How many times have you asked yourself whether your product has
a life? Should it grow from concept to maturity and then die? Have you
planned for your product's life cycle? Daryl Ullman, a software
licensing expert and general manager and founder of Emerset, an Israeli software
licensing company, sheds light on the software licensing life cycle.
A Proper Plan
Most companies actually recognize that products have a life cycle and come
up with a proper marketing plan to address each of its respective stages.
But when dealing with software products, a marketing plan is simply not
enough anymore and a new, innovative approach is essential.
This article suggests that all software products must have a
corresponding licensing life cycle model, matching the four stages of the classic
product life cycle model — introduction, growth, maturity and decline —
accompanied by applicable licensing tactics.
Stage 1: Introduction
A new product is introduced into the market and much time is
spent in order to create awareness among target audiences to its presence.
The main objective here is to bridge the awareness gap and to establish
an initial customer base.
Sales tactics are pretty aggressive at this stage and often lead to the creation
of a wide range of licensing models, mainly for testing purposes. Many times,
the customer himself will determine the licensing model according to personal
preferences. Customer pressure tends to result in a variety of personalized
licensing models, yielding different results and confusing the customer and
his present and future customers altogether.
Our experience has taught us to regain the leadership position
and generally define two to three licensing models that accommodate your
specific product requirements and planned sales objectives. Remember
that you do not have to comply with what your competitor is doing. In fact, we
encourage you to try and change the rules of the game to gain a competitive edge
through licensing. Usually a mix of utility models (e.g., capacity, pay as you
go) and non-perpetual licenses should work well at this stage and provide you
with the flexibility and a "foot in the door" you are looking for.
Stage 2: Growth
If you survived the cold waters of the introduction stage, your customers must
feel that the product adds value to their businesses and they have probably implemented
it successfully. This should result in a period of rapid sales growth.
A comprehensive licensing strategy is a must at this stage and
it should be based on the experience you had gained during the introduction stage.
You now have to implement the three basic pillars of licensing: (1) licensing
model, (2) pricing model, and (3) volume licensing agreements.
The licensing model defines whether the licenses are perpetual
or non-perpetual and how the revenue is recognized.
The pricing model defines
the software billing system, which could be server-based, client-based or according
to any of the various utility-based models.
Finally, volume licensing agreements set out the different
agreement types available (site
agreements, point-based agreements or enterprise-wide agreements).
Stage 3: Maturity
Rapid sales do not last forever. They will slow down as
they reach their peak. Part of the reason for this is that competitors enter
the market and start realizing portions of the profit you have been enjoying
alone until now. This process tends to create price pressures and can potentially
drive down your profits.
In order to keep your profits high and your competition out, you need to establish
a long-term binding relationship with your customer and sign maintenance and
enterprise agreements, preferably non-perpetual ones, even at the cost
of heavy discounting. This stage is critical because it will determine whether
and when your products begin their decline in the future. This stage is all about
execution (getting your sales staff out of the office and into the field, signing
those multiple-year maintenance and enterprise agreements).
Stage 4: Decline
Sales and profits begin to decline and companies may try to change
pricing structures in order to stimulate further growth. Sometimes, there is
no escape from modifying or even replacing the product.
Decline does not need to be the reality. Three predefined actions can be taken in order to avoid this downhill curve.
First is innovation. New versions of your product can add real business value.
Second, additional supporting benefits can be added to your
maintenance offering, such as courses, home-use rights, backup licenses, and
more.
And finally, a successful execution of the maturity
stage might lengthen
the product's life.
Keep in mind that introducing a new licensing model is not advised as customers
usually see this action as a direct play to get more money out of their pockets.
This tactic might have a serious long-term effect on your relationship with
your customers. The only exception to this rule is in case you did not execute
the maturity stage successfully and there is no other solution but taking drastic
measures at this point.
Conclusion
One of the interesting things about the classic product life
cycle model is that decline is not necessarily a must stage. This is why
we often see companies replace their current leadership, bring in new blood,
or launch marketing campaigns at a late stage of the life cycle.
In this article we
suggest a different point of view, addressing these problems from a licensing
standpoint. The maturity of licensing has really come into play only in the
last three years or so, and software vendors who are quick to embrace and
implement comprehensive licensing strategies with innovative licensing models
should realize long-term growth and success.
About the author:Daryl
Ullman is the general manager and founder
of Emerset, an Israeli market leader in software licensing and pricing solutions.
Prior to founding Emerset, Ullman held management positions at Microsoft Israel
and served as licensing group manager, where he specialized in software
licensing strategies. He holds an M.Sc. in management and information
systems from New York Polytechnic University.
Most companies actually recognize that products have a life cycle and come
up with a proper marketing plan to address each of its respective stages.
But when dealing with software products, a marketing plan is simply not
enough anymore and a new, innovative approach is essential.