump into is that mentality of shipping more units and really focusing on the-- again, the really cool van with the unicorn doesn't really last that long in a subscription type approach. Because again, the customer is going to have a lot of opportunities to decide if they want to get off that van. And the shiny objects type thing will only distract them for so long. And so that, from a subscription perspective, you have to think about the entire customer experience. We'll talk a little bit about that. The key with subscription, as well, as opposed to selling units, it's building relationships and monetizing relationships. So there are implications associated with that. And there are other types of maybe, salespeople, that would be really good at selling subscription type business that might not be the same type of person that's really good at selling units of software. And that's something that a lot of companies are struggling with culturally, is just to figure out if we're making this shift, how do we shift our mindset from a shipping units company to more of a building and sustaining relationships perspective? Transparency and communication also becomes-- I think it's important for any type of software company, but even more so for that subscription experience. And you think about it with any type of relationship, if you've got a relationship where the other person is just not talking with you, they seem to be hiding something, it's not going to be a very happy relationship to be in. And it's the same type of thing with subscription. And then, the other piece too, and a lot of companies struggle with this, even companies that are subscription-first companies in that they have no other way that they sell, is that you need to be committed to doing what's right for the customer, even if it means a smaller deal size initially. And the reason for that is the customer's going to have an opportunity, after a period of time, to assess, did you sell me more than I needed? And if you did, you know what? I'm not going to continue to buy at that level. And the next slide will kind of show you why that's a problem, of course. But it's even more of a problem with subscription because you're measuring different things with subscription businesses than you had measured in the past, or that you would measure with a perpetual business. [? Insurant ?] is a really important one. So you want to make sure that you're selling customers the right amount from the very beginning. And that's difficult for companies to do because that's not the sales mindset that a lot of software companies go into the business with. It's selling as many units as possible. The customer might not need all those units right in the beginning. And how do I back off or tell my really eager salesperson to back off and let that customer actually buy at the level that's better for them? And it's complicated. It's complicated selling a relationship. It's complicated being in a relationship. There's a lot of reasons why I think the subscription model is a great one for software, and you gave some examples as well. But it's not an easy one to execute on. And it's a difficult one culturally for even subscription-oriented software businesses because almost everyone comes to those businesses with a prior history in the software industry that was not a subscription-oriented mindset. So I want to show the overall software industry for some context. Whenever I bring up subscription data, I like to just kind of show the rest of the industry, or the overall software industry is still very heavily geared toward license plus maintenance. Subscription is definitely growing at a faster rate. A portion of that subscription is associated with cloud services or software as a service, but people are continuing to still buy license. I, a lot of times, have to convince my colleagues internally who focus on cloud that the entire world is not going in that direction. Because it isn't. People do still want to-- and it could be from budgeting perspective. There's a lot of great reasons why I might want an operating expense. But you know what? I might have this capital budget. That's how I want to buy the software. Or it could be I really want the software on-premise. And if you think of things like database management systems, mission critical to businesses, tend to be expensive on the license and on the maintenance side. A lot of the spending on the license side is associated with infrastructure and tools. To a lesser degree, application software because we do see a lot of interest in the application software in cloud models and in subscription models as well. From a subscription perspective, I mentioned that most of the top 100 software companies had subscription revenue in 2012. And for 16 percent of those companies, it was greater than 50 percent of their total software revenues. So again, just to show you, even though the industry is still predominately license plus maintenance, even the biggest companies out there are doing subscription. And I was at a [INAUDIBLE] event a couple weeks ago, and they are working with nine different divisions at HP to help them transform into a subscription, or more of a subscription-oriented company. So for a lot of companies, even those that may have been rooted historically in more of the perpetual license type business, this is a transformation that they're making. And it's growing very rapidly. It tends to be a smaller part of the overall business, but one that's a growth engine for the business. So companies are really investing in this. So what does this mean for the folks in the audience? One, this may represent one of your companies. Two, if it doesn't, your competitors are likely going to start offering that to customers. And to the point that was made earlier, a customer may prefer to buy that way or they may prefer to buy a different way. And being able to offer a portfolio of options can really be a competitive differentiator for you and something really that you frankly need to be able to do going forward. And there needs to be a framework, of course, to support that. I want to just put some data up here on different recurring revenue models and nuts and bolts. I'm not going to go into detail in every single one of these and what they mean, except for I'll give me the acronyms. So monthly and average recurring revenue, average revenue per user. Some of these might be familiar to you. Some of them might not be if you're not following subscription businesses or in a subscription business. But the really important thing is that you are looking at-- when you're in a subscription business, looking at how much churn you have, as well as how much you're growing on a monthly or annual rate, and how efficiently you're growing. So there's a lot of things to pay attention to that may not have been in the forefront of people's minds in the past. And one of the things that we find is that the traditional software ERP systems that most software companies are running don't do a fantastic job of running software companies, which is really ironic, but true. And so as subscription businesses grow, you tend to find a lot of spreadsheet wrangling internally to try to match things up with the other part of the business. Or even if it's a subscription-only business, frankly so that you can feed data back into your accounting systems, and recognize revenue, and actually be able to look at how the business is growing. So something to think about. So usage-based revenue. I've presented at a lot of these events and there's always an interest in the topic of usage-based revenues. Every survey that I've done over the last eight or nine years has shown interest in more ways of monetizing software usage. And I think that a lot of this has to do with the alliance of more efficient use of services and things. Along the same lines, when you do surveys, people tend to like concurrent user licenses versus user licenses. And the reason is because there's the perception that I'm going to get a much higher optimization and utilization rate for a concurrent user than I am for users. Because each user might only use that license at, say 20 percent utilization. I can get a much higher utilization rate with a concurrent type of a license. So I think there's definitely been a lot of interest in it, the idea of costs scaling up or down according to resource utilization really makes people feel better about situations they've felt badly about in the past. Namely, shelfware. So getting people tons and tons of units, you have customers that feel like I've got all the software that I'm not using. So the idea of something that scales up and down seems really, really attractive. The other thing about usage that's really interesting is it can be implemented alongside other models. So it doesn't have to be the only model, but it could be for overages. So you think of the simple example that most people can relate to is the cellphone plan example where you've got-- this is what I've bought. But if I go up above that-- typically not below that. But if I go above that, I will pay an overage. And that is, essentially, the usage overage. So there are a lot of different ways that usage can be done and implemented. The key to having any type of usage model is first of all, you need to have some idea of usage. What is it? What's the best way to track it? Most companies don't know, customers don't know, and the software providers themselves really don't know. And if they do know, they might know for one particular area, but not the area that would make sense for being a pricing type metric. So the first thing that has to happen with any type of usage-based plan or idea, has to be that there's got to be some way of tracking and reporting on usage. And ideally, you need to have historical in place. I was talking to a company the other day who's been tracking usage for the last year and a half with the idea that next year they might implement a usage-based pricing plan. Because you need some history to figure out what makes sense, what's predictable for the customer, what's predictable for us. You don't want to be so out there that it's some sort of metric of usage that the customer has no idea what it is, no one else in the industry prices that way. So it's definitely something that can't be taken lightly. The other thing is that tracking usage is actually really useful even if you're not going to price that way. People like to understand what they're using and what they're not using. And being able to, maybe more efficiently roll out an application within their organization or figure out parts of the application that they're not taking advantage of. So that's something that's really important. Usage-based pricing can get very complex, very quickly. You need to have a metric that makes sense and there absolutely, positively has to be tracking. So I'm enthusiastic about the topic of usage, but I always have a lot of caveats when I present on i. And that's why I think it's been a hot topic for a very long time, but you don't see a ton of examples in the industry of this being done just because it's not that easy to do. And I believe that the way that we'll see it most likely going forward is as a discrete approach alongside other approaches. Maybe it's for a specific need. It could be that overage model or it could be a specific feature of a product that you only need a couple times a year. And it might be an interesting thing to package that on a usage-type basis. So the other really shift that we're seeing from a monetization perspective is this flexibility and control. So I brought up the concept of you need to really look at your pricing and packaging. It needs to come to the forefront. Maybe considering subscription, thinking about usage. The challenge for most organizations in doing this is you've probably got a lot of different ways that you manage licensing, billing, pricing within your organization. And they may not all be very high-tech. So when I was trying to think of a good analogy for this, I thought of the remote controls. And every single product team has a different remote. And some don't have any remote at all. They get up manually, turn the TVs. Does this look right? Yep. OK. And as a result, you have a bunch of things that don't really work well together. Everybody has a slightly different approach. From a customer experience perspective, it's very different dealing with you if they're buying product A from you versus product B from you in terms of how they might manage their entitlements, or activate the software, or control the license usage over time. And also, you run into a situation where it's very difficult to integrate all of these things. So there's the analogy of the universal remote. But that just helps you kind of control things. What it doesn't help you do is really figure out what things need to look like. So moving from this idea of lots of different kind of controls to more of a mission command type of view makes a lot of sense. And I was just recently looking at some of the Mars landing videos. I don't know if anybody's watched those online. They're really fun to watch. I have two young boys and they're really interested in space and astronauts. And so we've watched those things a million times. But one of my favorite things in watching that, because the Mars thing looks so unreal to me that it's almost hard to picture that that's really on Mars. But it's seeing the people in mission control and just all the instruments that they're looking at, and their excitement as all of this is happening. It just amazes me what we can do. That we can land this thing on Mars and look at pictures from it. And the technology exists. The technology exists as well on the software side, it's just a matter of-- I mean, it's talking about license complexity. It's nowhere near, I think, as complex as landing something on Mars and sending pictures back. To me, that boggles the mind that we can do that. But it is complex and it does require, I think, a mission-critical type approach in order to create or allow you to take advantage of some of the different monetization opportunities. And maybe react to some of the competitive pressures that you might be seeing in the industry. Another thing along the theme of my two boys, I don't think I'll ever have a full bottle of vinegar and a box of baking soda in my house because they figured out the volcano thing. And I'll open the cabinet. Oh, the vinegar. Can we do a volcano? And the food coloring, too. We've done green volcanoes and blue-- so we're constantly exploding things at my house. But thankfully we haven't really exploded anything. The baking soda and vinegar. I'm sure that will come later. They're too young to really blow up the house quite yet. So pricing science project. Because the fact that a lot of times pricing and packaging is an afterthought, and also because I recognize that missteps in pricing and packaging can be very publicly problematic. So take the example of some of VMware's steps and missteps over the last year or so, and how challenging those have been from a saving face perspective. At the same time, in this say, new era, of mobile, and BYOD, and usage, and freemium, and all these different approaches, you need to be able to try different things when it comes to pricing and packaging. And come up with ways of flexibly allowing this to happen. So there was a company that presented a couple of weeks ago at a conference on how they do these, what they called "pricing science projects." And they kind of put this cycle together, and I thought that it was really useful to share. I don't know how many software companies really think about their pricing and packaging in this way. And in fact, one of things that was really cool is the guy who was presenting it actually had a lab coat on. His title was something scientist, pricing scientist, or chief scientist. I thought, pricing is really art and science. And I think so much more emphasis is on the art sometimes because it is like, here's the price, but we know you're not going to pay that. We'll get a really great salesperson in to help you figure out the best way to go about this. But the science piece is where you can do some really interesting things. And I think also, from a instrumentation perspective, you have to have that science piece. Because otherwise, it's almost impossible to map systems to all these-- 60 different definitions of a user that you might have because every deal that you go into is defined a slightly different way for that particular company. So what are you trying to do? I want to offer two months free for new customers. This was an example that was given. So you implement it. You have systems to kind of back this up. Then you measure how successful this was. And you analyze it. Well, we had a huge bubble of new accounts, but a significant increase in churn. Do we want to try this again? Being able to do that type of thing, I don't think that many software companies can do that. It's more of like, well, we'll come up with something. We'll do some focus groups behind the scenes. Then we'll announce it. And then, oh my gosh, we're shocked. People don't like it. Everyone's tweeting about it. Our competitors are using it against us. And it'll take us a year now to react and change it because we've got to change all of our systems. That stuff really does happen and it can't be taken lightly. But at the same time, you do need to be able to come up with new approaches and come up with different ways of doing this. And having underlying systems to support it, and also taking more of a scientific approach versus a we'll just kind of do it however. Get in the van, there's no time to explain approach I think is a much better way of thinking about it. The last concept that I want to go through before I wrap up is customer experience. And in the software industry today, lots of the big companies are touting about the era of empowerment. And primarily, it's so that they can sell CRM systems to companies that can then use those to-- it's the customer's customers that are becoming empowered. But I think about this a lot in the context of pricing and licensing because of my role and what I do. And I don't think that most software companies feel empowered when it comes to software pricing and licensing and their experiences with dealing with sales folks at some of the big software companies. And the reason that I think this is because these are the types of things that software customers tell me. The software producer scares the hell out of us. They use this strategic ambiguity. We think they deliberately make it confusing, so that we can go out of compliance and then they can come back and audit us. I just want to know how much it costs and what I need. I'll go directly to the vendor, I'll get one price. I go to the VAR, I get another price. I get a different answer fro everyone I ask. Very frustrating. It's not straightforward. And the complexity has gone from ridiculous to just plain stupid. This does not encourage me to spend more with the company. I think these are just representative from three random conversations that I had this year. I think if I were to ask every customer that I talked to, so what do you think about software licensing? They almost always start laughing. Do you want to know what I really think? And it's usually-- the theme is software license, it's all evil. So you know it's not going to be-- no one's going to say any great things about it. But yet, you talk to software companies about their customer experiences and they'll say, well, we've got-- we do these surveys all the time. People rank us really, really high. Our maintenance renewal rates are in the mid to high 90s. People must like doing business with us. We must have a really great customer experience. And I really think that there needs to be more focus on customers' experiences with pricing and packaging from software companies with that licensing experience. And so I've taken some time looking at the customer journey. All the customer experience gurus out there-- I'm not one of them. But they do these customer journey maps. And how do you feel when you've got 30 different styles of blue jeans to look at, and those types of things. But if you think about it-- and I agree with you-- and you think it's bad for guys, you should just like-- I'm in maternity clothes right now and I love it because there are only three ki-- it's so simple. And it's like elastic waist, perfect. That's all I can wear. But when it comes to when I'm buying clothes afterward-- I mean, the amount of jeans and the price that they cost, it's just criminal. But anyway, digress. So customer experience. What is it? It's a complex mix of a lot of different stuff. And what you want to try to do as a provider is create this flow that makes the interactions throughout the customer journey as easy, quick, transparent, positive, and full-featured as positive. And I should have bolded that, underlined it, made it shadow. When you think about that from a pricing, licensing perspective, monetization perspective, I really think that's the key. That's what you want to be doing from now on, is easy, quick, transparent, positive, and full-featured. That's what we're all trying to support here. I do have a full customer journey map that I put together for pricing and licensing. I decided not to show all of it on the slide, but I'm happy to send it to anybody who really wants to see it. But I just wanted to give you an idea of what a customer journey map is and what it might include. And for me, it was a really good exercise to go through and just think of, what's the typical customer's experience at different aspects of the purchase and renewal process? And how might they be feeling? What are the questions they have? And what are some of the key challenges that they have? It's obviously going to be different for every single company, but this might be a good exercise to go through internally. And maybe to make product management folks go through internally when they think bring that-- OK, great. Packaging, and process, and plans, and all that stuff. It's not things that you thought about right at the beginning of the process, but it might be really useful. Let's think about this right now at the beginning, and what type of experience we want our customers to have with how they buy from us. And maybe think about that before we come up with the plan and the monetization strategy. So concluding, pricing, packaging, plans no longer an afterthought. I really don't think they can be if you're going to make it quick, easy, transparent, full-featured, et cetera. Subscription continues to trend. I did my first subscription forecast in 2004. And I've been following subscription prior to that because I used to cover application service provisioning and software as a service. And I'd say that's still the number one thing that people call me about, is understanding how to move to subscription, understanding how to sell subscription, it continues to trend. Something that companies are probably moving in the direction toward, although it's not going to be the end all, be all for every single buying situation. Usage-based pricing, or at least intelligence around usage continues to trend. So if I were to be here next year, I'd probably continuing to be talking about usage. And I might have a couple interesting examples to share about different usage-based models that have been implemented in the last year. There are few of them that I would probably share today as well, but I think that we're still pretty early on. And I think the intelligence piece around usage is something that's probably more critical or more interesting at this stage. Tracking, management, and control more important than ever. So flexibility, really important to have. Simplicity, also really important to have. If something is flexible, it's probably inherently more complex, which is obviously the opposite of being more simple. So we hear from customers that they want pricing, monetization, licensing to be more simple. But they also want to buy the way they want to buy. And so the way that you can make that happen-- I think, first of all, is not to provide 20 different choices. Maybe it's providing 3. But second of all, having some sort of system underlying that to make it easier to manage, to track, to control, to provision. And then finally, customer experience really has moved to the forefront. I kind of make it my mission when I attend some of the big customer events that vendors put on to force them to talk about pricing, to force them to talk about licensing. Most of them don't want to because it's just about products and shiny stuff and units that they want to focus on. But with the really tough conversations that customers have with the vendors don't tend to be on the shiny stuff. It's on where the rubber meets the road. And OK, how are we going to get this thing? How much is it going to cost us? And are we going to get what we expect we're going to get out of it? So this is my contact information, my Twitter handle, my email address, phone number. Those are all the best ways to reach me. And I really appreciate everybody's time this morning. Hope this has been helpful, and I'm looking forward to the rest of the day. Thanks. [APPLAUSE] [INAUDIBLE]. Yeah. And then if you want to do quick Q&A. By the way, we'll do a quick Q&A session before the break. But as I do that, I tell you, I call Amy the returning champion not just because you were returning, but also I think because I feel like every time I come here [INAUDIBLE], two things I take away all the time, I get stats I can use to make my business case for a lot of things we're doing. But the other part is it resets me definitely on what we should be doing. And some of the framework and the model you presented, I think I definitely want to use. And I Jake, who's our head of our product management in the room somewhere. I'm sorry, I was like so many dings on product management. But they're the ones that always like, the shiny stuff. [INAUDIBLE]. He knows what his action items are going to be out of this session. By the way, I think he owns that van. Those of you know him know what I'm talking about. With, that let's do some Q&A for Alan or Amy. Yeah, [INAUDIBLE]. [INAUDIBLE] saying is exception is the rule. Out of all the things that both of you said, and especially with all the [INAUDIBLE] the things in the trend, in the industry are you seeing any exception? [INAUDIBLE] exception succeed very, very well, more than everyone follows everything else. Do you have a thought? I guess my overarching comment to that is I don't know the [? SAA ?] number exactly. But there are tens of thousands of software companies in the US alone. And the work that I do tends to look across, say, the top 1,700 or 1,000. But I talk to companies all the time that probably fit into that category. They're very good at making a very distinct product for a very distinct marketplace. And that distinct marketplace is happy buying the software the way that they buy it from that company, and maybe from that set of partners that they're buying it from. So definitely going to run into that situation just because of the sheer number of companies and scenarios that exist. And I think that my direction and guidance really comes from, say, let's take a thousand of the companies that are the biggest in terms of revenue, or maybe the most visible because they are across industry, and what are they facing? I would say that it's all very cyclic. A few years ago, the software vendors I tend to talk to, those who are selling tools and services to software developers. That's what SD Times covers. And it just goes back and forth. You take one market segment, which are the companies that sell reusable software components. Your GUI widgets, or forms engines, or SDKs, whatever it might be. It used to be that they sold them as individuals. You needed grid control? We'll sell you a grid control. You want a this? We'll sell you a that. And then it all became, we'll bundle it into suites and we'll sell it to you for a subscription price of $1,500 per developer per year. And then, a few years later, they're all unbundling it again because people said, well, we bought all those suites and we only used seven of the components. It was a bad model. And so they all unbundled it. And then, they realized they're not making any money, so now they're pushing everyone to go back and buy the suites again. So I think the big thing is to be-- the answer is to be flexible and be responsive. Times do change. And there were some companies who stopped selling the standalone components and only offered the suites. And believe me, that didn't last long. So it's hard. We talk about complexity. Sometimes you want to add options, but it's hard to take options away. But then you add to complexity and the paradox of choice. So I guess the answer is you have to almost-- you have to be responsive to the customer. Yeah. One of the companies that I follow, obviously, is Microsoft. And they were brought up earlier with the myriad of options that they have. And I probably do a call a week with them on some sort of pricing announcement. And it's either they're taking something away or they're adding something from a choice perspective. Because, oh, it was too complex. Definitely seeing the same thing. Do we have a microphone? [INAUDIBLE]. Yeah, the microphone helps because we're recording it. I'm Brian Pierson with EMC. Amy, your definition of subscription is probably the product and the support bundled together. Correct. And hosting on-prem or off-prem may or may not be included in that number? Correct. It's a software-only number. So if you are Salesforce.com, you don't pull apart from your subscription the notion of hosting. But if you are offering, you're a Rackspace and you're going to post it for somebody, then they'd probably be paying Rackspace separately so it wouldn't be included. Is the notion that it's still a soft landing, the transition to subscription pricing? For executive management, who fear a quarterly revenue hit, it doesn't play out that way. You don't cannibalize. You do end up getting a soft landing. So we can make executive management safe with that concept? Yes. I think that they're still concerned that, initially, the thought was, well, subscription is great as long as it's SMBs that want it. Because we don't want our enterprise deals to go away and stop being enterprise deals. And what ends up happening is that the enterprises are often just as interested in subscription. But they don't tend to say, well, I'm going to dump all of the perpetual license that I have-- and plus maintenance and move to subscription. It could be, well, we've got this division here that would make sense for subscription. Or for the new product, we want to look at subscription. So you are right. I think the fear was definitely that it was going to cause an abrupt cash flow challenge. But in reality, that's not been the case. Just to add to that. I think over time, I believe, the CFOs have obviously loved the model. Because it adds predictability. So I think they would do anything to adopt it in a company. The challenge I think sometimes becomes that the sales executives don't adopt to it fast enough. Right. It's the cultural-- The cultural changes. Your com plans have to change and you're so used to a certain way of compensating your sales folks. And by the way, the same notion of complexity and simplicity applies to sales plans. You get flexible, it gets complex. And then your sales guys don't know how to make money either. So I think that's [INAUDIBLE]. And along the same lines, if you are a channel, very channel-focused our channel-led company, helping your channel partners make that same transition. That's right. It's a challenge. It's tough. One more I think there. JP from Invensys. Question, where is the needle from a licensing perspective, from being fully enforced to fully honored system? There has been a shift over the years? I would say-- and I don't have a quantitative number that I can give you. But I would say that for the most part, there have been two things going on. One is more enforcement. More enforcement didn't exist. I think one of the reasons why there was no enforcement in the past was in part because software companies didn't want their honest customers to feel like they were coming down big brother on them. And there are definitely still companies that, it's usually a CEO-led decision. We trust our customers. But what we hear from customers, oftentimes, is as these dynamics of flexibility and things or licensing, we don't like the honor system because it allows us to go out of compliance. And they're doing more audits. That's something we definitely know is happening. So there are more audits happening. And so where the honor system exists, it can be more problematic for customers because they don't have a great way of assessing their compliance situation on their own and kind of staying in compliance. So I think the trend as the audit activity has increased, and as customers have said we would like-- in fact, we are honest, but we would like some help with the tracking is that where there was no enforcement, that there are some things being put in place. The degree-- obviously, there's no enforcement and then there's heavy enforcement here. And there's a continuum. And it would be somewhere along that continuum that they'd be making those incremental steps. I don't see people going the other way at all. [INAUDIBLE]. Right. One final question I think, then we'll break. Hi, this is [INAUDIBLE] from DigitalPersona. I had a question regarding the usage or the utility-based model that you just brought up. What are the common trends that you see from a tracking standpoint that customers are more interested in? Is it always the data size, or any data points that you can give us? I think the answer is it depends on the type. So what's the right metric will depend on the type of software, and what the customer views it as being what it does. And also, is it a metric that's familiar to them? So as an example, I'll give the-- VMware is not an example really of a utility pricing model, but it is an example where they created a new metric that people weren't familiar with, which was virtual RAM. And I think the biggest issue with that pricing approach is people hadn't thought about their consumption of virtual RAM in the past. They kind of set a high watermark. So it's more of a consumption model versus a usage model. But it caused a lot of customer confusion because it wasn't a metric that they were familiar with. So it should be something that people are already familiar with, something that can be easily measured, tracked, and controlled if need be. And something that makes sense from the perspective of, how does the customer value the software? So it's hard for me to say without knowing what the software does and the market that it's in what would be the best metric. But those are kind of the elements that it needs to satisfy. And I would agree with that. That's a great example of a metric I thought was just terrible. Because from a CEO perspective, how do you say to your IT department, use less virtual RAM? I mean, it's not connected to the business value bucket. And I mean, you can imagine usage basis on a printer and how many pages do you print? That's a reflection of business value. Or how much-- but saying it's based on how much toner you go through. It's like, I have no control over that. It just happens. So whatever the usage metrics are, they should match somewhat to the problem that your software is trying to solve. All right. Well, thanks, everyone. And thanks Amy and Alan. Great presentations. OK, thank you.
Amy Konary from IDC presents "The New Look of Software Monetization" at LicensingLive! in Cupertino. Amy is IDC's VP of Software Licensing and Provisioning.
Software monetization is becoming an established term in the software industry, and Amy Konary redefines what this term means to software vendors in this presentation at LicensingLive. From features to customer experience, and pricing to packaging, Amy highlights the key shifts on how software vendors are thinking in today's competitive market.
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