Licensing models in the New Enterprise

This is one of my favorite topics to talk about when it comes to how the New Enterprise is different, and why New Enterprise companies have the opportunity to shape the future of software licensing. Anyone that has been involved in technology in any capacity knows that buying and understanding software licensing just plain sucks! It’s complicated, you are never sure if you have too many or not enough licensing and the threat of an audit is always there. Enter cloud software applications and things haven’t improved all that much. Sure you don’t have to worry about being audited or under-licensed anymore but, it is still complicated and still sucks when you get into the contract details (something that New Enterprise cloud software companies don’t want you to do). So what is the opportunity? It is for New Enterprise customers like us to band together and demand that we have licensing models that work for both the customer and the vendor. We have the opportunity to avoid having another Microsoft or Oracle that can push customers around and cost them millions (that is not an exaggeration) because there was no viable alternative. With things moving so fast in the New Enterprise there will always be a viable alternative and if there isn't one now there will be (I am talking to you here Salesforce.com.).

So what does the ideal licensing model look like? Well, first we need to discuss what the vendors are looking for. You might be saying “who cares what the vendors are looking for, they work for us so it only matters what we are looking for!” and while they do work for us, we want them to be profitable so that they can continue to provide us with the software that we need. What vendors are now looking for is the ability to recognize revenue for multiple years. For established New Enterprise providers like Salesforce.com, it is less of an issue than for up and coming players like Zendesk or Freshdesk or others. So this means that multi-year contracts are going to be the most important thing that they are looking to get out of a negotiation and it’s one of the biggest levers that we as customers have to pull. It also means that customers are less likely to leave, and so long as the customers feel like they have a great contract then that is not really a bad thing.

Knowing that the vendor wants to have a multi-year contract so that they can recognize revenue and that the customer wants to pay as little as possible, how can we create a model(s) that work for both? Here are four basic terms that I think are fair for both parties:

• Flexibility: Since New Enterprise customers are going through unpredictable growth, it is almost impossible for them to predict how many licenses they are going to need over the next six months, let along three years. So the supplier should allow for a minimum commitment for three years that allows the customer to flex up and down but not below the minimum. The supplier can then lock in the minimum revenue and if they get more, then good for them.
• Tiering: Along with flexibility, New Enterprise customers need to be able to do their best to predict their costs. Licensing tiers help with this. If customers know that when they hit certain levels above the minimum commitment what the costs will be (per unit they will be lower than the starting point), it helps them make more informed business decisions. Where enterprise wide solutions are concerned tiering will help customers understand the total cost of growth when they are bring new people on.
• SLA’s: Every cloud application needs to have SLA credits attached to it. This is especially true around enterprise platforms that customers run their business on but they also need to be there for all other cloud applications out there. The customers depend of having these apps up and running all of the time and when they are down, users cannot be productive and there is a cost to the customer for that.
• Be responsible for your product: Since a lot of these cloud apps are hosted on cloud infrastructure like AWS, I have seen contracts that basically say “we are not responsible for up time because it is hosted on AWS”. From a customer’s point of view, we don’t care where it is hosted, we just care that it is up and running. Clauses like this in a contract also cause me to pause and wonder what the vendor is doing to hold it’s suppliers accountable. Vendors need to hold their suppliers accountable just like we as customers do.

If we as New Enterprise customers start to demand these items from our vendors, they will have to listen and we can shape the future of licensing so that it is much easier. The complications that arise from software licensing have nothing to do with the customer and everything to do with making the publisher more money and together we can stop this!