SOFTWARE LICENSING

Using Product Usage Analysis to Monetize Software Licensing

By Erin Harrison, Executive Editor, Cloud Computing

Many software as a service (SaaS (News - Alert)) and cloud-based service providers are facing a widespread conundrum when it comes to software licensing and pricing strategies. SaaS and cloud providers tend to base their software on a user metric, which is the number of developers using their software in a given enterprise. Most likely, they offered a certain number of users a free version, but were finding that the conversion rates weren’t paying off.

“Until recently, they offered a ‘free edition’ for up to 10 users. But, they turned off their freemium offer because they found that there was near-zero conversion from the free edition to a paid tier,” explained Flexera Software’s Bashyam Anant in a recent blog post.

This so-called freemium model is a common strategy intended to attract and grow users, but it requires that software providers are taking into account factors including: total user base; paid-to-total-user ratio (“the conversion rate”); and unit cost to acquire and serve user.

“Freemium models are a common strategy to attract and grow users, especially for brand new products,” Anant explained. “They are based on the premise that adequate number of users will sign up for paid editions, to more than make up for serving the vast majority of users on free editions…”

Analyzing product usage is an essential first step to optimizing pricing/packaging for freemium models, according to the experts at Flexera, a provider of strategic solutions for application usage management.

“Feature usage is one type of analysis you should plan for. Analyzing user engagement with features is another important analysis,” Anant said. “For example, for a SaaS product, you would want to know how often users log in, how long they spend on different features in a given session and so on.”

In summary, to make the most of out of freemium models, software companies will need to collect and analyze software product usage to understand most popular features or levels of consumption, use software usage data to fine tune the boundary between free versus paid feature or editions, set time or software usage limits on freemium packages and track users and their software entitlements.

By all accounts, Flexera Software had a great 2012, from the introduction of its software licensing app portal to its InstallShield 2012 becoming Microsoft’s (News - Alert) software installer of choice, TMCnet recently reported.

Looking at the year ahead, Mathieu Baissac, vice president of product management at Flexera, offered some insight for what 2013 has in store for technology and the software licensing industry. Read his software licensing predictions here.