Software monetization

Software monetization is a strategy employed by software companies and device vendors to maximize the profitability of their software.^[1] The software licensing component of this strategy enables software companies and device vendors to simultaneously protect their applications and embedded software from unauthorized copying, distribution, and use, and capture new revenue streams through creative pricing and packaging models. Whether a software application is hosted in the cloud, embedded in hardware, or installed on premise, software monetization solutions can help businesses extract the most value from their software. Another way to achieve software monetization is through paid advertising and the various compensation methods available to software publishers. Pay-per-install (PPI), for example, generates revenue by bundling third-party applications, also known as adware, with either freeware or shareware applications.

History

The exact origin of the term 'software monetization' is unknown, however, it has been in use in the information security industry since 2010. It was first used to articulate the value of licensing for cloud-hosted applications,^[2] but later came to encompass applications embedded in hardware and installed on premise. Today, software monetization broadly applies to software licensing, protection, and entitlement management solutions.^[3] In the digital advertising space, the term refers to solutions that increase revenue through installs, traffic, display ads, and search.

Key Areas of Software Monetization

IP protection

Software constitutes a significant part of a software company or device vendor's intellectual property (IP) and, as such, requires strong security, encryption, and digital rights management (DRM). Depending on a company’s particular use case, they can choose to implement a hardware, software, or cloud-based licensing solution.

A hardware-based protection key, or dongle, is best suited to software publishers concerned about the security of their product as it offers the highest level of copy protection and IP protection. Although a key must be physically connected in order to access or run an application, end users are not required to install any device drivers on their machines. A software-based protection key is ideal for software publishers who require flexible license delivery. The virtual nature of software keys eliminates the need to ship a physical product, thus enabling end users to quickly install and use an application with minimal fuss. Cloud-based licensing, on the other hand, provides automatic and immediate license enablement, so users can access software from any device including virtual machines and mobile devices.

It is in the best interests of software companies and device vendors to take the necessary measures to protect their code from software piracy, a problem that costs the global software industry more than $100 billion annually.^[4] However, software protection is not just about preventing revenue loss; it is also about an organization’s ability to protect the integrity of its product or service and brand reputation.

Pricing and packaging

An independent report by Vanson Bourne found that software vendors are losing revenue due to rigid licensing and delivery options.^[5] Since the demands of enterprise and end users are constantly evolving, software companies and device vendors must be able to adapt their pricing and packaging strategies on the fly. Separating an application’s features and selling them individually at a premium is a highly effective way to reach new market segments.^[6] Customers have come to expect the freedom to consume a software offering on their own terms, which is why software companies and device vendors are increasingly turning to flexible licensing solutions.^[7]

Entitlement management

An entitlement management solution makes it possible to activate and provision cloud, on-premise, and embedded software applications from a single platform. Having the ability to manage homegrown or third-party licensing systems from one, centralized interface is conducive to an operationally efficient back office.^[8] With such a solution in place, time-consuming manual tasks can be automated for greater accuracy and reduced costs. Self-service web portals allow end users to perform a variety of tasks themselves, cutting down on support calls and improving customer satisfaction.

Usage tracking

Usage tracking provides essential business insight into end-user entitlements, as well as the consumption of products and features. Advanced data collection and reporting tools help optimize investment in the product roadmap and drive future business strategies.^[9] Only by analyzing end-user behaviors can software companies and device vendors make sound pricing, packaging, and marketing decisions that will improve their business processes and enhance the customer experience. Furthermore, making usage data accessible to users helps them stay in compliance with their license agreements^[10]

Advertising

The use of commercial advertisements and contextual advertisements have been a foundation of software monetization since free software first hit the market.

Emerging trends

Many traditional device vendors still see themselves as hardware providers, first and foremost, even though the most valuable component of their offering is the embedded software driving it.^[11] However, since the advent of the Internet of Things (IoT), that paradigm is shifting toward a more software-centric focus, as device vendors large and small make the inevitable business transformation into software companies.^[12] The need to license software, manage entitlements, and protect trade secrets cuts across all industries; from medtech to industrial automation and telecommunications. Whatever industry a software company or device vendor happens to be in, or the delivery model it chooses, it requires a comprehensive software monetization program to future-proof its business and gain a competitive advantage.

See also

• Software protection dongle
• License manager

References