Rising Use of Subscription and Pay-per-Use Software Licensing Models

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Overview of Changes in Software Licensing Technology

By Carl Leweke, Open iT, Inc.

Information Technology is engrained into our modern society to such a degree that the constant change taking place goes mostly unnoticed, and by all estimates IT is the very embodiment of perpetual change. As hardware has improved at exponential rates, and the complexity of software has mirrored the improved abilities of available hardware, the ways in which software is purchased and delivered are also undergoing increasingly radical changes. Server based licensing of enterprise software has long been the norm, but proliferation of software available in cloud and via SaaS are making these previously cutting-edge internet software technologies approach mainstream status. Similarly, software providers are moving from traditional licensing methods toward flexible models which are more compatible with emerging cloud and SaaS software offerings. Toward that end, subscription based licensing and pay-per-use pricing are becoming more widespread in the software marketplace, while traditional standalone installations and perpetual license agreements are being increasingly phased out. The notable and ubiquitous software provider Autodesk began the process of phasing out perpetual software agreements in 2015, and have announced that by August 2016 they will no longer sell any of their applications or suites with perpetual licensing agreements.

According to Autodesk, customers with existing perpetual agreements can continue to use their previously purchased software without interruption. The maintenance agreements associated with these legacy licenses will be renewable for the foreseeable future, allowing continued access to the associated support, improvements, and upgrades. However, if the perpetual license maintenance plan is allowed to lapse, support for that legacy license will immediately terminate, and at that point a subscription or "pay-per-use" plan will need to be purchased to maintain access to updated Autodesk products. Autodesk touts the advantages of subscription and pay-per-use agreements as providing users a wider variety of software without being saddled with the up-front purchase price, thus allowing end users better value and flexibility. Customers have expressed skepticism toward these stated advantages, and some have performed calculations which indicate that costs to end users could rise substantially, resulting in a pervasive lack of joy in forums discussing Autodesk’s discontinuation of perpetual agreements.

Evolution of License Managers

While Autodesk is one of the early adopters of subscription only licensing among large software providers, the trend has been recognized and underway for some time. Software license management software providers have been working to implement more flexible and non-traditional licensing options for a number of years. Among the various changes being implemented are functionalities to store software licensing details directly in the hardware, which is important when utilizing embedded software or “System-on-a-Chip” (SoC) based devices. Providing license management with smaller memory and resource footprint is extremely important in these environments, though maintaining the ability to use traditional server based licensing with these new license management systems is also desirable. One option which potentially provides a workable arrangement for SoC or offline devices is to allow a device’s software license to be granted for longer periods of time, thus making disconnected devices free to continue operating without constant communication to a license server. This is similar to “license borrowing” which has been a feature of traditional license-server based software for some time. Similar to borrowed licenses, if a disconnected device’s eventually license expires before renewal via communication with a license server, the software will stop functioning the same as it would for any unlicensed application. If communication is readily available then the license can also be checked back in to the server, or renewed as needed. Changes such as allowing hardware embedded license management shows recognition that moving beyond traditional perpetual licensing toward flexibility of subscription, pay-per-use, and disconnected use which will be needed for cloud computing, SaaS, pay-per-use, SoC, and “Internet of Things” devices. Innovations such as these will be necessary for license management software providers to compete in a rapidly changing market where newer more flexible licensing options will be increasingly adopted, and eventually dominate the software licensing landscape for the foreseeable future.

Further Indications of the Licensing Paradigm Shift

Cadence Design Systems, one of the “Big 3” ISVs for automated integrated circuit design (EDA), is now also offering a flexible system of payment which allows users to quickly flex-up or scale down their licensing profile. The basis of this flexibility is a payment facility known as Cadence EDA Card, which allows supplemental licensing purchases to be made based on pre-arranged terms. The additional licensing can have a variety of lifespans depending on customer needs, with options for licensing of 1 week, one month, a quarter year, half year, or full year. While not as flexible as a true pay-per-use arrangement, the EDA card is certainly a vastly different model from perpetual or subscription licensing. This and other flexible licensing schemes will be increasingly important in allowing users to adapt to rapidly changing circumstances by taking advantage of diversified resources available on short notice, or for short periods of time.

Another major ISV, ANSYS, is involved in many arenas of engineering design and modeling, including EDA software. ANSYS recently announced that they will offer their customers greatly increased flexibility through something they call Elastic Licensing. This allows ANSYS customers to purchase a base level of licenses, but expand usage beyond that base level on a pay-per-use basis. A customer’s precise usage is recorded and they are billed after the fact for portion of usage above the base level of pre-purchased licensing. Since the agreement terms are completely established at the time of initial license purchase, there is never any need to discuss terms of additional licensing should the base level of licensing be exceeded, possibly due to a rapidly evolving situation requiring unplanned computing and engineering resources. They need only proceed with “elastic” usage of the ANSYS resources without contacting anyone to arrange for additional licensing. Technology to reliably measure total usage is of course key to flexible pay-per-use licensing arrangements.

The Autodesk Licensing Revolution

Returning to the discussion of Autodesk, which is the largest software provider to announce tectonic licensing changes, it was previously noted that Autodesk will be providing essentially two options with which to replace perpetual licensing systems they are abandoning. There is a network server based subscription plan which is similar to traditional Autodesk suite licenses, except that it covers almost all Autodesk software products. This configuration will likely only be attractive to organizations which use a wide spectrum of Autodesk offerings, because the flexibility of having the various packages available at all times necessarily demands a high price.

For most enterprise users, the path forward without Autodesk perpetual licensing options will be via their pay-per-use pricing system based on tokens, where “user-days” are tracked and charged for each of the various software packages utilized. The token based arrangement would presumably charge different amounts of tokens based on the software package used. Customers will be able to purchase a pool of tokens for use in a given year, but these tokens will have a one year lifespan after which they will expire and become unusable. If a customer runs out of tokens after the initial purchase, additional tokens may be purchased, but the additional tokens needed to cover this shortfall will carry a higher price than the tokens initially purchased for that year. Purchasing too many tokens at the beginning of the year will result in unused tokens which will expire unused, resulting in wasted money. There will therefore be a certain amount of incentive associated with purchasing excess tokens for the initial yearly token pool, rather than risk the possibility falling short and having to purchase additional tokens at a higher price. For cloud based Autodesk 360 software, Autodesk offers a different pay-per-use model based on “Cloud Credits” which differs slightly from tokens, but help facilitate the use of their subscription based cloud solutions. As such, it is clear that Autodesk needs to provide a number of different flexible solutions to customers with the elimination of perpetual licensing, utilizing various versions of subscription, cloud, and pay-per-use options. Small organizations using Autodesk products will, at some point, need to adopt subscription licensing to obtain additional capacity beyond their perpetual entitlements, or when Autodesk stops supporting maintenance agreements for legacy perpetual licenses.

Customer Acceptance of Licensing Changes

Needless to say, Autodesk is embarking on a radical departure from the perpetual pricing scheme with which their customers have become familiar over time. In this seemingly turbulent environment, many Autodesk enterprise customers will be searching for an information-based approach for deciding on whether to choose a subscription for use of a wide variety of Autodesk software, or to choose the model based on token usage. Deciding on resources needed will be an unfamiliar exercise especially if trying to determine token purchase quantities, since customers will want to proceed with some degree of confidence that they are not wasting precious IT budget resources. For instance, determining the number of tokens to purchase for yearly use will present a significant challenge to enterprises, since there are possibilities for both wasteful initial over-purchase as well as potential additional expenses for under-purchase. The ideal scenario for maximizing cost efficiency would be to get the initial purchase of pool tokens exactly correct, but it seems unlikely that very many Autodesk customers will have the needed usage details and insight to make an educated estimate of tokens required for a year of software use. Many long-time, loyal users will feel confused as to how to approach this problem due to their lack of applicable evaluation tools and information. Without a methodology with which to make an educated evaluation, customers could feel abandoned by Autodesk and other companies as their licensing options change, and possibly even some bitterness toward their ISVs for forcing them to make decisions with which they are uncomfortable. Flexibility of licensing, and the ability to scale quickly to changing environments, will be popular with customers when it results in reduced overall costs, but evaluating these rewards could prove difficult. It is notable that Autodesk discussion forums contain a great deal of skepticism as to Autodesk’s goals in changing their licensing arrangements, with most expressing the opinion that it will cause overall costs to rise even in the near term. Indeed, gaining intelligence as to software usage and trends in order to minimize total cost of ownership for Autodesk products will be a significant new challenge for software purchasers.

Conclusion

It is foreseeable that this trend away from perpetual licensing will continue, and despite customer objections, other software vendors will follow the same path as Autodesk. The software industry is increasingly responsive to continuing changes in the IT and software environments, with recognition of increased dependence on cloud and SaaS software reflected in their licensing options. These changes are being supported by leading licensing providers, offering increased flexibility to handle varied options ranging from server based to hardware embedded licensing as needed. For customers evaluating flexible or non-traditional licensing option to increase situational agility, or for customers being forced by ISVs to adopt a radical change to their licensing, it will be very helpful for software users to gain detailed understanding of their current software usage in order to plan appropriately prior to making new licensing decisions. Having access to meaningful software usage metrics, and tools to evaluate or simulate various purchase options could be of tremendous value for those attempting to navigate the complex new world of software licensing, where straightforward pricing for perpetual agreements is increasingly rare.