A CXO’s Guide toSoftware Licensing,Monetization......and the Cloud

A discussion about the business issues, opportunities and risks associated with

Software Licensing and the Cloud.Written by:

Jon Gillespie-Brown, CEO, Nalpeiron

Sources: IDC Research, Gartner Research, Software CEO and LinkedIn forums, Proformative, NetSuite, Sand Hill Group, Intacct

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As the Software business changes, we are all faced with questions and decisions about how to deploy, sell and manage our Software

Cloud computing is driving a huge amount of change in software firms’ pricing models, sales and marketing approaches, sales cycles and reporting

With outsourcing your non-core activities like Software Licensing come many benefits. Remove the distractions of trying to beat casual software theft by lesser methods

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The benefits of using a cloud-based infrastructure have immediate positive easing effect on the ISV’s operational complexity and its costs

A survey of 500 ISVs on Hosted licensing vs. home-grown in-house licensing

Why use Hosted Licensing vs. other types of home grown or commercially available solutions

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cont

ents

A discussion about the business issues, opportunities and risks associated with Software Licensing for finance staff and senior management.

• Significantly reduce operational and IT procurement costs

• Drive business growth with improved BI

• Secure additional revenues through revenue recovery

• Revenue gains with Sales/marketing automation

As the Software business changes, we are all faced

with questions and decisions about how to deploy,

sell and manage our core assets - our Software-based

intellectual properties.

Traditionally, Software Licensing has been all about

“protection” and “counting” in an effort to reduce the

downside risk of piracy along with managing customer

entitlements and getting paid accordingly.

The future, however, is all about offering the end user

with a myriad of additional options in purchasing and

consuming Software. This puts many “traditional”

Software ISVs under considerable pressure to change

their older and less agile licensing methodologies to

adapt to a changing world.

The IDC 2010 Key Trends in Software Licensing and

Pricing survey reveals that cloud computing is on the

minds of software producers, who are planning on a

significant market shift towards private and/or public

cloud-based models. A total of 60 percent of publishers

indicated that their licensing will need to adapt to the

Cloud over the next two years, and 30 percent expect

that the change will be significant.

SaaS and on-demand models—are now driving much

of the software industry’s growth.

Cloud computing is changing the software industry

dramatically—and quickly. A survey by Intacct reveals

that the adoption of cloud computing—along with SaaS

and on-demand models—is now driving much of the

software industry’s growth.

The survey found that more than half (54 percent) of

the executives believe that cloud / SaaS / on-demand

models are the clear leaders as to the method by which

most customers will want to purchase software during

the coming years.

The IDC survey confirms the key characteristics of the

cloud, including scalability, self service provisioning,

integrated design and simple adoption, provide

significant benefits—reducing overall costs, improving

quality, simplifying access and the ability to automate

key processes.

The survey also highlights increased complexity in

terms of licensing entitlements, usage and optimization

that both ISVs and enterprises will have to manage.

ISVs will need more sophisticated processes to manage

entitlements and ensure compliance in this more

complex environment. While both sides are getting

there, the survey reveals that they have a long way to

go to integrate the necessary tools and processes to

ensure smooth operations in the cloud.

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The future forSoftware Vendors

Sales models and the Cloud

Intacct study participants stated that traditional software companies are currently investing heavily in the cloud

market - both in re-tooling to build cloudbased offerings and in adopting cloud-based systems for their own

internal use. Given the growing maturity of the SaaS market, most would think this a fait accompli for vendors;

but in reality it is a lot more difficult to execute than it is to propose. The “revenue before expense” model of

licensed software is a lot easier to swallow than the deferred gains offered by the SaaS model and highlights the

necessary change in mindset and expectations, but the gains are undoubtedly there...

Focusing on the needs and satisfaction of customers remains critical to vendor success - perhaps more important

now than ever. In fact, 37 percent of executives surveyed say meeting customer needs is the most important

factor for long-term success as a software vendor (see chart, Source Sand Hill Group).

Intacct CEO Reid said that during the recession, customers were more focused on how to get ready to grow

when recovery comes. Now that the recovery is here, customers are focused on optimizing operations for new

opportunity while minimizing cost and risk.

Reid also said his company is seeing an intense focus on rapid time-to-value. “Customers are looking for

immediate solutions - taking 6 months, or 18 months to deploy is too long.” All this requires ISVs to quickly adapt

- and that means your license management systems must be able to do the same.

What is top of the CFO technology “wish list” today?

What technologies do CFOs want to invest in? For a combined

65 percent of choices, BI ranked as the technology with the

highest demand according to Gartner research.

This requirement is driven by the need for information to make

strategic business decisions, and also taking risks like changing

business models, pricing policies and all the incredible changes

that come from moving to SaaS.

Traditional licensing systems starve management of critical

metrics and data - the survey shows this must change.

This availability of business information is in stark contrast to

modern ways of selling software like SaaS where the need for

deep analytics is paramount. This means that if you are running

an in-house licensing scheme or using old style licensing

technology, you don’t get the top of your wish list, and you

need to make changes in order to run your business more

effectively both now, as well as when you migrate to SaaS.

What’s also worth noting is that if you have any SaaS ambitions

you must change the use of BI radically - it will become the

most important tool to success rather than the least used and

understood.

The need for BI is a driver for many senior managers to argue

the case for adopting new business models and also to choose

vendors of licensing and similar technologies to offer capability

to capture and generate useful business data as required.

70 percent of enterprises report that tracking software license

usage is important, one-third of the software publishers that

have or plan to have usage-based pricing do not track usage at

all today - not even manually. A total of 43 percent of publishers

indicate that either they do not monitor software usage or they

do not know if they do. (Source: IDC)

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Cloud computing is driving a huge amount of change in software firms’ pricing models, sales and marketing approaches and sales cycles, management reporting and internal measurement and other operational aspects of the business.

Swim before you can jumpThe savvy CFO will want to bridge the future rather than jump in and take the massive risks associated with changing business models.

...so what steps can an ISV take to get more “SaaSy”?For most ISVs, as well as their own users, the transition to the Cloud brings enough promise to jump in with both feet. Indeed, 65 percent of managers surveyed by Proformative recognized

that SaaS could reduce their company’s operating risk.

So as an ISV, does it make sense to work with other partners who operate in the cloud? In this case, it is a definite yes, and taking the first steps to working with partners like Nalpeiron will

make the transition much easier. Why will it be easier? First of all, you will de-couple the licensing from your core products, allowing you to segment your product set and decide if some, all

or none of your products can be transitioned to SaaS.

Second, unlike using your own in-house licensing or other providers, with Nalpeiron you will be able to “bridge” to the future as you can keep the older licensing business models as well

as offer new ones like SaaS! You don’t have to take all the risk of moving wholesale. Instead, you can use an external partner to help manage the process of carefully testing what works for

your business.According to the research, the primary reasons many CFOs have adopted and embraced the Cloud and SaaS-based applications include the following:

The up-front cost savings in choosing a SaaS

based versus a conventional application

can be substantial. No need to Purchase

Hardware, Support, And Software.

The ability to effectively react to and embrace

change can determine the success and long-

term viability of a company. Access to best-in-

class technology that allows a company to “pay

as it goes” and only incur expenses as it utilizes

resources is very compelling in any economic

environment.

A significant barrier to any initiative that goes

across departments or borders is effective

collaboration. A full 71 percent of respondents

to the survey that have entered the Cloud

report increased collaboration and greater

confidence in their systems. The ability to share

accurate information and collaborate in real

time 24x7 facilitates effective collaboration.

The inability to communicate, collaborate and

make decisions in a time-sensitive manner kill

many strategic initiatives that look brilliant on

paper.

Cloud-based applications can significantly

reduce the hours financial and IT

professionals spend on IT-related issues like

software upgrades, cumbersome security

administration, software training, software

downtime, etc. As a result, these professionals

are able to focus more time on what makes

them most valuable to their companies: driving

efficiencies and top-line revenue growth.

Of companies operating in the cloud, 69

percent reported higher ROI as one of the

greatest benefits realized of cloud computing

and SaaS.

Reduced CAPEX andCost of ownership

Pricing Flexibility BasedOn Needs

Opportunity ForCollaboration

Top Line Revenue Growth Through Efficiencies

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This means mixing old and new licensing systems, and the need for a careful research project on what works for existing and new

customers as well as the organization as a whole.

As a first step to the future, one option is to switch your licensing to a SaaS provider so that you can start to see the benefits of Saas

yourselves! This may seem obvious but many CxO’s don’t even know that they can stop using outdated, inflexible and extremely costly

in-house or legacy software licensing technologies as these have become so embedded in their older processes.

Benefits of using SAAS software survey

Old style licensing requires you and/or your user base to acquire, manage and maintain lots of hardware in the form of licensing servers plus the associated

licensing costs from the vendor.

Moving to Nalpeiron means no more up-front licensing or server infrastructure costs – and can mean far lower customization and integration expenses, since

SaaS systems are designed from the ground up to be Web-based and user-configured and customized.

More importantly, it also removes the majority of the IT people costs to manage the software and infrastructure around it. This is a tremendous shift given how

much of IT spending comes in the form of administration and support—Gartner estimates the percentage to be upward 60 percent.

Adopting SaaS-based applications affords a company the opportunity to avoid both CAPEX and OPEX costs associated with traditional applications even as it

gains direct access to specialized world-class business applications and IT expertise.

By outsourcing your non-core activities like Software Licensing come many benefits. Now you can remove the distractions of trying to beat casual software theft and your team can get on with making the best software on the planet.

Meeting customer demand for more flexible sales modelsWe all know about SaaS and other business models that are growing rapidly in the software space

but they are simply another business model with the same basic innovations and customer base

traditional ISVs serve. In other words, not everyone has to switch to the new SaaS trend to satisfy

their customers - they can still happily deploy their software as an on-premise server or an installed

application but they can change the basis upon which they charge for it.

Switching business models from the older style perpetual model to usage or subscription based

charging has nothing to do with the delivery mechanism. With a powerful and flexible licensing

system you can quickly switch your business model and entitlements basis without changing the rest

of your operations and back end infrastructure.

The IDC licensing survey also reveals an increasing demand for more flexible licensing models, which

in turn is going to fuel the demand for more sophisticated application usage tracking tools. 22 percent

of publishers currently offer usage-based pricing (up from 15 percent in 2009), and over the next two

years it is expected to rise to 41 percent).

M&A and licensing issuesThe objectives of many ISVs as they grow is to acquire new businesses or

to be sold in an M&A transaction. Having an in-house or multiple licensing

systems can hamper the ability to integrate business systems and slow down

the M&A process or block it all together due to issues with switching out that

technology. Using a recognized vendor can help you avoid this issue in the

future.

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Why use a Cloud-based Licensing Solution?

Subscription-based pricing Pay as you go, on an annual basis, unlike conventional

systems where you have to make a major up-front

investment in licenses, hardware and software. You benefit

from better cash flow and far greater IT flexibility.

Ease of access at anytime, and from anywhere Cloud computing is “always on,” making it easy to grow

your business and support remote workers and locations,

or support a highly mobile sales or service team, because

people can access the cloud any time, day or night,

from any browser, desktop or mobile device. You, your

distribution channel and your end users can all access the

service 24x7, anywhere in the world.

High availability Cloud software architectures are designed from the

ground up for maximum network performance, so they

frequently deliver better application-level availability than

conventional, on-premise solutions.

Unlimited scalabilityThe Nalpeiron Licensing Service has been designed to scale

up or down and evolve according to your needs without

additional infrastructure. There are virtually no limits to how

many users you can have or the number of licenses that

can be activated. Nalpeiron has years of experience with

millions of end users managed by our technology.

Outsource No need to setup, deploy, manage or maintain licensing

servers.

Lower risk You can reduce the risks of licensing staff leaving or the

system stagnating

Focus on your competency No need to keep up with the crackers and hackers, or

the constant technology changes - let Nalpeiron take the

burden of software licensing, freeing you to focus on your

core business instead

Flexibility You remain much more flexible without fixed capital

costs and unnecessary staff. No need to keep expensive

resources in house for non-core functions.

Low overhead Upgrades, maintenance and system administration take

place in the cloud and are managed by Nalpeiron, so you

don’t have to spend nights or weekends supervising a new

version upgrade or a failed server.

Fast deployment You can be up and running within days, instead of months.

Use the Latest Product Version On-demand software allows you and your end users

to enjoy the benefits of Nalpeiron’s latest features and

benefits without requiring you to worry about handling the

complexity of software updates.

Measure and report license activation and usage Get a clear picture of the products and features actually

being activated and used. Use captured data to generate

competitive advantage and increase sales.

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Benefits of cloud-based license infrastructure

According to Nalpeiron customers, when over 500 were surveyed, these issues were the key reasons for moving away from another vendor or from home grown licensing.

FlexibilityBy far the most popular reason to switch out home-grown

licensing is to provide the business with far more flexibility in

offering its customers new business models, ways to buy and

to make these changes fast and easy into the future.

Nalpeiron will allow you to instrument your business to offer

both older style and completely modern business models,

along with the capability to analyze and change over time

based on the market requirements and competitive threats.

Reduce the business riskLicensing is integral to the success of your Software business

and therefore getting the right supplier to support your long

term objectives is critical to reducing risk to your business.

Nalpeiron offers you the safety of an external supplier whose

sole focus is on producing licensing solutions that offer

you and your users 24x7 service. We are the experts in the

complex mix of technology, encryption, servers and platforms

that allows us to take care of your needs allowing you to focus

on your core business.

Our technology is battle tested with millions of users, across 8

languages, 100 countries, and Win/Mac/Linux platforms. For

years Nalpeiron has improved and refined its copy protection

and piracy protection algorithms – a capability that is far

superior to even the largest ISV.

In addition to offering expertise and resources to reduce your

risk, we also offer an Escrow service to remove the business

risk of outsourcing.

Improve your speed to marketIn today’s rapidly moving Software market, being able to

release and ship products quickly and without delays to the set

project schedules are critical. We all know hitting the ship date

is a real challenge.

Out sourcing non-core functions like Licensing can help de-

couple this critical functionality from the Software development

process internally, preventing issues with delays from other

parts of the business.

In addition, if you choose a partner who offers a solution

that is easy to integrate and fast to implement with your own

programming efforts, you can ship with a few extra days of

engineering time rather than months with in-house teams or

more cumbersome technologies.

As well as making it easy to implement, you need something

that works out of the box and that uses standards to allow

you to connect all your internal systems quickly too so that

operations don’t slow down your delivery dates.

Finally, setting up the entire supporting infrastructure and

training on it can take months with issues around servers,

bandwidth, SLAs, databases and all the required connectivity.

A hosted solution can eliminate all of these issues and allow

you to simply skip three to four months of delays to your

project.

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Hosted licensing vs.home-grown in-house licensing

Automatically capture revenue leakageIncrease sales by tracking license infractions and automatically

marketing them using the Nalpeiron “overdraft” facility

The Overdraft facility presents an automated way to “catch”

users who will either deliberately or accidentally abuse your

software license terms – providing you with additional sales

opportunities!

The Overdraft facility is a great way to expose and capture

license abuse while offering users “softer” policing. Softer

policing is important, especially with business customers, as

it avoids many of the issues associated with software license

management and it shows a level of trust to your customers.

Use this unique tool to identify overuse and automatically

capture new revenues.

Using a Nalpeiron solution you will be able to instrument your

Software to allow you to capture, control and manage usage

data like never before. In addition, your staff will be able to

create and produce useful reports on the way your software is

consumed, how much piracy you are suffering, what your sales

cycles are, who your hottest clients are, when to have sales

focus on what part of the customer base and hundreds more

critical metrics.

The opportunities to effectively plan and build a strategy are

now all at your fingertips, all in the cloud when you need

them and all easy to set up and manage by finance, sales and

marketing staff.

Plus many more features and benefits.

Built-in automated marketing tools to drive revenuesUse the power of the Nalpeiron ActiveMarketing™ automated

tools to increase product marketing flexibility – now you will

have real-time data and reporting, automated email marketing

and the ability to push hot leads to sales - all built into the

Nalpeiron Licensing Service.

You probably have read about the value of adopting a modern supplier with a SaaS business model giving you all

these benefits over legacy software products offered by our competitors. In addition to all the SaaS benefits, here

are some of the reasons that customers have chosen Nalpeiron over our competitors:

• Nalpeiron is technically superiorIn many cases our customers simply find our platform offers a far superior technical solution to their needs.

The Nalpeiron Licensing Service covers all major platforms (Win/Mac & Linux), 8 languages, an extensive API to

connect everything and totally flexible way to sell and manage your software.

• Nalpeiron offers a fast ROISaving engineering, operational and capital costs over an in-house or competitive solution. Nalpeiron usually

shows ROI in months, not years. Our hosted solution also offers a transparent and cost-effective pricing plan.

• Nalpeiron drives revenueAs well as offering the obvious means to control licenses and boost revenue that way, Nalpeiron also offers a

complete range of marketing tools that focus sales on hot leads, offer product marketing useful reporting, and

allows marketing to create new sales from automated systems to tap revenue leakage and more.

• Nalpeiron offers a modern way to license your softwareNalpeiron offers you the choice to outsource all of the difficult and expensive infrastructure associated with

licensing. This is the modern way to run a Software ISV, allowing you to focus on your core business while

Nalpeiron hosts the licensing.

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Nalpeiron is a very flexible software platform (SaaS) that addresses our customers requirements in a simple and easy to implement way.It also adds value in many ways over an old style licensing system.

Hosted licensing vs.other types of solution

Want to know more?Don’t hesitate. Get in touch...

Toll free:+1-888-800-8818 (US only)

www.nalpeiron.com

+1-650-799-3479 (Canada/World) +44-207-788-7843 (EMEA) +1-650-352-9046 (Fax)

The Nalpeiron Software Licensing Service™ is a comprehensive platform that enables software publishers to create a range of flexible ways

to sell and market their software, with coverage for all the major platforms and the ability to choose whether to deploy software licensing

infrastructure in the cloud or on-premise. Nalpeiron is one of the strongest and most robust complete solutions on the market that supports

millions of end users with strong but friendly ways to monetize your software.

What is the Nalpeiron Software Licensing Service?

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